B-238372, Aug 1, 1990
B-238372: Aug 1, 1990
DECISION The issue in this case is whether a transferred employee may be reimbursed for the buyer's closing costs he paid in the sale of his residence. /1/ We hold that he may not be reimbursed in these circumstances. Sellers have been forced to pay the buyer's closing costs in order to sell their homes. requests reimbursement of the purchaser's closing costs of $1. It is unclear from the record the exact nature of the costs paid by Mr. Does not itemize what those costs are. Some of the documents in the record indicate that these costs may have included points. /2/ In support of his request. Which states that the closing costs are customarily paid by the seller in Georgia. The Internal Revenue Service contends that the costs here are not reimbursable because the seller was not required to pay them.
B-238372, Aug 1, 1990
The issue in this case is whether a transferred employee may be reimbursed for the buyer's closing costs he paid in the sale of his residence. /1/ We hold that he may not be reimbursed in these circumstances.
Mr. Joseph R. Brimacombe, an employee of the Internal Revenue Service, transferred to a new duty station in March 1987, and had to sell his residence located in Stone Mountain, Georgia. Mr. Brimacombe states that, due to the "buyer's market" conditions in that locality, sellers have been forced to pay the buyer's closing costs in order to sell their homes. requests reimbursement of the purchaser's closing costs of $1,737.50 he paid in connection with the sale of his residence. It is unclear from the record the exact nature of the costs paid by Mr. Brimacombe. The settlement sheet has a line item which shows "Closing Cost Per contract - $1,737.50" to be paid by the seller, but does not itemize what those costs are. Some of the documents in the record indicate that these costs may have included points. /2/
In support of his request, Mr. Brimacombe presents a letter dated August 3, 1987, from the Department of Housing and Urban Development (HUD), Atlanta Regional Office, which states that the closing costs are customarily paid by the seller in Georgia.
The Internal Revenue Service contends that the costs here are not reimbursable because the seller was not required to pay them. Since the seller paid the costs solely as the result of negotiations with the buyer, the agency views the transaction as a seller's concession to expedite the sale in a buyer's market. The agency states that HUD advised them informally that sellers in Georgia are not required to pay any buyers' expenses.
Section 5724a of title 5, United States Code (1988), provides, in part, that an employee may be reimbursed various expenses associated with a transfer including,
"(a)(4) Expenses of the sale of the residence ... at the old station ... required to be paid by him. ..."
The regulations implementing this provision are contained in chapter 2, part 6 of the Federal Travel Regulations (FTR) (Supp. 4, Aug. 23, 1982), incorp. by ref., 41 C.F.R. Sec. 101-7.003 (1985). Paragraph 2 6.1 of the FTR restates the statutory provision that an employee may be reimbursed for expenses he is required to pay in the sale of his old residence. Paragraph 2-6.2d(1) of the FTR lists various miscellaneous expenses which may be reimbursed in connection with real estate transactions if customarily paid by the party claiming them, while paragraph 2-6.2d(2) lists those items which may not be reimbursed. Additionally, FTR para. 2-6.2f authorizes reimbursement for other incidental charges which are imposed for required services on the seller or buyer to the extent they do not exceed the customary rate in the locality of the residence. An agency may rely on technical assistance provided by the local area office of HUD in determining whether closing costs are customarily required to be paid by the seller or purchaser. See FTR para. 2-6.3c.
Further, FTR para. 2-6.2e prohibits reimbursement of losses due to market conditions, such as losses resulting from the failure to sell a residence at a specific asking price. Thus, if the amount a seller claims for reimbursement is for otherwise disallowable closing costs that were paid as an inducement to purchase in a "buyer's market," such market conditions do not provide a basis for an exception to the regulations and reimbursement is prohibited. See Douglas E. Clowers, B-189396, Mar. 23, 1978.
In this case, while we do not know from the record the exact nature of the costs paid by Mr. Brimacombe, both parties have characterized them as "buyer's costs", which indicates that normally the buyer would be required to pay them. Our Office has held that even though it may be common for a seller to assume a purchaser's closing costs by contract, that does not mean that under such practice the seller would customarily be required to pay such costs. See Bradley M. James, B-227567, Aug. 26, 1988, and cases cited. In light of the conflicting evidence from HUD regarding whether the seller is customarily required to pay these costs in Georgia, there does not appear to be any basis to reimburse Mr. Brimacombe for the buyer's costs.
Further, Mr. Brimacombe's statement that he paid the buyer's closing costs so he could sell quickly in a "buyer's market" reasonably permits the presumption that to sell without the concession would have required an equivalent reduction in the asking price. Thus, the buyer's closing costs here represent, in effect, a loss due to market conditions, which is not reimbursable under FTR para. 2-6.2e.
Accordingly, Mr. Brimacombe's claim may not be allowed.
/1/ This decision is in response to a request by Mr. Stephen E. Taylor, Director, Finance Division, Internal Revenue Service, for an appeal of our Claims Group settlement of this matter, Z-2866392, Aug. 14, 1989, allowing payment of the claim.
/2/ We note that the reimbursement of points is specifically prohibited in the Federal Travel Regulations, para. 2-6.2d(2).