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

Real Estate Agent with Keller Williams Realty Partners

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 . . .


Re-Blogged 13 times:

Re-Blogged By Re-Blogged At
  1. Lyn Sims 06/17/2010 03:20 PM
  2. Barbara Todaro 06/17/2010 07:16 PM
  3. Leslie Ebersole 06/18/2010 02:31 AM
  4. Ellen Dittman 06/18/2010 09:20 AM
  5. David Okada 06/18/2010 09:42 AM
  6. Jack Rothweiler 06/18/2010 10:26 AM
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  10. Spring Haigler 06/18/2010 12:09 PM
  11. Doug Patterson 06/18/2010 12:34 PM
  12. Thom Abbott 06/19/2010 11:06 AM
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Donna Davis

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.

Jun 18, 2010 02:55 PM #113
Ty Lacroix
Envelope Real Estate Brokerage Inc - London, ON


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!


Jun 18, 2010 03:09 PM #114
Sally K. & David L. Hanson
Keller Williams 414-525-0563 - Brookfield, WI
WI Realtors - Luxury - Short Sale - CDPE, REDS

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.

Jun 18, 2010 04:10 PM #115
Joel Jadofsky
Keller Williams - homes for sale - Florida - Gulf - Beach - Panama City Beach, FL
One of the Top Realtors in Panama City Beach Area

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 $ 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...

Jun 18, 2010 04:46 PM #116
Nicole Orringer
HomeTowne Realty - Clayton, NC

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

Jun 18, 2010 05:39 PM #117

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

Jun 18, 2010 06:29 PM #118
Dimitri Matsis-REALTORĀ® (818) 599-6083
Troop Real Estate Inc. Westlake Village CA - West Hills, CA


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.

Jun 18, 2010 08:12 PM #119
Peter Rhein

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. 

Jun 18, 2010 09:23 PM #120
Debbe Perry
Real Living Carolina Property - Morganton, NC
828.439.3084 Morganton/Lake James NC

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!!

Jun 18, 2010 09:41 PM #121

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 18, 2010 09:58 PM #122
Debbie Moran

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.

Jun 19, 2010 04:29 AM #123
Sherri Lynn Smith

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 19, 2010 08:59 AM #124
Carly Gonzalez
Austin, TX
Carstin Team

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.

Jun 20, 2010 03:07 AM #125
Margaret C. Taylor
Century 21 New Millennium MD - Mechanicsville, MD
St Marys/Calvert/Charles MD Real Estate Agent

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 20, 2010 09:07 PM #126
Jim Sloan

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.

Jun 21, 2010 01:57 AM #127
Lucien Vaillancourt
Native Sun Realty, Inc. - Jacksonville, FL
Jacksonville Florida Real Estate

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

Jun 21, 2010 09:24 AM #128
John Cleek
Keller Williams Realty Diamond Partners Inc - Olathe, KS

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 27, 2010 06:43 PM #129
Eugene Lew
RE/MAX equity group - Happy Valley, OR

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.

Jun 28, 2010 12:20 PM #130
Bob Sweazy
Prudential A. S. de Movellan Real Estate - Lexington, KY

Great post. Very timely.

Jul 02, 2010 11:52 AM #131
Lela Hankins
RE/MAX UNITED - San Marcos, CA

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!

Jul 08, 2010 05:58 PM #132
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Trent Cluley

Pickens County Georgia Real Estate
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