Can a listing agent advance the cost of the seller’s repairs?

QUESTION: As a listing agent are we able to cover the cost of repairs for a seller who may not have the money at the time a repair agreement is signed and then, if the payment is disclosed on the HUD, be paid back at closing from the seller’s proceeds?

ANSWER: We do not recommend that listing agents advance repair costs for their seller clients. For one thing, there is no guarantee that the sale transaction will actually close. In that event, the listing agent may have difficulty getting repaid by the seller. Also, because of the risk of non-payment, a listing agent who advances money for repairs might be questioned about their ability to objectively advise their client about subsequent issues that might jeopardize the closing.

Having said that, the fact is that in recent years several large brokerage firms have offered to advance repair costs as a service for their seller clients. Those firms have recognized that the practice is legal – brokers can legally advance funds for repairs and then be reimbursed at closing.

A broker who is willing to advance repair costs for a client must recognize that certain requirements must be followed. First, the seller’s repayment obligation may not be secured by a deed of trust. North Carolina’s SAFE Act regulates who may legally make a “residential mortgage loan.” That term is defined as any loan made to a natural person that is primarily for personal or household use and that is secured by a mortgage, deed of trust or similar security instrument. While there are some limited exceptions in the statute, brokers are typically not eligible to make a residential mortgage loan to a seller client.

The second requirement is that the repayment of any advance must be disclosed to the buyer’s lender on the HUD. To avoid any last-minute problems with the lender, we also suggest that the advance be disclosed to the buyer’s agent as soon as possible.

Release Date: 04/18/2024