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For Listing Agents Only: Nothing But Net Because Rebounds Don't Count

Do you realize how many people "forget" to tell their lising agent that they have an equityline behind their first mortgage?

Who don't even understand that an equityline is something different from a credit card (which must be paid off in conjunction with selling their house)?

Who do not understand that unpaid property taxes must be paid when they sell their house? Who think "net" means the basketball court in their backyard?

Wishful thinking or simply clueless? I'm not sure, but ask any mortgage broker. It happens all the time.

Worse case scenario: Selling price is not enough to cover everything the seller REALLY owes on the house and this is only discovered after the house is in contract. I don't know about you, but I can't remember a time the seller threw in cash to sell their home (although some probably wish they had).

I used to only skim over title reports. Now? I can't wait for that puppy to appear in my inbox in conjuction with a new purchase loan. You see, that piece of paper has the power to make or break a real estate transaction, because it contains some of the most important numbers we all need to know to get the transaction to close: HOW MUCH DOES THE SELLER (really) OWE ON THE PROPERTY?

Oh, I know you THINK you did your job as the listing agent. You BELIEVED that the seller's loan was $300,000, and subtracted this from the anticipated sales price along with your commission, netting the seller a nice amount of cash. You left with a signed listing and a happy face smile because the listing was actually "priced right".

I know we were all taught that what the seller owes has no relation to the market value of the house. And it doesn't. But it has everything to do with whether the seller is willing to sell the house if he will only break even, will not get the cash he is anticipating, or is really in a negative equity situation.

Please don't fall into the wishful thinking/clueless trap with your seller until there is a buyer involved. In this market, knowing the straight scoop in advance saves everyone time and energy. Quickly pushing the delete button on a listing because brutal honesty informs a seller he is in la la land, just makes good business sense.

In this case, it might also save a buyer from being heartbroken and a selling agent from thinking you didn't do your job.

Always make certain that there is ENOUGH EQUITY using the anticipated appraised price (NOT anticipated selling price) to cover all of the liens against the property along with your commission.

You can do this by asking your seller for mortgage statements AND equityline statements and writing down the balance owed on each. Check with the county to see if taxes are in arrears. Ask if there are ANY unrecorded liens on the property. Be ruthless and be a sleuth.

Subtract these numbers along with your commission from the anticipated appraised price for NET PROCEEDS.

If seller will not sell or cannot sell based on this worst case scenario of net proceeds, you may consider leaving without the listing.

In which case your happy face is actually justified. The only time you have invested is the time it took to figure out this seller won't be selling, for now. But when they do, you will have earned their respect as a true professional.

Now on to your next adventure in real estate.

Written by Janet Guilbault, California Mortgage Expert Based Out of the San Francisco Bay Area.

Posted by Janet Guilbault California Mortgage Banker/Broker on 05/13/2008 11:05 AM

Comments (10)

realtor success strategies, equityline, negative equity, california morgage expert

Post is included in group: Realtors®
Post is included in group: Mortgages

10 Comments on For Listing Agents Only: Nothing But Net Because Rebounds Don't Count

MAY

2008

Paying attention to the title report is crucial. Especially now when people are sometimes upside down in their home. Not to mention, some people have no clue when there is a lien on the property, could create sticky situations.

Kim: You cannot imagine how many times a title report reveals money is owed against the property that the seller did not disclose to the real estate agent.

I am not sure why, but this plays havoc with the transaction. If the appriasal comes in low in combination with more $ being owed, the whole sale can go up in smoke. This has happened to me.

I always do a seller net sheet with my CMA so that a seller can decide if it makes sense to sell. One of the title companies has an online program that lets me lookup what lenders have liens on the property. Now construction liens etc don't show up, but if it's a new home I just head to the county and look it up in their database. I always ask about taxes as well and include that in my net sheet.

Sometimes people when they see the numbers understand that they can't sell. I've never had a deal blow up over this issue. I GRILL my sellers about their finances and when they see my net sheets they ususally call the the correct payoff amount so I can "correct it" for them.

Forget the title report. Seems to me that the listing agent should be doing due diligence when they list. Good grief, many never even ask. Over the years, I've had contracts where the agent didn't know that

The seller is in bankruptcy

The seller has 3 liens on the property.

The seller is in foreclosure.

The seller has $55,000 tax liens and $20,000 net proceeds.

The seller has a $65,000 lien from Mrs. Fields Cookie Franchise financing company which he didn't know created a lien on the title of his home.

All are true. Honest. All closed but it takes some real hard work. None of the listing agents even asked.

Okay, Lenn. As always, you tell it like it is. I was too afraid to come right out and say what you did:

Some agents never even ask. As the mortgage broker, I discover this, but by then I have a buyer who thinks they have found their dream home. I must tell a listing agent that we have a problem (and I hate this because at this late stage in the game, many people are involved and wondering why this agent did not do their job)

When I was an agent many years ago, they taught us net sheets. I always filled them out trusting that the sellers knew how much they owed.

Now that I am a mortgage broker, I understand how often the info they feed you just isn't right.

Maybe in the past we took a casual approach to this information, but now there is too much at stake to gloss over it.

No one WANTS to have a deal blow up. But not getting this info up front is really really RISKY IMHO.

Melina: I am glad you GRILL. You are a very savvy agent. You should GRILL because there are so many people out there who don't understand how close they are to break even.

Getting this info, no matter HOW it is done is absolutely critical.

There is absolutely no reason for the buyers to get this information following a title search. There has got to be more reward to listing a house than writing it on the monthly production board.

Due dilligence for a listing agent requires that they ask for an exinine the owner's last mortgage statement, do a net sheet and ASK about additional loans, bankruptcy, WHO IS ON THE DEED and a whole list of "stuff".

I had one in Anne Arundel County where the seller was in foreclosure and we didn't find out until a week before it went to auction. It was ugly. The seller had to move the second trust to his ex's house. The lender delayed the foreclosure for one week to give the seller time to close. The seller paid off $7,000 tax lien with money from his family and walked away with nothing. There was about 4% left for real estate commission and the listing agent tried to get me to agree with the old 50/50 split. HA!

The listing agent was a "Top Producer".

My buyer client sent her a draft of a complaint to the Real Estate Commission that he would file if we didn't close and if I wasn't paid my full commission. We closed and I collected my commission.

It pays to have good buyers.

Lenn: OUCH. I have had that happen to me as well and it isn't pretty and it isn't fun.

Of course when you have too little equity at the end of the transaction, they always look at your commission as a slush fund for shortfalls.

This is why IT PAYS to know early on by being that slueth.

MAY

2008

Great post Janet. I think I am thorough, but you gave me some pointers especially in this market where some of are sellers keep dropping their price. Can they really drop drastically and come out OK??? I have some checking to do. Over my 16 years in the business I had one Seller that put in about 3,000 out of pocket to close the transaction. We were all aware of it from the get go. Pre-Lims are SO important for the Seller, Buyer, and Realtors to READ and UNDERSTAND. If you don't understand, call your chief title officer. I order any exception on the Pre-Lim, give copies to my Buyers and have them sign for it.

Roxanne Schilling, Realtor at Lake Tulloch

MAY

2008

Ok so this is news to me - I don't know anyone (in BC) who would ask this information of their Seller (I'm speaking of Realtors).....I realize our market isn't like yours - but that imformation is privileged....we can ask the questions - but they are under no obligation to show us the paperwork. I usually recommend they talk to their Bank and review their assets, penalties, payouts etc....We also don't typically do net sheets..........these are great ideas though in anticipation of what one day will probably be a changing market.......Interesting.

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