When selling, make sure your listing agent is your watchdog…
It’s your listing agent’s job to accept only those contracts that have passed muster. If your listing agent does not take the time to properly vet the buyers’ finances and lender, in order to spot a mediocre offer, then he or she is putting you at risk.
Good listing agents know the best mortgage companies who employ experienced mortgage bankers and loan originators. Keep in mind that loan officers are salespeople who get paid for closing loans, and the majority should not be viewed as credible sources for buyer pre-qualification. A good way to research your loan officer is to check if he or she is a licensed loan originator certified by the Nationwide Mortgage Licensing System (NMLS).
Clay Wyatt, in a recent article on GoBankingRates.com, explains why the typical mortgage loan officer may not do a thorough job of due diligence. “As in any sales role,” writes Wyatt, “the (loan officer) is typically required to meet a certain level of ‘productivity’ — as in, sell a certain amount per month.” According to Wyatt, this puts the loan officer “under a lot of pressure to put the bank’s interests ahead of (the buyer’s).”
Initially, buyers’ pre-approval letter from the prospective lender is the only thing the listing agent has to go on in making a determination about whether the qualifications to obtain the needed financing are solid.
To make sure, your listing agent needs to go to the source. The listing agent may find that the loan officer has gone completely on representations made by the buyers about income level and credit score from an online application or over the phone.
Vetting an offer should start with a phone call to the person who signed the pre-approval letter. Those letters signed by a bank official with a higher level of authority, such as a branch manager or underwriter, are more credible than those signed by a loan officer.
In any case, before accepting a contract on a listing, the agent should call the signee of the pre-approval letter to confirm whether the bank is local or an out-of-state “consumer direct” division reachable by an 800 number; the loan officer typed and signed the letter; and a higher company official reviewed and approved the file.
The listing agent also needs to confirm that:
• credit has been pulled on all borrowers that would reveal any major derogatory credit events during the past 12, 24 or 36 months as well as any disputed items;
• tax returns for all required years have been provided, showing up-to-date filings and accounting for all unreimbursed business expenses; and
• all buyer funds needed to close, including gifts, have been verified.
Besides vetting the buyer, the listing agent also should scrutinize the loan officer. The listing agent should ask the loan officer if he or she has missed any settlements recently (and if so, why), and if the loan officer is able to ensure that the company can settle on time if you accept the contract.
Finally, this interview should establish if the buyers are ready to be approved today, or if any additional work needs to be done to get them there.
If there are gray areas in the file, then the listing agent should insist on receiving clear and definitive answers to these questions.
The highest offer on your home may not be the best offer…
This is the second of two parts.
On Monday, we discussed a few key areas that your listing agent would need to delve into with your potential buyer’s lender in order to ensure that an appropriate level of due diligence had been performed, prior to accepting an offer.
But these are not the only questions that you need to ask. (At the end of this column, I’ve included an e-mail address where you can obtain my complete due diligence questionnaire).
Lack of due diligence on the seller side of the home buying process can have a negative effect on people’s lives.
You may be selling because you need to move to another area to take a new job or to enjoy retirement. If you don’t close on time, you don’t get the money to make that purchase and your move will be held up. I have dealt with home sellers who have had the moving van packed and were forced to live out of a motel for several weeks while we reworked the buyers’ loan after it failed to close with another lender.
In addition, several legal transactions are contingent on the sale of your home. If you don’t sell your house, and you have a contract to buy another home, you are in breach of that contract. Once the financing contingency is released, there is no out clause. You have to close according to the letter of the sales contract. If you don’t, the seller’s agent can keep any earnest money and put the house back on the market.
Beyond the due diligence issue, a good listing agent needs to understand the benefits and value of each offer that is presented — and be able to weigh each option and make a recommendation to you. A good listing agent needs to convey that the highest offer may not always be the best offer.
Like many sellers, you may think your house is worth more than it really is. Sellers often don’t understand the pre-approval process or the home valuation process.
What sellers most understand is that Buyer A is offering the most money. The listing agent needs to be able to say, “I understand this is the highest offer, but it’s not the best offer and this is why.” Then the agent needs to explain the pros and cons of each offer.
Let’s examine three hypothetical offers: one at $325,000, another at $300,000 and a third at $290,000.
• The $325,000 offer: The listing agent calls the loan officer, who cannot answer most of the questions in the due diligence interview. He is able to tell the agent that he saw the buyers’ pay stubs and verified how much money they have in the bank.
• The $300,000 offer: The buyers went to an online bank and have a good approval letter signed by a loan officer. But the listing agent can’t get in touch with the signee.
• The $290,000 offer: The buyers have a very strong pre-approval letter signed by a branch manager. The file has been pre-underwritten by an underwriter. A high level of due diligence has been done on the buyers’ file. All questions can be readily answered by the loan officer, who is able to demonstrate intimate knowledge of the buyers’ file.
So which of these offers is the best offer in the sense that it gives the listing agent the most confidence in the buyers’ income, credit and assets being represented?
The $290,000 offer may be the least amount of money, but it does the best job of connecting all the dots. For my money, it’s the best offer because the loan officer has done the needed due diligence and is absolutely certain that the offer will close.
When all is said and done, it’s up to the listing agent to protect your interests by doing the due diligence required to make an informed determination about whether each offer received will close on time.
Says Patrick Kilner, a member of the leadership team at Keller-Williams Capital Properties in Rockville: “What you are looking for as a seller is an agent who has the systems in place to ensure that every step in the sales process happens consistently and that no balls are dropped. It comes down to who is focused on the details and who can best lead you toward the sale of life’s biggest asset — your home.” *