Our goal at ALT has always been to offer you no-nonsense advice, and help you avoid unnecessary pitfalls during the process of buying or refinancing real estate. In the spirit of the season, I thought I would share a few horror stories from around the closing table. If you’re thinking about buying a home, don’t worry. Most trouble is avoidable as long as you surround yourself with the right team of professionals.
Several weeks ago we handled a closing for a young man in Philadelphia who was buying a house. Our buyer was represented by a real estate agent, a friend of his. The seller, working without a real estate agent, was handling the sale of his home on his own. In this case, the seller agreed to pay our buyer’s agent a commission for bringing a qualified buyer and preparing the agreement of sale.
This all sounds pretty ordinary so far but here’s where things got a little dicey. When preparing the agreement of sale, our client’s real estate agent designated the seller as the party responsible for holding the buyer’s $3,000 earnest money deposit. Typically, deposit money is held in an escrow account of a neutral party, such as the real estate broker, attorney or title company, until settlement when the funds are applied towards to the buyer/borrower’s cash needed to close. Yet this real estate agent didn’t see any risk in handing over $3,000 to the seller.
Outside of the agreement of sale, more trouble was brewing. Settlement was postponed over and over, because the buyer’s lender, TD Bank, was not able to have the loan underwritten and approved in the agreed upon time frame. It’s not uncommon to have delays because a lender requires more time, but some lenders develop a reputation for regularly missing closing dates. Meanwhile with nearly 4 weeks of delays, both the buyer and the seller are becoming somewhat irritable to say the least.
The transaction finally makes it to the settlement table. We ask the seller for the $3,000 deposit and he refuses to hand it over, stating he was entitled to keep that money as compensation as a result of the delay caused by the buyer’s lender. The buyer objected, yet the seller stood his ground and refused to sign the deed or the settlement sheet if the deposit money was reduced from his seller proceeds.
The buyer, wanting the house badly enough, came up with another $3,000 to complete the transaction, but vowed to file a law suit against the seller. This entire situation could have been avoided had it not been for the real estate agent’s lack of experience in preparing an agreement of sale. This agent put himself, his broker and his client in a very difficult situation, despite his best intentions.
The buyer has since hired an attorney and filed a complaint against the seller in small claims court and his real estate agent, a friend, has been unreachable. Had this particular real estate agent not been a close friend of the buyer, he and his broker most likely would have been sued as well. FYI… This wasn’t a little “mom and pop” real estate broker; conversely, it was one of the top five franchises in the nation with multiple offices throughout the Delaware Valley.
Bottom Line: We can’t stress enough the importance of finding a good settlement company before you start the home buying process. Had we met this client earlier in the process, our on-staff real estate attorney could have either reviewed the agreement of sale, advising our buyer before he signed it, or prepared the agreement on his behalf.