Here's a hypothetical for you:
You are representing the buyer in a transaction. The listing sheet clearly states, "Not a short sale," but you notice, while doing your due diligence and researching the property in the MLS, tax records, county courthouse records, etc. that the list price is significantly less than NOT ONLY what the seller paid for the home but also less than the amount of their loan. You ask the listing agent, "This definitely isn't a short sale?" He says, "No."
You write the offer, and following negotiations, your client (the Buyer) reaches an agreement with the Seller - they are under contract. The normal things happen from here: the inspection and subsequent repair negotiation; the appraisal; the loan package arrives at the closing attorney's office; the HUD-1 Settlement Statement is prepared and sent to all parties. You notice that the Seller needs to bring upwards of $51,000+ to closing in order to sell their home. "You're sure it's not a short sale?" you ask the listing agent. He says, "No."
And then...four days before closing, your phone rings. It's the listing agent, and he says, "I really need to talk to you."
Sure enough - the seller doesn't have the money to close. They are more than $10,000 short and have no way to come up with the money. Their bank has turned them down for a loan for the amount they need. They are a bad risk. They have asked family and friends, who have also turned them down. Suddenly, the closing that has been 45 days in the making (not to mention the time you spent showing properties to your clients) is falling apart. You feel helpless. Your buyer is confused and angry. The listing agent...well, you wonder where was he throughout this process?
The question is, what do you do when the listing agent doesn't fully do their job? As REALTORS®, our job is to counsel our clients. That includes preparing a "Net to Seller" sheet when an offer is received AND at the time of each subsequent counteroffer. It also includes talking them through the situation - do you know how much you owe on this home? Do you have the funds you will need to close? It includes requesting a preliminary HUD-1 from the closing attorney to show the seller, in black and white, what their financial obligation is at closing. It includes being brutally honest with your client about their financial obligations, as well as being diligent and DOING YOUR JOB. Our Georgia Association of REALTORS® contracts has a "Source of Buyer's Funds" exhibit and a "Financing Contingency" exhibit that sellers can use to insist on knowing the buyer's financing plan; however, there is no "Source of Seller's Funds" exhibit that we can use to protect our Buyers and be sure that the Seller has enough money to close in a situation like this one. After this week, I really think there should be.
Because this is not a hypothetical. It happened to me this week. Thankfully, we closed the loan, with some artful maneuvering on the part of the closing attorney, who was able to eek out some additional funds for the seller by netting their escrows and applying that amount to the deficit, among other things. The money was "found" and the closing happened right on schedule.
But the point it, it might not have closed. And the sad fact is that, in this market, doing due diligence on just one side of the deal is no longer good enough. We've entered a time in which we now have to worry about not only prequalifying OUR clients, but also prequalifying the clients on the other side of the table, in case that agent has not done his or her part.
Maura Neill, ABR, CRS, MA
The Gebhardt Group
RE/MAX Greater Atlanta
10220 Medlock Bridge Road
Johns Creek, GA 30097