On December 15, 2009, an informal response was given by the New York State Bar Association’s Committee on Professional Ethics (Inquiry No. 43-09) in which the State Bar Association clarified circumstances in which a lawyer may ethically participate in a residential real estate transaction, when the Seller has agreed to increase the sales price “in an amount equivalent to the amount of the Seller’s concession”. This excellent response by Committee Chair, Roy D. Simon, will be helpful to many lawyers who have avoided any transaction involving a gross up of a contract price with an equivalent Seller concession.
A “seller’s concession” is simply a credit to be given to the purchasers at closing often applied to closing costs, repairs or other expenses of the purchaser. When it is a genuine credit, no gross-up of the transaction is applicable. For example, a Seller may agree to provide a seller’s concession because the inspection report reveals that the roof
requires replacement. The seller’s concession referred to in the Bar Association opinion is one which is identical in amount to the gross-up of the purchase price and is intended to enable the purchasers to obtain greater financing for the transaction. The Seller continues to receive the same true sales price as was originally negotiated.
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