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Sept. 22, 2014 | CREBNow

Private sales coming under increased lender security

REALTOR® guided transactions offering more than just peace of mind

By Nolan Matthias

While no bank has come out and said it, their actions speak louder than words. Banks prefer to lend on properties where the transaction is handled by a REALTOR®.

As mortgage professionals, we have noticed increased scrutiny on private sales is becoming the norm – and for good reason. For example, a recent client who found her way to the Mortgage360 offices with a 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 a REALTOR® was a waste of money. The seller assured her the process was easy and could be done with the help of a lawyer.

Even if that's true, this buyer missed some key warning signs that would have easily been identified by a REALTOR®. Unbeknownst to her, none of the recent sales in that building 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, however, 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-toothed comb, creating a mountain of paperwork that would have normally been handled by a REALTOR®. The buyer had to spend countless hours seeking out the documentation after the seller refused to provide it at his own expense. If she had worked with a REALTOR®, the full expense would have been the seller's obligation.

Unfortunately, disagreements like this are commonplace with private sales.

If a REALTOR® had been involved from the beginning, the buyer would have benefitted in several ways. First, she likely would not have paid $20,000 too much. Second, the lender likely would have trusted the value and condition of the property were suitable, and wouldn't have required an appraisal.

Third, the lender may not have been as 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.

Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).

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