B-236362, Nov 9, 1989

B-236362: Nov 9, 1989

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Where the local custom for conventionally financed housing is that the buyer and seller negotiate the payment of closing costs. The employee may be allowed those costs to the extent that they are otherwise reimbursable under the Federal Travel Regulations and not in excess of amounts customarily paid in local area. Weglarz - Real Estate Expenses - Local Custom: This decision is in response to a letter from Mr. That settlement is reversed for the following reasons. Was transferred to Montgomery. His claim for real estate expenses was disallowed by the agency based on information received from the local office of Housing and Urban Development (HUD) that it was customary in the locality for the seller to pay closing costs.

B-236362, Nov 9, 1989

CIVILIAN PERSONNEL - Relocation - Residence transaction expenses - Finance charges DIGEST: A transferred employee who purchased a residence near his new duty station claims real estate closing costs. Where the local custom for conventionally financed housing is that the buyer and seller negotiate the payment of closing costs, the employee may be allowed those costs to the extent that they are otherwise reimbursable under the Federal Travel Regulations and not in excess of amounts customarily paid in local area.

Edward M. Weglarz - Real Estate Expenses - Local Custom:

This decision is in response to a letter from Mr. Edward M. Weglarz, appealing our Claims Group settlement Z-2865875, Nov. 22, 1988, which disallowed his claim for real estate expense reimbursement incident to a permanent change of station. That settlement is reversed for the following reasons.

BACKGROUND

Mr. Weglarz, an employee of the Department of the Air Force, was transferred to Montgomery, Alabama, in January 1988. He purchased a residence in the Montgomery area in connection with that transfer, but his claim for real estate expenses was disallowed by the agency based on information received from the local office of Housing and Urban Development (HUD) that it was customary in the locality for the seller to pay closing costs. On appeal to our Claims Group, the agency action was sustained.

Mr. Weglarz contends that the information he received established that it was customary in the Montgomery area for the buyer and seller to negotiate distribution of closing costs on conventionally financed housing.

OPINION

Under the regulations governing the reimbursement of real estate expenses of transferred employees, certain miscellaneous real estate expenses are reimbursable to the employee if they are customarily paid by the purchaser of a residence at the new official duty station or by the seller of a residence at the old official station, to the extent they do not exceed amounts customarily charged in the locality of the residence. /1/ Under the FTR, para. 2-6.3c, agencies may obtain technical assistance from local HUD offices in determining whether the buyer or seller customarily pays the particular expenses and whether the amounts charged are appropriate.

We have held that the information supplied by HUD creates a presumption of custom that controls in the absence of information rebutting that presumption. Nicholas Berg, B-229026, Aug. 8, 1988; Ronald K. Arvo, B-182850, July 14, 1975. In the present case, the local HUD office informed the agency that the custom in the Montgomery area is for the seller to pay all closing costs on VA financed housing and an amount not to exceed 5 percent on FHA financed housing. The HUD office also noted that in conventional loan financing, the allocation of cost has become negotiable but sellers still pay closing costs most of the time.

Mr. Weglarz submitted correspondence from the Montgomery Board of Realtors, Inc., which generally agrees with the information supplied by HUD concerning which party pays closing costs on VA and FHA financed housing. However, the Board of Realtors letter states that in recent years most of the financing in the Montgomery area has been done through conventional mortgage loans which permit closing costs to be negotiated. Information received by Mr. Weglarz from several realty companies and a settlement attorney in the Montgomery area supports the concept of negotiability between buyer and seller on conventionally financed housing. This information indicates that the seller continues to pay part of the closing costs, but that when the selling price of the house is $200,000 and above, most of the closing costs are paid by the buyer.

The above information indicates that there is no specific local custom as to which party will pay all or part of a particular expense on conventionally financed housing. However, it seems to be the custom that closing costs on conventionally financed housing is negotiable between the buyer and seller. We have held that where there is a bona fide agreement for payment and the expense is of the type authorized to be reimbursed under the FTR, real estate expenses may be reimbursed the employee. Alvin A. West, B-194668, Sept. 17, 1979; Duncan A. McDonell, B-182076, Feb. 5, 1975.

In the present case, Mr. Weglarz secured a conventional mortgage loan and he and the seller agreed that the seller would pay Mr. Weglarz's loan discount points ($3,000), one-half of the property appraisal fee ($275), the tax service fee ($54), and one-half the cost of Mr. Weglarz's lender required property survey ($150). Mr. Weglarz agreed to pay the remaining items for which he claims reimbursement in the amount of $4,517.50. /2/ Therefore, Mr. Weglarz may be reimbursed those expenses, so long as the amounts charged for those services do not exceed the amounts customarily charged in the locality of the residence, less any real estate expenses already reimbursed to him.

/1/ Para. 2-6.2d of the Federal Travel Regulations (FTR) incorp. ref., 41 C.F.R. Sec. 101-7.003 (1988). See Supp. 1, Sept. 28, 1981; Supp. 4, Aug. 23, 1982; and Supp. 26, Dec. 21, 1987 (eff. Oct. 1, 1987).

/2/ The expenses include a 1 percent loan origination fee, appraisal bill, title search and title insurance fees, closing fee, and other expenses.