The responsibility of the listing agent does not change because we are dealing with Short Sales. We still owe a fiduciary duty of “utmost care, integrity, honesty and loyalty in our dealings with the seller.” What does fiduciary duty mean: simply put, I place my client’s interest over my own. I would argue this is more so in short sales because of the very real possibility our actions or inactions will directly impact whether our client’s homes get foreclosed or not.
Unfortunately, some agents do not seem to understand this serious duty and obligation by which we are contractually obligated. Because they hear that short sale transactions take a long time to close, they only see hard work and long close time ahead and do not engage in “utmost care” as prescribed in the Agency Relationship Disclosure. (See Attached)
This attitude sometimes leads to simply accepting any offer and trying to push it through, rather than doing more due diligence to insure that you accept an offer that has a high probability of being approved. You don’t have to accept the first offer that comes in.
Let me explain. I got an offer where the buyer was trying to use a Veterans Affair (VA) loan. One challenge with a VA loan when trying to buy a short sale is that there are strict requirements: such as requiring the section 1 work be cleared in order for the loan to fund. However, the fees associated with such clearance like the pest report and the actual corrective work cannot be paid by the borrower. If the buyer cannot pay, the logical conclusion is that the seller should pay.
The problem is that in a short sale situation, the seller does not have money to pay for inspections and certainly cannot commit to making repairs based on those reports. Short Sellers are ideally looking for buyers who have the resources to pick up some of the fees they cannot afford to pay.
In my situation, there were contingencies requiring a pest inspection to be ordered and if any section 1 items were identified, they were to be corrected at the seller’s expense. These could be major issues for my client; we challenged these contingencies. We eventually decided to reject this particular VA offer.
The VA buyer returned a couple of days later with a second offer. This time they simply stated in the terms that the seller would not be responsible for the cost of ordering the pest inspection and the cost of the section 1 items that would result from said inspection.
There was a problem: simply stating the seller would not be responsible for these costs did not means they were no longer an issue. The pre-condition of a VA loan is that the buyer is prohibited from paying for these two items. I was speaking with the VA buyer’s loan broker who was trying to explain to me that there was a way to get around this issue; that he was an expert in VA loans and had done dozens of these loans with no problems.
Neither my client nor I was interested in hearing about work-arounds or his past successes. My only interest was making sure I was not going to get in to contract with this particular buyer unless and until I was certain there would not be any issues with this loan funding in the near future. I wanted the buyer to be pre-qualified with my own trusted lender if we were going to talk further with this VA buyer. Both he and his client’s agent were a bit upset telling me other short sale listing agents had no issue with these types of terms nor would they go so far as to have the buyer needlessly pre-approved again and refusing to accept an otherwise good offer.
Apparently the buyer liked the house enough to contact my lender to find out what he needed to do. My lender called me to inform me not to worry about focusing on whether there were ways to side step the issue of the inspection fee and section 1 clearance; this buyer did not qualify for the VA loan. His conclusion was that the other loan broker pre-approved this buyer without reviewing his financials; there were too many red flags to justify a pre-approval letter if someone had gone over the financial documentation.
If I simply accepted this buyer and his agent’s claim that they could simply waive the pest inspection fee and the subsequent section 1 work, I would never have discovered that this buyer did not qualify for the VA loan he wanted to use. My seller would have received the approval from the lenders, only to have this buyer back out because he could not get the loan he depended on. This is a common story in the Short Sale world and I was not going to let me client suffer through such a scenario. It was much better to take a week or so to do my due diligence before getting into contract with this buyer; at least the result was not harmful to my seller.
Now we are speaking with other buyers who are financially capable of buying this home and have no contingencies which may be detrimental to my client’s, are working with real estate agents and loan brokers who have done their own due diligence about their client’s ability to buy a home.