In this column, Cody Kessler, branch manager of the Rockville and Washington offices of Real Estate Mortgage Network, discusses what sellers should expect of their listing agents when evaluating offers on their homes. 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.”
To get a free copy of the lender due diligence questionnaire developed by Real Estate Mortgage Network, e-mail Cody Kessler at email@example.com.