While no bank has come out and said it directly, their actions are speaking louder than words – banks prefer to lend on properties where the transaction was handled by a REALTOR.
As mortgage professionals we have noticed that increased scrutiny on private sales is becoming the norm – and for good reason. Take for example a recent client who found her way to the Mortgage360 offices, private sale purchase contract in hand. The young lady had just finished signing a contract to purchase the condo of her dreams. It was a beautiful condo, but it was about to become a nightmare.
Having found the property through a friend, the seller convinced her that a realtor was not necessary – a waste of money. The seller assured her that the process was easy and could be done with just the help of a lawyer. While this may have been the case, the buyer would have been far better off with the help of a realtor.
For example, a realtor could have told her that of the properties sold in the building recently, none had sold for anywhere close to the premium she was paying. In fact, when the lender sent out an appraiser, as they do on all private sales, the value came back $20,000 less than what the seller had convinced her to pay.
Having signed a legally binding purchase agreement, she was now obligated to come up with an additional $20,000 to make up the difference between what the lender was willing to lend and the amount she had agreed to pay.
The lender also insisted on going over the condo documents with a fine toothcomb, creating a mountain of paperwork that would have normally been handled by a realtor. The buyer spent countless hours seeking out the documentation after the seller refused to provide it at his own expense. In a normal transaction with a realtor the full expense would have been the obligation of the seller. Unfortunately, disagreements like this are commonplace with private sales.
If a realtor had been involved from the beginning the buyer would have benefitted is several ways. First of all, she probably would not have paid $20,000 too much. Second, the lender likely would have trusted that the value and condition of the property were suitable, and wouldn’t have required an appraisal. Third, they may have been less picky with the condo documents, saving hours of work and hundreds of dollars in fees from the management company. Last but not least, she wouldn’t be looking for an additional $20,000 for the down payment.
So while the banks are making it harder for people to get financing on private sales, it is for good reason. If extra scrutiny from lenders on for sale by owner transactions isn’t a big enough indicator that realtors are worth the expense, I don’t know what is.
