December 3, 1997 GSBCA 14291-RELO In the Matter of JEFFERY T. HOOGHOUSE Jeffery T. Hooghouse, Stafford, VA, Claimant. Robert L. Oswald, U.S. Army Corps of Engineers, Norfolk District, Norfolk, VA, appearing for Department of the Army. GOODMAN, Board Judge. Claimant, Jeffery T. Hooghouse, is a civilian employee of the United States Army Corps of Engineers. In 1997, he was authorized a permanent change of station (PCS) move from Suffolk, Virginia, to the Washington, DC area. The agency denied reimbursement of certain closing costs incurred in the sale of claimant's residence at the old duty station, and claimant has requested review by this Board of the agency's denial. Claimant was denied reimbursement of the following costs: Homeowner's Association Act Package $ 50.00 Loan Origination Fee 1,286.00 Appraisal Fee 300.00 Credit Report 60.00 Tax Service Fee 58.00 Commitment Fee 95.00 Flood Certification Fee 20.00 Title Examination 275.00 Lender's Title Insurance 446.20 Recording Fees 39.00 City/State Tax Stamps 126.75 State Tax Stamps 380.25 Survey 200.00 $3,336.20 The basis of disallowing these costs was stated by the agency as follows: Please note that in accordance with JTR subject claim was reduced in the amount of $3,336.20. The claimant paid all of the purchaser's closing cost[s] that in accordance with the JTR [Joint Travel Regulations] are not customarily paid by the seller. A frequent practice of sellers wanting a quick sale of their residences is to pay part of or all of the purchaser's closing cost[s] instead of low[er]ing their selling price. However, these expenses are not traditional and reimbursable in accordance with the JTR. As specified by the JTR this office contacted the local HUD [Department of Housing and Urban Development] office serving the area in which the expense occurred, to question what closing costs are traditionally paid by sellers in real estate transactions. Based on their technical assistance and that of what is outlined in the JTR, the [above-listed] are expenses which are not allowed under this claim. Additionally, in the response it filed in this case, the agency states: The costs he incurred were only incurred so as to make his house more marketable in response to the combination of a "buyer's market" and the property being located in a neighborhood where it was in direct competition from builders selling their newly constructed homes. The claimant was not required to pay the buyer's costs. He chose to do so. He effectively reduced the sales price by offering, in the sales contract, to pay up to $3300.00 of the buyer's closing costs as a negotiated portion of the transaction. Even if it is "customary" for sellers to make such offers in such a market, it is merely a marketing tactic to sell the home more quickly, not a customary practice consistently exercised throughout the locality regardless of the circumstances. The agency also states that "HUD has actually not provided any direction to help us in this case."[foot #] 1 Claimant has provided the following information to support his contention that the disallowed costs were reimbursable: Real Estate Broker's Letter: Pleased be advised that the charges on the HUD ----------- FOOTNOTE BEGINS --------- [foot #] 1 This is confirmed by claimant's telephone conversation with the individual at HUD whom the agency had consulted. This person told claimant that he had indicated to the agency that his "personal opinion" was that closing costs should not be allowed, but HUD has no mechanism for collecting or tracking this information and therefore could offer no official opinion. ----------- FOOTNOTE ENDS ----------- settlement statement . . . are typical of those charges paid by the seller in this market area, including buyers' closing costs. Title Company Letter: Please find enclosed your copy of the HUD-1 from the sale of your property . . . . Please note that all cost[s] marked with an asterisk are included in the seller contribution. The seller participation in the closing cost[s] are normal and allowable fees authorized by the Veteran's Administration [Department of Veterans Affairs]. Realtors Association Letter: When selling existing homes within the Hampton Roads area, it is typical in a transaction for sellers to pay buyers['] closing costs and points. The market has a tremendous amount of new housing construction, and therefore, sellers of resale property typically pay closing costs in order to compete with the new homes, as well as other resale properties. Mortgage Company Letter: It is customary and we see consistently that sellers, in the captioned price range . . . pay the buyers closing costs. Were a seller not to pay these expenses I am of the opinion that the property would not sell in a timely manner if at all. What is clear from the information submitted