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Yes, My Buyer Has the Money to Buy . . . Does Your Seller Have the Money to Sell?

Yes, My Buyer Has the Money to Buy . . . Does Your Seller Have the Money to Sell? Get the facts on the seller's ability to sell, before putting the home on the market!

I believe it is pretty standard real estate practice in most areas to have a pre-qualification / pre-approval letter (or proof of funds), to submit to the seller along with the buyer's offer. It reassures the seller and provides the buyer a stronger bargaining position.

In fact, experienced agents generally like to have a copy of this letter from the buyer's lender, before they even begin showing homes to the buyer. Kinda makes sense really. Why waste everyone's time looking at, or making offers on, homes the buyer can't afford? That's nothing but a one-way ride down Heartbreak Alley for all concerned.

The seller's ability to sell on the other hand has always been assumed. There is no request for a "lender clearance letter" from the seller, verifying that the seller can afford to sell, prior to an offer being submitted by a buyer. Of course, this is because part of a listing agent's responsibility should include getting payoff information and preparing a net sheet or estimate of proceeds for the seller when listing a property. So it makes sense that any offer accepted by the seller should ensure that the loan payoff and other closing expenses are covered, or the seller has sufficient cash on hand to close.

Because, yeah, it sucks pretty bad -- as recently happened to me -- to have to explain to your buyer just days before closing that well, see, the seller actually can't afford to sell at the agreed upon price. He in fact owes tens of thousands of dollars more than the agreed upon price. It's particularly bad to have to explain this to buyers who expressly said they weren't interested in looking at / offering on short sale properties, due to the hassles and delays involved. Uh, awkward . . .

It's one thing to embark on the short sale saga when forewarned and armed for battle, it's another to be blindsided by it.

Obviously in this business there are always unexpected turns and unforeseen scenarios that are hard to predict (the above case being one such extremely unusual transaction), but clearly this is not an isolated instance and I am not the only one to have had this experience.

I recently closed a transaction on a listing of mine here in Pickens County GA, where the young, first-time home buyer, was at closing for a second time within a couple of months. His prior transaction had fallen apart at the closing table, when it was "discovered" that the seller was selling short, without lender approval, and therefore couldn't close. (How it got that far without being flagged by someone sooner is beyond me.)

I now get calls from other agents who want to show my listings, but who preface the conversation with something like, "Can the seller close at this price? Is there a possibility it will be a short sale? Just thought I'd check before wasting my buyer's time . . ." Sounds like they too have been burned by the "undisclosed", "unknown" short sale.

I think we all get the fact that short sales are on the rise. They are part of our environment and will be for some time. But, just as we pre-qualify buyers, we need to pre-qualify sellers and disclose up front whether or not it is a short sale, or has the potential to be a short sale. It is also important to double-check the numbers before the seller accepts any offer, particularly if the offer is substantially lower than list price, or the home has been on the market for a while, not just as an essential part of our duty to our clients, but as a courtesy to other agents and the public as well.

Seems like common sense, but . . .

Trent D Cluley
Keller Willliams Realty - Select Partners
770-757-3399
EMAIL
www.PickensGeorgiaRealEstate.com

SEARCH ALL PICKENS COUNTY & NORTH GA HOMES AND LAND FOR SALE!

Posted by Trent Cluley -- Pickens County Georgia Real Estate on 06/17/2010 07:43 AM

Comments (132)

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132 Comments on Yes, My Buyer Has the Money to Buy . . . Does Your Seller Have the Money to Sell?

JUN

2010

Good points, Trent. Thanks for the post. You never know these days!

Simple due dilligence. Simple due dilligence.

Agents who list properties without investigating (or at least asking) the sellers ability to deliver title should not be in the business.

I agress with your thoughts 100%! What about the costs that the buyer incurred such as inspection fees, appraisal fee and mortgage application fee??? Seller should be held liable for all the buyer;s costs. The worse scenario is if the buyer has a property he is selling and has closed on it that morning and comes to his afternoon closing and the seller announces he is short!!! Advice your buyer to get a good litigation attorney!

It is a new real estate world we have entered and will become the new norm !!!!!!!!!!!!!!!!!

Trent, we always ask this after we research the sold price on the tax records and see it is higher than the offer price. We also ask when we are concerned about appraisal issues. It is due diligence on behalf of our buyers.

Trent that's some heavy stuff. Asking the right questions and LISTENING to the answers, cues and clues to what you really want to know are esssential elements in teh seller and buyer relationship. Getting the listening is no good if you operating from a blindspot.

We have to disclose if the house is a short sale in the listing in my market.

When I'm representing buyers, I always check the registrar of deeds office on properties they want to make offers on. That at least gives me an idea of outstanding loans and if the sellers are close to being underwater.

Bad situation but probably more and more common.

Trent, it is important to provide the seller with an accurate net sheet up front so they know where they stand. If they have to bring money to the closing, it has to come from somewhere or go short. Good Post.

