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

By
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 . . .

close

Re-Bloggged 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
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  4. Ellen Dittman 06/18/2010 09:20 AM
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Topic:
Real Estate Sales and Marketing
Groups:
Short Sales Pre Foreclosures Bankruptcy and More!
Tags:
short sales
due diligence

Comments 131 New Comment

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Rainer
46,726
Lucien Vaillancourt
Jacksonville Florida Real Estate
Native Sun Realty, Inc.

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

June 21, 2010 09:24 AM
Rainer
20,199
John Cleek
Ph.D. GRI e-PRO, ABR, SFR
Keller Williams Realty Diamond Partners Inc

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

June 27, 2010 06:43 PM
Rainer
57,417
Eugene Lew
RE/MAX equity group

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.

June 28, 2010 12:20 PM
Rainer
8,940
Bob Sweazy
Prudential A. S. de Movellan Real Estate

Great post. Very timely.

July 02, 2010 11:52 AM
Rainer
18,358
Lela Hankins
CDPE, CRS, e-PRO, GRI
RE/MAX UNITED

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!

July 08, 2010 05:58 PM
Anonymous
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Rainmaker
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Trent Cluley

Pickens County Georgia Real Estate
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