I'm Representing the Buyer in this Transaction...and Now I Have to Pre-Qualify the Seller, Too?

By
Real Estate Agent with RE/MAX Around Atlanta GA RE License #296541

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.

 

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Maura Neill, ABR, CRS, MA
The Gebhardt Group
RE/MAX Greater Atlanta
10220 Medlock Bridge Road
Johns Creek, GA 30097

(770) 238-0595
email: Maura@GebhardtGroup.com
website: http://www.GebhardtGroup.com/
blog: http://www.GebhardtGroupBlog.com/

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Rainer
81,737
Corey Chase
Silvercreek Realty Group - Meridian, ID

Oh nooo Maura! That is terrible!  I can't believe the number of Agents and LO's that are still in the business that do not do right by their clients.  It just infuriates me to no end.

Feb 08, 2010 01:28 AM #1
Rainer
140,201
Tony Hager
United Realty Texas - Denton, TX
Broker

That would be frustrating and one can see a few lawsuits brewing against the listing agents in these situations. I'm sure they didn't offer to cut their side of the deal either did they?

Feb 08, 2010 01:32 AM #2
Rainmaker
522,222
Mike Carlier
Lakeville, MN
More opinions than you want to hear about.

Well, it definitely is a short sale by some definitions.  Any sale in which the proceeds of the sale fall short of the amount owed is a short sale.  Whether the bank forgives the shortage or the seller somehow covers the difference doesn't really change what it is.  I guess we have to be more specific when we ask questions of the listing agent.  You can ask for evidence that the seller will be able to perform, but how does one verify things like, "Getting the difference from Grandma?" 

Feb 08, 2010 01:54 AM #3
Rainer
41,882
Pierre Chan
Dexter Credit Union - Providence, RI

Yikes! Wow... It is really frustrating to see that people are still not doing their due diligence... even in this market!! Come on!!!

Feb 08, 2010 01:56 AM #4
Rainer
96,191
Maura Neill
RE/MAX Around Atlanta - Alpharetta, GA
North Metro Atlanta Real Estate

Thanks, all, for your comments.

Mike - Yes, it was clear that it was a "short sale" by definition, selling for less than what is owed. But NOT as it is commonly understood (and implied) as needing bank approval. Believe me when I tell you that I grilled the listing agent - and of course, I did not post our conversation here word-for-word. It was not a simple, "Is this a short sale?" - "No." conversation. I was quite specific in asking whether or not the sellers had the money with which to close and he was quite positive that, yes, they had told him they did.

United Realty of Texas - Yes, fortunately the listing agent did give some on his side (as did I) to make the deal work. We would be in the car looking for new homes for my buyers today if we had not.

Have a great day!
~Maura Neill

Feb 08, 2010 02:29 AM #5
Rainmaker
420,748
Michelle Francis
Tim Francis Realty LLC - Atlanta, GA
Realtor, Buckhead Atlanta Homes for Sale & Lease

Maura, 

No surprise to me that you knew it was a problem.  The first thing I do for SELLERS and BUYERS is pull up their tax records, which can give a very good idea of how they stand.  If they owe more than we can get for it today, it's critical to understand how this is going to work, a short sale, they can make up the difference or where the money is coming from?  

I think your idea of the extra sellers form is great in GA.  Last year was the first time when I represented buyers where we were more concerned if the sellers money was at the attorney's office in escrow so the home could close!  Crazy times, but we have to be prepared!

Glad you got it to closing. 

All the best, Michelle

Feb 08, 2010 02:53 AM #6
Rainmaker
911,589
Kay Van Kampen
RE/MAX Broker, RE/MAX - Springfield, MO
RealtorĀ®, Springfield Mo Real Estate

I had this happen last year.....and it was my seller.  I kept asking him if he would have funds to bring to the table and he said "no problem".  He scrambled 2 weeks before closing and was able to borrow the funds to close.

Feb 08, 2010 02:03 PM #7
Rainer
96,191
Maura Neill
RE/MAX Around Atlanta - Alpharetta, GA
North Metro Atlanta Real Estate

Hi, Michelle - thanks for reading and commenting! I definitely pull the tax records first - knowing what the seller paid for the home and when can help me structure an offer as much as the comps in the neighborhood do. We were assured - short of putting it in writing (which the contractual Purchase and Sale agreement did for us) - the sellers could in fact afford to sell the home, which means that they had the money to bring to the table. It was an unfortunate situation that had a good outcome, ultimately, in that the closing actually happened.

Hi, Kay - I'm sorry you went through this, too! It's becoming increasingly apparent that we must do more than take our sellers' or our buyers' word at face value.

Have a great day!

Maura Neill

Feb 10, 2010 06:32 AM #8
Rainer
38,231
Lori Bonicelli
Bonicelli Design - Marietta, GA

Argh...  how bad does the market have to get to really weed out terrible do nothing agents??!!!

Feb 13, 2010 02:39 PM #9
Ambassador
489,845
Kristin Moran
Owner - RE/MAX Access - KristinMoran@Remax.net - San Antonio, TX
San Antonio,TX - Real Estate - 210-313-7397

This is extremely unfortunate.  This could have turned out very differently & not favorable to the seller or buyer & would have been alot of wasted time on all parties involved.  A net sheet would have been proactive vs. putting out flames towards closing.  Glad it came together Maura!

Feb 23, 2010 05:29 AM #10
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Maura Neill

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