It's quick and easy to check the amount of the mortgage, however, there may have been a second, or a HELOC taken out at some time and just isn't showing up. So we do need to check with the owner to have them tell us what mortgages they have.

There are plenty of poor or inexperienced agents. As a heavy listing broker, I always provide a Sellers Estimated Net Proceeds Worksheet with every offer I receive on my listings. I also ask for the latest copy of their mortgage statement so I can figure an approximate payoff. Of course, there could be other liens on the property, but the title work should find them quickly.

There's no excuse for the last-minute issues.

Tom

Trent,

I recently moved. My former County had online records that enabled me to see all liens for homeowners, regardless of which side I had. So easy to determine potential seller net. My new County has zero online and one has to trek there and search. Will I still do that if I have the buyers? Your post has me answering YES!

Our Sacramento MLS links the text APN, which stands for assessor's parcel number, directly to the public records maintained by Realist. This information shows the original mortgage balance(s). So, with one click an agent can determine whether the seller can afford to sell. I would not show a home without checking this information but many agents do.

Hi Trent -- Very important for a listing agent to do:

Does the seller need to net a certain amount to avoid a short condition?
If so, will the current market support that?
If no, exit stage left or go to plan b.

William - Yes, I think it was always something to keep in mind, but in seller's market's I think we got by with a lot in "assuming" the seller was in a position to sell.

Lenn - Absolutely. Sometimes we get in such a hurry to "win the business", we forget what exactly that business means!

John - That was my thought on the first time buyer I mentioned who attended two closing in two months (not my client). I felt bad for him having already paid for an appraisal, inspection, etc., on the first deal, and had to go through all that again after we got a contract on my listing. Made it real tight for them on closing costs.

If you do a normal sellers proceeds sheet you should see they are upside down. Then just ask...can you cover the difference and prove it?

So true. Not only do you, as the listing agent, need to ascetain the sellers ability to sell at the onset of the agreement, but also at each price reduction. Perhaps the seller was netting 10,000 at the original price, but after 20,000 in price reductions, are they still able to privide clear title

Trent, we deal in a lot of short sales and luckily have not had that happen. It's hard to imagine whoever prepared the closing papers did not catch it way before it got to the closing day.

The problem that I have run into has been that when we listed the home, they were fine. After a few months and the price went down to meet the new market, it was going to be a "short" situation. At the time that we accepted the offer, the seller signed the net proceeds showing an approximate amount that they would need to bring to the closing table for settlement. However, they were not honest with me and their mortgage balance had changed significantly since they had not paid the mortgage since the beginning of the listing contract. Sucked to be the one to deliver that news. But, if it is slightly short, $2500, and the seller tells you they have the money, at what point do you ask for proof that they do? It is a fine line.

Keep smiling,

Karen

Michael - Short sales for sellers and tougher financing for buyer; a new norm that more than ever will require diligence on our part.

Michael - Mortgages are also a matter of record in Georgia, but that's not always enough to tell you the outstanding loan balance, delinquencies, etc. (For example, I have a listing on which the seller pays interest only payments, so "assuming" the original balance has been paid down would be erroneous). As a buyer's agent, you can estimate based on records, but must still rely on the listing agent / seller to have the specifics . . . just as the listing agent relies on the buyer's agent to provide some proof of the buyer's viability to purchase.

Missy - The previous sold price often helps, and a lower offer than previous sale is certainly a great heads up of something amiss, but it's not always sufficient (see above comment). I've seen so many homes refinanced repeatedly in a surprisingly short period of time, for considerably more than purchase price, that it's still possible to be upside down on a home listed at 20-30% over its previous sale price.

I always ask the lsiting agent if this is a short sale. However, they can only provide the information that the sellers ahve given them. It sucks when you cover all your bases and at the closing table something comes up that should have been disclosed upfornt.

Great point Trent, thanks for bringing it up. Well, now when representing a buyer, I will make sure I check what's seller's financial situation.

Charita - Listening is a great point. Sometimes you can learn a lot by doing just that.

J. Philip - Our MLS has the appropriate fields for designating it as such, just not sure it's "required" or always used. I saw a listing come on market last night that made no mention of short sale per se, but I noted in the private remarks that the commission was subject to lender approval . . . a sure sign that this was likely a short sale. And of course it would only be identified that way if the listing agent had taken the time to find out that info . . .

Richard - I too pull the records when working with buyers, but as mentioned above, if there are unusual circumstances (such as a HELOC), or accumulated late payments, fees, HOA dues, etc., that don't show up in public records absent a lien or other legal action, it is quite possible to think the offer is in the clear, and be wrong. That's why ultimatey the info has to come from some other source as well.

The market continues to present us with issues that we haven't had in the past. Due diligence is the key and never take anything at face value.

Christa - I hadn't really run into this very much until recently, but it does seem to be something that may be with us for a while.

Michael - A net sheet goes a long way to catching the problem. At the very least, it requires the listing agent to ask that essential question . . . how much is owed on the property?

