By Jeff Stern
My clients were selling their house and had received an offer. Right away, I knew something was fishy.
The offer itself was fine. It had the typical conditions that most offers have, including the condition that they would buy if financing went through. What was unusual was how quiet they and their agent went in the days that followed. Normally, the buyer and their agent are eager to satisfy offer conditions as soon as possible.
We didn’t hear from them for days, so I phoned the agent. “How’s the financing coming?”
“They’re working on it,” the agent said.
So, we waited some more, but after all these decades in the industry, my spidey senses were tingling…telling me something wasn’t right.
Finally, the night before the offer was set to expire, the agent called and asked for an extension on the financing. At that point, I required more information. Without that, I wasn’t going to subject my clients to this risk. That’s when I found out the whole story.
The buyers were new to Canada, having immigrated to Winnipeg to start their new life studying in university. Their family had offered them a sizable amount of money to start their new life here and the couple had planned to use it as a down payment on their house.
That night, after their offer was accepted, they called overseas and excitedly announced to their family, “Guess what! We bought a house!”
The family was not happy… “What? We’re not giving you the money for that! You were supposed to use it to get established in your new country, not buy a house.”
Suddenly their down payment was gone and they were scrambling to secure additional financing for their house.
My clients in good faith granted the extension for three days, but the same thing happened again. The night before the offer was set to expire, we got another story of how the financing wasn’t working out. This time they were changing lenders and wanted another extension.
The worst part was that they were not telling their agent or my clients any of this and they intended to tie up the for-sale house for another few days.
Here’s the big problem with all of this – while an offer is pending on a house, it affects the sellers, losing valuable exposure of their home for a financially qualified buyer. These buyers, as was discovered, were not qualified and somehow their agent was in the dark on it – why, I can only surmise.
When I represent my clients as buyers, I always obtain a pre-approval letter from their lender before they set out to see, let alone make an offer, on a home. The letter is critical as it outlines the amount of mortgage they can obtain, the amount of down payment and closing cost monies required, the terms and any conditions of the approval. That way we know up-front any potential hurdles to clear ahead of time.
If the offer goes through, it’s fine. But what if the offer falls through? The seller loses.
I suspected the couple was either knowingly or perhaps unknowingly acting in bad faith and the sellers’ lawyer suspected possible fraud due to misrepresentation. Had they been up-front about their challenges, my sellers could have rejected the offer and moved on to others or their agent could provide guidance as to how to put it together for them. That is what we as real estate professionals do! They should have put their ducks in a row before offering, not making their problem my sellers’ problem. It’s just bad faith.
What happened next was that the seller refused to release the deposit, so my office held it in our trust account for two years sitting on our books (an accounting nightmare) while their respective lawyers could deal with it.
This is the cost of not having ducks in a row. The buyers were at risk of losing thousands of dollars and perhaps being sued for even more.
If you’re the agent, clear communication and understanding of your client’s situation is on you. You have duties of honesty and fairness to everyone involved.
If you’re the person buying (or selling) be honest. Be transparent. This is legally binding stuff, people – there cannot be any misrepresentation.
If you’re relying on some external source to fund your down payment (even if that external source is your own mutual fund or RRSP), don’t rely on it until it’s in hand.
Are all your client’s ducks in a row? Download my Preapproval Checklist to find out.