how do developers get away with rebates?

[tj22]

so i've heard quite a bit about developers getting the price they want (when buying) and then adding on quite a be junk of a rebate and lifting the purchase price this gets them the rebate up front + helps with the valuation later on as the purchase price is high.

etc they agree on 470k, they add 40k rebate so purchase price is 510k.

do rebates have to be disclosed on the contract of sale? or could this be a separate agreement? and how would you do this so it was legal and not seen as mortgage fraud?

 

[Peter_Tersteeg]

Rebates do need to be disclosed on the contract. If it's not disclosed to a lender, then you're potentially obtaining financial advantage by deception, which would be considered fraud.

If you do disclose it, then lenders and valuers tend to reduce the purchase price by the amount of the rebate, so you don't get the valuation you want which negates the point of the rebate.

There's no real advantage in developer rebates. Sometimes you get away with it for a time, but soon or later the lenders catch on and the party comes to an end.

Coincidently, if the rebate isn't written into the contract, it can be difficult to actually enforce.

 

[redwing]

Made me think of those deals where a car was thrown in....

 

[Ausprop]

it's effective where you are prepared to let a cheap deal thru but dont want to destroy the comps