Val - Excellent point, thank you! The HELOC issue is big, as the actual amount outstanding has to come from the seller / lender, and yes sometimes the trail of refinances, seconds, thirds, equity lines, and so forth can be confusing . . .

Hi trent, Wow, hadn't thought of this prior to reading your post. Looking back I do recall a couple of surprises happening prior to closing but your experience is a good warning to us all !

Trent

Great post! My buyer recently closed on a home that became a short sale during the negotiation process. However, we were not informed about this until several weeks later after the inspection and all deposits had been made. It ended up being approved, but there were many tense weeks in between.

We bought the house for $400,000 less than the seller paid for it 4 years earlier, but it never occured to anyone to check the mortage loan amount.

I think we are all learning very quickly!

I could definitely understand your frustration in this situation, keep your head up.

Trent, I thought it is standard procedure to know how much the seller owes and checked the court house record of how much they paid before taking the listing. I would think the listing agent would like to know......hmmm

It is standard practice before I list a home to verify the status of the mortgage and if there will be a shortfall at closing to verify the seller's ability to have funds available to close.

We must disclose if the home is a short sale, so that takes care of that.

The seller is also required to provide me with mortgage verification at least every other month.

I have had properties listed that have been foreclosed on with NOT ONE WORD FROM THE SELLER. Now, I try not to let myself be victimized.

But what about preliminary title? I get that for my buyers within the first couple days of a new escrow, that should have shown this situation at the very beginning of the process, not the closing table.

I had the same thing happen just a few months back. I think this post is very relevant. If the buyer deal falls, the buyer can lose their earnest money. THe seller on the other hand can basically back out and unless you want to take the time and money to sue (why when the seller obviously is in a bad financial situation).

Pretty tricky stuff! I agree with a few people posting. I always check public records before I show homes and call the agent if things look close or funny. This is the mortgage broker of 15 years in me and it has helped me avoid a few close calls.

Trent, wow, you reminded me of one of "unreal" moments in my career (you know, the "I cannot believe this is happening!" moments). I had a file fall apart at the very last moment because the seller had increased his equity line AFTER the contract was signed and AFTER the prelim was drafted. No one had a clue and he (the seller) didn't figure out that he would have to find over 20K to sell his house. Total mess........

And not just short sales!

I'm to the point now that I ask the title company to give us an estimated HUD firsthand -- so we can see not only the liens but unpaid taxes and HOA dues that sellers either 'forget' or 'neglect' to factor in when determining net.

We have one closing this week that the seller hired an attorney to clear the title and it didn't get done properly--delayed us by months (and we were extremely lucky the buyer stayed 'in')--so anything is possible even with the best of intentions and actions.

I never would have thought of this happening until now. The property values here are so far down that it usually isn't even close. It's gonna be a short sale. And this does seem like common sense for any realtor that knows what he's doing.

I too ran into this problem last summer. The seller had a lien on the property for some repair work done to the AC years before. She declared bankrupcy and just thought all her debts were cleared. Of course my clients wanted the property so bad that they paid an extra amount above the original contracted price to pay off the lein. The other agent said he had no idea, but shouldn't he have? Very painful deal although we closed it in the end.

Trent: Unfortunately, it is now absolutely necessary to get a mortgage payoff number to verify the numbers when you do a net sheet for the sellers.

As Lenn said, simple due diligence on the listing agents part. Not very professional is it, but how does that help the situation when you can't close? Yikes, that's all I have to say! What idiot attorney did the seller hire? Obviously one without a calculator too!

I wonder if the seller, or listing agent, would be liable for damages on the part of the buyer: costs, inspections, whatever else.

I suppose the question of how much the seller owes is on your checklist now :-)

Hi Trent~ Sometimes sellers don't always tell you everything. Helocs do not always show up and other liens may not show up either. It would be nice if we could get the preliminary Huds done right from the beginning!

When I work with a buyer, I make sure I check the part of our MLS that shows the mortgage balance on statistics, and I also go to the Oklahoma Supreme Court netowrk to check on any suits or liens. This is the world we live in, and what we must do before our clients put out a dime.

A seller's net sheet is one of the first things I do with my sellers. I don't sugar coat anything. I will let them know if there is a potential for them bringing money to the closing table and if they can afford it or not.

I turned down a listing with a young couple because of the potential of them having to bring 5 or 6 thousand to the closing table. They told me there was no way they would be able to afford that. I told them that altough we can "try" and list their home at a higher price so that they would break even, there is a very high probabaility that they would only sell their home for x amount and would have to pay.

They ended up listing with someone else. Oh well. I do not want to end up in your situation and so sorry it happened to you!

Our listing agreement has a place for the sellers to provide the information on their current liens. Then when an offer comes in running a preliminary HUD-1 (any agent can do one) will give you a close estimation of what the bottom line will be before accepting an offer.

Call me stupid, but how in the heck does anyone get a seller to accept an offer without that seller knowing how much they're going to NET (or pay) to close the transaction? Bad enough that a listing was put on the market at a specific price without that knowledge, but to accept an offer? I am flummoxed!

