Even though the state of Alaska is a non-disclosure state when it comes to the final sales price on a property, the statewide MLS purchase and sale agreement contains the following #23 clause pertaining to disclosure.
23) Authorization to Release Information to Brokers: Buyer and Seller authorize any Lender, escrow agent, closing agent, appraiser, home inspector, surveyor and any other related party to this sale to furnish and provide any and all information and copies of documents related to this sale to both the Listing and Selling Brokers and their Licensees.
Taken at its most literal interpretation, this clause allows escrow closing agents to circulate a HUD settlement statement which discloses not only the sales price but also the seller’s net proceeds to the buyer’s licensee. With today’s instant communication that financial information invariably gets passed on to the buyer via email or DocuSign. However, no buyer should have the right to know what a seller’s take home check is on a sale. That potential disclosure is an invasion of a seller’s financial privacy. Behind that seller’s net proceeds is his/her initial down payment, years of monthly mortgage payments, costly repairs and maintenance and perhaps even a refinance to pay for a child’s education or a spouse’s medical expenses.
For a builder’s settlement statement, it is equally egregious but for different reasons. I frequently ask realtors how much they think a builder makes on a home and invariably they say 20%. I suspect they get that number from seeing the builder’s net proceeds at closing which is frequently about 20% of the purchase price. But what that net proceeds amount doesn’t represent is the cash equity and fees required to obtain the construction loan and, in many instances, purchase the lot. A builder generally receives 75% of the construction appraisal which frequently doesn’t represent the buyer’s purchase price. Buyer and selling licensee don’t also see the monthly interest paid on the loan, appraisal fees, inspection fees, permit fees, the overhead for general and administrative expenses including gasoline and vehicular repairs, trade labor and accounting expenses, to identify just a handful of expenses. A buyer may see a settlement statement for a builder’s $500,000 home and think he is making $200,000 and then wonder why he had to pay for all these upgrades! In reality, a buyer’s net profit may be more like six percent of $30,000. But, unfortunately, that $200,000 is going to stick in that buyer and realtor’s mind for a very long time which contributes to the myth of why new homes cost so much and makes negotiating for the next new home purchase more difficult than it actually should be.
The solution is simple. If listing licensees do not want a buyer to see a seller’s net proceeds, they should simply cross out the #23 clause. It’s a few more key strokes and separate settlement statements on the part of the escrow closing agents but it’s a good way to protect a seller’s financial privacy.