We’ve talked
about it before on this site: Cash is King. Sellers prefer cash deals because
they sidestep appraisal issues, underwriting issues and sometimes inspection
issues. Neat and clean, easy to
close.
So what
happens when agents, desperate to get buyers under contract in the nation’s
most competitive real estate market, lie on the purchase contract and say they
have a cash buyer… when, in fact, that buyer is securing a loan?
So far, not much.
But
hopefully that’s about to change.
On Monday,
the Colorado Real Estate Commission sent out a strongly worded email to all
licensed agents in the state, reminding agents that lying about a buyer’s
financial qualifications is akin to fraud, and puts both the buyer’s earnest
money at stake and could subject the agent to disciplinary action.
Let’s hope
they’re serious.
In many
areas of town (think Highlands, Berkeley, Wash Park, Platt Park, Capitol Hill
and related neighborhoods), cash truly is king.
This is because these neighborhoods, while high on charm and character,
are low in school performance.
So who moves
there?
In large
part, it’s empty nesters, 20 years into a career with the kids headed off to
college. These buyers are too young for
the old folks home, and too old for the suburbs. To them, the idea of living in a refurbished
Victorian, Tudor or Denver Square with high walkability close to downtown is a
dream come true, and because they are 20 years into a career (think doctors,
lawyers and business owners) and their first homes have been paid for, at closing they plan to write a check, not sign a
mortgage.
So if you
have a financed buyer in this part of town, you’re pretty much out of luck,
most of the time.
How then, do
you compete? For many agents, the answer
has been to lie.
Now if I’m
the listing agent, of course I am going to ask for proof of funds with any cash
offer. But you can never presume
competence (especially in real estate), so apparently a whole bunch of these
listing agents are just saying “yes” without doing proper diligence.
At that
point, the buyer does his inspection, orders his appraisal, and then, about a
week before closing, the buyer’s agent will casually let the seller’s agent
know “Oh, by the way, my buyer has decided to finance. But it won’t affect anything. We’ll see you next Tuesday at the closing
table.”
It’s these
types of scenarios that have been called to the Real Estate Commission’s
attention, and it’s obviously happening a lot if the Commission has decided to
email every licensee in the state.
The fact is
a financed offer has about five times the likelihood of falling apart in a hot
market than a cash offer, because appraisal issues are everywhere, buyers are
having to “reach” to qualify in a rapidly appreciating market and underwriting
guidelines remain still extremely tight by historical standards.
So when a
seller says “yes” to a cash offer, that decision is often made because it
promises to be an easy, stress-free transaction. But if it’s really a financed offer, then all
of that security is a fraudulent illusion.
In 19 years,
I have never seen a market like this.
Ever.
I wrote my
32nd and 33rd failed offers of the year earlier this
week, both over list price, both for properties that had been on the market
less than 24 hours.
Both of my offers were financed.
I wonder if
we lost to a “cash” buyer who really wasn’t.
When markets
get hot, buyers (and agents) get desperate.
Lying is never okay, and if agents are found to be doing it, I hope the
CREC doesn’t fool around in revoking some licenses and making some examples of
people.
Thanks to the fraudsters among us, the
reputation of the industry is once again at stake.