I attended a CDPE class today and a very similar situation was brought up.

The seller said they had enough funds to bring to the closing in order to make up the short fall. But it was in some stock that took a nose dive in the weeks before closing.

You not only need to make the seller show proof of funds, but you might also want to make sure they are liquid funds and maybe put into an escrow account right after the binding agreement.

This is another reason that I think that the seller should be required to put up some earnest money just like the buyer does.

You need to ask the homeowner many questions when you take a listing, and if a property is a short sale or potential short sale, I would put that language on the MLS sheet.

I agree with comment #4, this will be the new norm. I've incorporated this into my prequalifying questions before the listing even goes active.

Would indeed be a nasty surprise to get to within a few days of closing with inspections, surveys, appraisals, loan origination, credit checks, etc done and billed for, and then find out the seller does not have enough money to close or does not like the amount he/she will receive. Buyer is ready, willing and able to close, but the seller is not. Hopefully the seller's agent did an estimate of the sellers costs and the seller found out what the actual loan payoff would be. Some rely on the balance amount on their statements. Not the same thing. Sellers or the title companies need to get accurate information from the banks regarding payoff amounts.

Tom - It does seem a whole lot easier to get the info up front, rather than waiting until the listing is under contract to figure it out. Saves everyone a whole lot of time. In the past I've probably been a bit more relaxed in this area than I am today.

Irene - Having online access certainly makes it a lot easier, and doing due diligence on behalf of your buyer is great . . . but should you have to? Wouldn't it be easier to just have upfront info that the seller was in a position to sell?

Elizabeth - I access Realist info via our MLS as well, which does often show original mortgage info (when available). I find these records are not always 100% accurate / up-to-date, and don't account for all the refi's, modifications, seconds, and other changes that take place over the life of the loan. How are you able to tell total loan payoff info based simply on the original mortgage amount in Realist?

Chris - I find myself exiting stage left quite frequently these days! Think I'll borrow your points and create a little flow chart for my listing interviews. :^)

Terry - I think the "prove it" part of the equation is pretty important.

Jim - Great point on price reductions! Particularly since price reductions imply time on market, and for some sellers this could also mark the beginning of financial issues . . .

Ted - This is a pretty extreme example of how things can go wrong (it often takes one of those types of transactions to make it worthy of an AR post), but yeah, it probably coulda / shoulda been headed off earlier.

Karen - I've been there too . . . fortunately with sellers that were a bit more upfront. Going from taking a regular listing priced in the clear, to dropping the price and learning that no payments have been made in months and suddenly shifting to short sale mode. And yeah, it is fine line between diligence and insulting the seller, and I would have a hard time in this situation too. So much depends on the relationship, lines of communication, and your own read of the situation, but at the end of the day, representing them and getting the job done sometimes requires a little bit of tough love . . .

Shawn - Amazing how many things do only "come up" at the closing table (and not just relating to finances!). Unfortunately, we do often have to rely on what we are told, and that can lead to all sorts of problems.

This is the new world of real estate for sure. And I agree with some of the other comments ~ this will be the norm.

Anna - It's a simple question, but I think the answer might be quite enlightening!

Kyle - It comes back to the saying about what happens when we "assume". In this business we are not in a position to take anything for granted.

Bill - I think surprises are the name of the game in real estate, even with all our efforts at due diligence, but I think the "surprise" of a seller that isn't able to sell is one of the more difficult to get around (at least without a considerable unexpected delay).

Margaret - It doesn't seem like it would be possible, but both anecdotally and now from personal experience, it obviously can and does happen. Glad yours worked out in the end, but it sure is a heads up, whether representing buyer or seller, to keep an eye on this aspect early in the process.

Eric - Frustration for my buyers as much as anything. Just able we were able to hang in there and get it worked out.

Rita - It does seem logical (as logical as a buyer's agent wanting to know how much their buyer is qualified for), but . . .

JUN

2010

I've had clients bring money to close to sell their properties. Sellers who don't want to short sale because of the effects and who have the money to close anyway. This is somehing to be verified ahead of time.

I like your line, and in fact entertained buyer, seller, attornies and closers with a similar version today during that long lull before funding when you run out of weather and kids conversation. Sp

I haven't run into that yet thankfully but I will definitely be more aware of it now. Thanks for sharing.

From reading today's blogs .....SOMEONE NEEDS TO PUT A SMILE ON THE REST OF OUR FACES!

Please post an uplifting story or picture!

Thanks,

Sonny

Very good points -- and it can be a real problem sometimes.

Well said Trent.

When we bought our house over three yrs ago, my attorney called me at the last minute and said, "Do you know the seller has to bring x thousands of dollars to closing?!?!?"

Thankfully he knew, but I've worked with several home buyers that had this happen to them and they did not know. We were able to work something out with most of them. One was a short sale that was turned down...they went ahead with the sale anyway.