by claimant is that he offered to pay closing costs because the sale of his existing home was competing with a large amount of new construction in the immediate area. We addressed this same issue in Christopher L. Chretien, GSBCA 13704-RELO, 97-1 BCA 28,701 (1996). In that case, we held as follows: An expense is "customarily" paid if, by long and unvarying habitual actions, constantly repeated, such payment has acquired the force of a tacit and common consent within a community . . . . Mr. Chretien's assertion that many sellers of houses in Newport News in September 1995 had to pay buyers' closing costs if they wished to sell quickly does not establish that the payment of these costs was "customary," as we comprehend the meaning of that term. The claimant's reference to "market trends" indicates that the payment of some of his buyer's costs was a means of lowering the total cost to the buyer in order to make the purchase more attractive, and the FTR makes this sort of expense non-reimbursable. 41 CFR 302-6.2(e) (1995);[[foot #] 2] Joseph R. Brimacombe, B-238372 (Aug. 1, 1990). Id. at 143,315-16. Claimant makes several arguments. He takes issue with the agency's assertion that he offered to pay the buyer's closing costs to accomplish a "quick" sale. However, whether or not the offer to pay closing costs was an attempt to accomplish a "quick" sale is not the issue. The issue is whether the offer of payment of closing costs is customary or whether the offer was in response to market conditions. Claimant's own submissions indicate that the latter is the case. The letter from the realtors association references that "[t]he market has a tremendous amount of new housing construction, and therefore, sellers of resale property typically pay closing costs in order to compete with the new homes, as well as other resale properties." While payment of such costs by the seller may be typical when these market conditions prevail, this does not mean that payment of these costs is "customary." Claimant's resale was competing with a large number of newly constructed homes and, therefore, was a response to market conditions. Claimant offers documentation from one builder of new homes that indicates that the builder also offers payment of closing costs to purchasers. Such evidence does not establish a common practice that all builders would offer to pay such costs.[foot #] 3 In rebuttal to claimant's submissions, the agency submitted two letters from local real estate attorneys. One reads, in relevant part: You have asked me to give you an opinion as to ----------- FOOTNOTE BEGINS --------- [foot #] 2 In this case, as claimant is a civilian employee of the Department of Defense, another applicable regulation would be Joint Travel Regulation (JTR) C14002-A.5, which contains substantially similar language. [foot #] 3 The builder's information indicates that its motivation for paying such costs is to induce the purchaser to use a specific mortgage company for the builder's convenience -- to decrease the builder's costs and make it easier for the builder to do business. These advantages to the builder are accomplished because the mortgage company and the builder are owned by the same parent company. The builder also indicates it is willing to pay a lesser portion of closing costs if another mortgage company is used. We do not view evidence of one builder's practice as indicative of customary payment of buyers' closing costs. ----------- FOOTNOTE ENDS ----------- whether it is customary in the Tidewater, Virginia area for a seller of residential real estate to pay the closing costs for the purchaser in such transactions. My brief answer is that the issue as to which party pays what costs is entirely contractual in this area. While it is often the case that a builder will pay certain closing costs in order to make its subdivision or group of products within a subdivision more attractive to prospective purchasers, it is not as normal for an individual seller to agree to pay purchaser's closing costs. Sometimes a highly motivated seller will do so, but I would say in a high percentage of the closing transactions I handle, between individual sellers (as opposed to builders) and their purchasers, each side pays its own costs. Based upon the record in this case, we cannot conclude that the sellers customarily pay buyers' closing costs in the locale in question. Claimant's offer to pay such costs was in response to the prevailing market conditions, and accordingly a means of lowering the total cost to the buyer in order to make the purchase more attractive. We have held that such costs are not reimbursable to the seller, Christopher L. Chretien, and accordingly, claimant is not entitled to reimbursement of the costs claimed. _______________________ ALLAN H. GOODMAN Board Judge