Protecting the seller
The real estate market is still going strong. Mortgage interest rates dropped even further last week and are certain to get the attention of fence-sitting buyers. With even more buyers entering the market we are seeing more multiple offers. With multiple offers and back up offers on well-priced listings, how do we protect a seller and make sure they get the best offer for their property?
Every purchase and sale agreement contains several ways for a buyer to get out of a contract so having a backup offer can be important. Of course the financing contingency contained on page one, paragraph 3.C. clearly states; "This Agreement is contingent upon BUYER obtaining the following financing": Then the type(s) of loan and loan amounts are spelled out. Some offers are contingent upon a buyer getting both a first and second mortgage. Often that second mortgage is to cover closing costs that the buyer could not otherwise afford. If the buyer is unsuccessful getting either of these loans, they are free to walk away and receive their earnest money back.
During this period of attempting to obtain financing, seller's property is now in pending status or listed as "Active with contingencies." Either of these statuses affect the marketability as buyers and their agents prefer to spend time looking at listings that are readily available. If the first transaction falls through, an agent may find themselves starting over in their marketing efforts but the time waiting for the first buyer to perform has already been lost.
Most agents will provide a pre-approval letter from a lender and submit it with the offer. Unfortunately, the prefix to the word is often ignored and some agents consider the letter as proof of a buyer's ability to perform. It is anything but. Further in that same paragraph is language that can protect the seller; "Buyer agrees to furnish SELLER with a written confirmation showing lender approval of credit report, income verification, debt ratios and evidence of sufficient funds and/or proceeds necessary to close transaction in a manner acceptable to the SELLER(S) and subject only to satisfactory appraisal and final lender underwriting." Even though this language has been printed in bold, it is rare that an agent asks for that commitment letter.
The bottom line for sellers is that until the lender has made a commitment there is no guarantee that the nice folks who would like to buy your property will have the resources to perform based solely upon a pre-approval letter. Advise your agent to continue to encourage backup offers with the knowledge that, if a better offer comes along and you have not received that letter within the time frame provided for in the purchase and sale agreement, you are free to terminate that agreement within three days of the expiration of that time frame. This can save a lot of grief and possibly put more money in a seller's pocket. Isn't that why you hire an agent?
It is a competitive marketplace and many buyers are finding it challenging to find their perfect property. That is why it is ever more important to make sure that any offer you accept can be seen through to fruition.
Trust an expert...call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.