I'm fearing that at this very moment. The thing that does not help is that we as selling agents are no longer able to find out what is owed on a property as it violates the privacy laws. I can find out the amount and number of mortgages filed but not what is owed and that's the rub. So I am at the mercy of an agent's "assurances" that, yes, the seller can close, but I have no way to verify it.

Just the other day about an hour before a closing I get a call from the Seller's agent saying there many not be enough funds to pay our fees. My buyer's attorney had uncovered several leins against the properity and I had asked the listing agent if we would have any issues and they said no. In the end everyone (so we were told) took less. But finding out that there were issues an hour prior to closing that just wasnt' right.

Ah yes, the loan pay-off. A so often missed entry on the Seller's Estimated Net sheet. Very good post Trent.

Just the other day about an hour before a closing I get a call from the Seller's agent saying there may not be enough funds to pay our fees. My buyer's attorney had uncovered several leins against the property and I had asked the listing agent if we would have any issues and they said no. In the end everyone (so we were told) took less. But finding out that there were issues an hour prior to closing that just wasnt' right.

Good post - I always try to get as much information up front as possible and I always get written permission to get the pay off at the listing appt and put in request immediately with the lender. I don't like surprises!

That's what short sales USED to be called; now we call this transaction called "I want to sell my house but I don't have everyone's permission" a short sale.

For the life of me I don't know how this type of transaction got to where it is today.

It's like a seller putting a house on the market and saying "I'd love to sell it, but I need a whole lot of permission from a whole lot of people before I can actually close and by the way after I get the offer they will all decide nobody is getting paid but themselves"

.....in NM we don't have access to public records but I always ask what the loan balances are before I ever ever move forward to list a house; if the numbers are too close and the seller still wants to try, I always tell the prospective selling brokers and buyers that the sale may be close..

Always read your title binder when it comes back to you as a buyer broker, make sure you do the match after you receive it.

This really hit home since I had a deal fall apart because the agent did not do her due diligence and halfway through the process we were informed that the seller had to have full price and commission reduction and buyer contribution to make the deal work!

When I asked her why she was not aware of the seller's situation she told me he kept the figures from her. All it would have taken for her to figure it out was the fact that he had bought it only a few years ago at a higher price than the current market would allow. You don't have to be a rocket scientist to figure out these things.

We agreed to all the conditions because my buyer wanted to get the 1st time homecredit but the deal fell apart anyway because the lender was not able to close on the day we were told "the deal had to close or it was dead". Now they are trying to take the earnest money because we didn't close on the day that "they absolutely had to close or the deal was through".

It wasn't my buyer's fault that the end lender was unable to get their act together but she is paying for that mistake despite the fact that she extended herself by agreeing to payi full price for a home.

The seller's agent needs to get additional training and understand how to do a net sheet.

It always best to work with the seller and give them an idea of net proceeds, this will usually create another conversation to the minimum amount they can accept. Great post, and something I will look for in future sellers especially with regard to short sale.

Trent,

We actually had this happen in May, two weeks before closing. The Seller borrowed from credit cards and the Seller's agent and we had to do a promissary note on the commissions to have the closing happen. This seller was asked point blank his balance of his mortgage. When title work was run the Seller had 6 open mortgages recorded, some were discharged and not recorded. Ultimately three mortgages needed to be satisfied.

I had one where we knew the seller was underwater, but he had verbally assured his agent that he would be able to "swap" the second note to a home he owned free and clear. Its 15 months later and that still has not happened. My buyer is enjoying the alternate home he closed on last month, and is about to resolve a settlement with the seller to get reimbursed for his expenses. And... that property is now back on the market with a note that says "not a short sale, but needs lender approval", Go figure...

So yes, be sure the seller has sufficient funds to close is wise advice.

It is important to ask your sellers if they can afford to sell their home. Before I list a home I always pull up their tax records to see what loans have been taken out on the property. In addition, in our listing contract it indicates that seller has sufficient funds for this transaction. It gives the agent a chance to bring up somewhat personal issues without seeming to invasive.

Sometimes the best you can do will fail to stop someone else from royally screwing up. One more thing everyone should always watch for...thanks!

Thanks for the post!

You make a very good point and it is a question that should be added to the process by everyone working with a buyer.

Great topic, but it does not only happen in todays market. Eleven years ago I was buying a home, we saw one that my wife fell in love with. Being in the title industry I ran an O&E (Owners and Encumbrance report) and saw they had a second mortgage and were going to have to bring about $10,000 to the table. I knew the listing agent and gave him a call, he had no idea there was a second. They did not have the money and the home came off the market and became a rental. Then came the hard part, finding that same model for sale in our price range, good news is we did and have been there ever since. I can't stress enough getting an O&E or at least checking public records even before putting as well as taking a listing. You have to always do your homework no matter what side you are on, I do not envy the hard work that Realtors do not get credit for.

Hi Trent,

Great point. Sellers should be preapproved to sell just as buyers have to get preapproved to buy.

But when you know at a certain offer price the sellers can make it work, what do you do then? I've done the counseling, provided info such as "if you cannot afford to sell it now, you may want to look into renting it out, or selling as a short sale, please talk to your financial advisor to figure out what next steps should be for you."

Because in this day and age very few sellers put their homes on the market just for fun. Job changes and other life scenarios mean houses need to be sold....and leaving it to the bank's mercy/competence to get a short sale thru before it goes to foreclosure is a step not every seller wants to take.

If we had easy answers to these difficult questions, life would be grand.

Trent,

I really liked your article. I have heard about this same "short sale surprise" twice in the past week. It really is a different world out there and qualifying the seller is just as important as qualifying the buyer. Thank you for sharing your knowledge and experience.

I too make that call, "Is this a possible short sale?". Agents seem confused by it....wait till it happens to them though.

Trent, another thing I'm seeing a lot of in this area is the buyers want repairs done before they even look at a house. So a lot of the sellers are hiring folks like us to do the repairs.

However, some sellers don't have cash or credit to get the repairs done, and with a plethora of houses on the market they don't get any looks. So another twist on "does the seller have the money to close" is can they pay for the needed repairs?

Wow, did the seller think this one would slip through the cracks? He knew he owed money and therefore wasted everyone's time. Sad.

Based on the responses this is more common that I would have thought!

Unbelievable, given the current situation I find it hard to believe that this is happening out there. Listing agents should be aware of what they are listing. This is truly a waste of time for everyone involved and could lead to a potential disastrous situation for the seller being that they may no longer be able to do a short sale.

Trent,

The way this housing market is, especially in the hard-hit areas, it's almost as important to qualify the seller as it is the buyer. Short sales, underwater, what have you, can mess things up.

Trent - it's the same with rentals today. The owner needs to be pre-qualified as well as the tenant. Sometimes they are behind in their payments and the property will be foreclosed during the rental period.

The importance of due dilligence on the part of the listing agent is once again brought to the forefront. Not professional behavior on their part.

Trent-

I doubt if this would happen in California but I may be wrong. Listing packets include a property profile which show liens on the property. I also have a Preliminary Title report done. (PR). I am not allowed to hand in a Listing Contract without this. A lien unrecorded at the time of listing is a different story but I can't understand how you can get past this.

Never thought about this before - great topic. As Lenn said it's all about due diligence on the part of the listing agent.

I have a question though - not sure if it's a legal issue or just a business one.

Obviously a net proceeds sheet should always be presented with an offer, and obviously we should check out what we can from public records when taking the listing.

What about having the seller sign a document at the time of listing stating all loans, HELOCs or liens that are in place and the payoff?

I don't know if there would be any legal ramifications later if the seller was being less thant truthful but the mere act of signing your name to something typically make people be much more careful about the information.

I can't stress the importance of this post enough! Very good post.

Coming from the lending side I can tell you that many times I have to talk with the buyers and explain the process that the sellers are going through. Seller expectations are often set that they can walk away from a short sale and avoid paying the shortage. We have to continuallly educate all parties and set appropriate expectations!

- Jason Keith

comments made do not necessarily represent WR Starkey Mortgage.

I agree with Deborah (#89). I don't see how the normal due diligence would not reveal that the seller was in a short sale position. In fact, if the sellers owe even EXACTLY what the house is worth (which is rare), the situation is short sale because of the seller's inability to pay closing costs. AND, the seller's inability to pay closing costs means the seller, and hence, the property, are distressed. Perhaps the problem comes up because sellers insist that the property is NOT a short sale, and the agents are worried about liability and therefore do not want to be the ones to break it to them?

Good post. My own personal case in point: I recently closed a transaction where the seller continually assured his agent and me (I represented the buyer) that he had sufficient funds to close the deal (we saw bank statements that showed the funds) even though it was very close to a short sale. In fact, the seller spent all the money he had set aside to close during the period from contract acceptance to close of escrow. In the end, the listing agent gave away almost all of his commission (about $7000 to him) to close because he had just had enough of the seller's lies. I ended up contributing $500 to help get it closed because my buyer was going to rent if this transaction didn't close, and he was going to sue the seller.

Trent Great article. As a buyers rep I always ask when I call for a showing appointment if the home is a potential short sale-with mixed responses from the listing agent. I would hope it would be clear at the listing appointment that the seller is or is close to being "upside down" on the property.

This reminds me of those agents who've written posts stating that they don't answer questions from buyer's agents before they get an offer. Here's more proof that buyer's agents have good reasons for asking questions up front.

I agree with you, Trent! Just like Joetta Fort wrote, I've experienced the same thing from Seller's Agents...that they will answer those questions when they get an offer from my client. Let by-gone days NOT rule...and agents beware. We're still in tough times and asking questions is the only way to avoid problems and to protect the best interests of our clients, both buyers AND sellers! I'm reblogging this one, Trent. Thanks.

Yes, it happenend to me 2 years ago right before closing and before short sales became nearly the norm. The seller had taken out a line of credit and forgotten it was tied to his mortgage. We were still able to close relatively soon.

On another listing my sellers and I had done our due dilligence, knew how much they needed to bring to the table and took out a loan to cover that before we even listed it. I was able to sell the house in under three days, multiple offers, all over the listing price by reassuring the selling agent we had the money to close.

In this area asking about loan balance is pretty much a standard question. Short Sales dominate the market.

Good point- never really thought about that end of the transaction!

Thanks

This is why it is mandatory in my office to ask for a preliminary title report immediately after taking the listing. Another good question to ask is whether or not their ioan has a prepayment penalty. That can come up and bite you as well. And here in Hawaii if the owner lives off island we make sure to tell them of the HARPTA and FIRPTA witjholdings. At least we make sure if that in MY office. Good post! Aloha Karla Casey (PB) Casey & Associates, Hawaii

This scenario is usually the result of an agent taking a listing without knowledge of all the factors. Good question to ask before your customer starts throwing stuff at you and runs for her attornies! In court, it's called "Knew or Should Have Known".

In the contracts I use it states, ( and I am paraphrasing) that the seller will produce "a clear and marketable title upon closing the transaction". If the seller cannot afford to make the payoff or bring funds to the closing to do so, they cannot clear the title. I always point this out to them during the listing appointment and review the payoff information.

We now have to say if the listing is a potential short sale when we add it to the mls. Buyers around here don't seem to be looking at the short sales as much lately.

At least you can't say this real estate business is boring. We're all learning lots every day!

Yes due deligence on the seller's part is just as important as the buyer's side. A year or so ago I had a seller who stated they thought they owed X amount but wasn't sure & they didn't have a current statement (I asked); when I pulled the online deed of trust figures didn't match & when I questioned the seller about it for the estimated seller's net form seller got mad & left saying I was too intrusive & didn't appear too eager for the business. Several months later I found they owed not only a first but a second (under deceased spouse's name) and line of credit (not recorded) and was sold at the courthouse to a local investor. Even with online deed review it still depends on how "honest" the seller is to the agent about their financial status & whether they can document it.

Whew! Another layer of work for you hard-working agents.

I keep thinking that the poor economy will weed out the kind of agents who would list a home without running the numbers and making sure that the list price would cover everything - but it's taking longer than I expected.

Trent - I think too many agents focus on getting the listing and don't do their homework. Prior to the listing appointment I find out if the seller can afford to sell.

Good reading, article and posts. An absolute necessity to check on loan balance with Sellers and check again with the title company doing your commitment. We are like the lenders checking and rechecking credit and verifying information even on the day of closing. Good luck agents

This same type of scenario happened not once, but twice to buyers I was representing. We didn't get all the way to the closing table but we had the pressure of the tax credit looming over our heads. Based on those experiences, part of my pre-listing appointment request is for sellers to request a payoff statement from their lender (or lenders if they have a 2nd or HELOC).

Some agents in my office thought sellers might balk at this. So far every seller has had that info ready for me. I also get preliminary title work done which of course can expose other potential glitches. Times have changed and we can stop with simply qualifying our buyers.

Now my question is how do I qualify other agent's sellers to make sure buyers I represent don't get caught in these situations in the future??

Great post... Haven't read all the responses yet, but will check them later to see if the question abave was answered by someone out there.

good post... it always has surprised me when agents working for the seller do not do a net sheet to see where the seller stands in their money... I have had this in my practive from the good times tot he bad... just part of doing good business...

Connie Wildaasinn

MetroCal Properties

Los Angeles & Orange Counties, California

562-426-4800 x 30

Good post

We have a Seller questionaire that asks all the tough questions about their mortgage..... we just hope that IT IS ANSWERED TRUTHFULLY!!!!!

As most have stated this should be common sense! But as we all know, common sense went out the door and left the building long, long ago. I have been an advocate of an earnest money paragraph for the sellers side as well, because most of my transactions are as a buyer agent, I feel the buyers are left out to dry by having to spend so much money on inspections, survey, and appraisals only to find out a seller can't close. In reality the sellers have to perform to the contract, I can see lots of law suits popping up over these issues.

When a property is listed, a title report will show what is owed and to whom. I recently closed a cliff hanger where the equity was fine, but after the listing, liens showed up on the property. Luckily the seller was able to negotiate the liens and pay off what was necessary. Escrow was delayed, but it did close. It is encumbent upon the seller and buyers agents to read the title report to properly protect their clients. That way you know way before getting to the closing table that there may be a problem and perhaps have time to fix it.

Trent

Lately I have been requesting a Mortgage Verification from the Mortgage Company or Bank and before I take the actual listing we do a title search and look for liens.

Burnt once and never again!

Any agent who "forgets" to do a net sheet when they take a listing....needs to go to remedial real estate school....or maybe just hang up their license.

I have one now. It was listed in the MLS for $139K we offered $115K they countered at $122. We excepted . after all that they come back and say well at this price it has to be a short sale. we have no money to bring to the table. I asked them why then they didnt except the $115 if it had to be a shortsale anyway. Then my buyers wanted to look at the home again and all the Stuff that was supposedly coming with it is gone. fridge is missing. I ask the sellers about this they said its a short sale now non of that comes with it. After all that they agreed to drop the price to $120...still wouldnt do the $115....now a 5 weeks later the bank has said they will not pay the 6% commission. there policy is only 4% on short sales. Id want so bad to walk away but my buyer really wants the place. This is the biggest farce of a sale I have been involved with...

Great post -really had never thought it was such a big problem

RE: Response #4 - Michael said “It is a new real estate world we have entered and will become the new norm !!!!!!!!!!!!!!!!!”.

NOT REALLY. History is just repeating itself, repeating itself, repeating itself. . . .

We had a lot of sellers in the early to mid 90’s (1990’s) in Metro-Phoenix that were selling their 1 -6 year old homes and had to “bring Money to the Table”. In fact often the agents had to carry the commissions for the parties by agreement and a second lien on the buyer’s new home.

Most of us got in the habit of doing a prelim and contacting (with the sellers written permission their lender. Another scary issue was that if the net was close to fulfilling the contract and the only one to be shorted was the agents, OH WELL was the attitude some sellers had. And, remember that the listing agent agreed to compensate the selling agents and when there were insufficient proceeds for that it often resulted in out-of-pocket losses to the listing broker. Today’s Short Sale differs in many respects, except that there is always risk involved.

Stan Graham, Advanced Realty Education Arizona Elite Properties

Trent,

Net sheet, net sheet.

When on the phone talking to the sellers and arranging the listing appointment, after they agree to see me and we pencil in the time and day, I tell them "before I come to see you I need to ask you a few questions".

I have a list of 10 or so questions that I like to ask, and 2 of those have a lot to do with what price they will NOT go below, and how much they owe on the property.

In Rhode Island mortgages are public record. My company wants to know if the seller really owns the house and how much they still owe on it before we put it on the market. It is part of our due diligence. It is just tougher nowadays. Good post. Reminds me how hard our business is.

This is making my stomach do flipflops! I'm in the middle of one now where the sellers knowingly have to bring $$ to the table. We wrote the contract stating that the sellers would put the money in escrow at the closing attorney's office 10 days prior to closing - after inspections and loan commitment made. Supposedly, the $$ is on the way, but this is going to be nerve-wracking until the fat lady sings!!

It sounds as if you are covering your bases. Make certain that certified funds are deposited and cleared by the escrow. Good Luck

Stan Graham

Advanced Realty Education
Arizona Elite Properties

JUN

2010

Net sheet at the listing appointment sounds like a good policy. In our area we have not had many short sales but they are increasing. Great post.

Thanks Trent! Hadn't really thought about that, you are right some sellers

tell all, others keep it close to the vest, we need to ask. Great Advice!

JUN

2010

Great point! I always do a net sheet before listing a property so both the seller and I are clear about the expected financial results.

Home ownwer has to be honest about all debt, loans and liens. Then Listing Agent needs to disclose the net sheet to the seller demonstrating whether he is short or not. Listing Agent has to disclose a Short Sale in MD. Margaret C.

JUN

2010

Had multiple type issues over the past year because of this type decision making. Good topic and something to remind me before doing a listing that could hurt in the long run...I have removed two listings from market for the very reasons discussed her.

I guess we are going to have to start asking sellers for bank statements and pay stubs now.

JUN

2010

Trent, you make an excellent case for listing agents to do their job more thoroughly. There can be no question that if a property is offered at a price which will result in a net which is less than the outstanding liens against it, all parties should be alerted from the outset that the sale will be a short sale.

Given the widespread practice of offers being made substantially below the listing price, agents representing sellers AND agents representing buyers should make sure that the acceptance of an offer will not convert a regular sale to a short sale.

Since this is an area of concern that is relatively recent in origin for most agents, it may be that we are dealing with an issue that can be quickly addressed by giving it more visibility.

Thanks for calling attention to it.

John Cleek, Ph.D., Author

Seven Steps to Home Ownership

JUN

2010

Very good blog here. I've seen in more than one situation, if the buyer offers list price, then the seller would be able to sell, however if the buyer comes in $30K low on a $300,000 home, that puts it into a short sale. Often, sellers are trying to get out, and walk away with minimal. If in your original post, they are tens of thousands off, then something is wrong. Either the seller lied or mistakenly thought they owed less, or the sales price is substantially below the list price.

JUL

2010

Great post. Very timely.

JUL

2010

I recently ran across a listing that was listed as a short sale, but when I looked at the tax records it demonstrated that it had been bank owned for some time -- even months prior to the listing. I ran of chain of title to verify that it was clearly bank owned.

The listing agent was certain that it was a short sale and was having continuing conversations with bank to facilitate a short sale......... Seems like neither the bank nor the listing agent were doing their own due diligence in this case!

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Trent Cluley -- Pickens County Georgia Real Estate

Jasper, GA

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Keller Williams Realty - Select Partners

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