The Real Estate Blame Game

I network with other real estate professionals on several different real estate forums and communities and I read through all of the real estate publications I receive as being a member of 3 separate real estate organizations I belong to.  I have read a couple of articles that upset me with their implications.  These articles state that we, as real estate agents, need to shoulder some of the blame for the current state of short sales and foreclosures, meaning the buyers we worked with that are now losing their homes.

I'm sure there might have been some unscrupulous agents that were in cahoots with bad mortgage companies that were working together to crank out one bad loan after another.  But with the surge in foreclosures, I truly don't think this kind of thing was happening as widely as it might seem.

Real Estate Used to be Simpler

Since I am entering my 25th year in real estate I've been through all kinds of markets and mortgage programs.  In fact, I used to pre-qualify all of my buyers on my own.  It was pretty easy, they either qualified for conventional financing or FHA (I also had a few VA mortgages).

Once mortgage options got trickier I let the loan officers do their job.  With automation at their fingertips, it took me less than a minute to give out one to three of my favorite loan officers' contact info to a potential buyer.  I was either told they couldn't qualify for a mortgage or I received a pre-qual letter telling me the amount they qualified for.

It Is Not For Me to Judge

Once I let go of the pre-qualification procedure I didn't know the financial specifics of my buyers.  Again, I left that to the loan officer.  If I got a pre-qual letter I did not question anything.  I guess the difference is that I used long-standing, reputable loan officers/mortgage providers so there was never any doubt in my mind whether the buyers could really afford what they were purchasing.

Even if I knew something that might have brought that question up in my mind, I just don't feel it is my place to say, "You know, I don't think you can really afford to buy this - I don't care what your loan officer said."  I'm supposed to sleep better knowing that these buyers found another agent that showed them Scottsdale homes for sale and wrote an accepted contract instead of me?  This has nothing to do with gaining or losing a commission.  I don't feel it's my business to dig into things that are between buyers and their loan officers.  I have never been in such a situation, but these are my feelings for any agent that might be.

As a Listing Agent We Have Even Less Power Over the Buyer

There was one time when I questioned a buyer's choice of mortgage company.  I and others had bad experiences with this particular company, although it was a different loan officer.  The selling agent admitted that others had told her the same thing about the company but she insisted that she never had a problem and that this particular loan officer was wonderful.  So we accepted the offer and went through the mortgage company which got the deal closed.  Just like with real estate agents, the loan officer can make a difference.

And this is what a good listing agent needs to do to protect their Scottsdale home sellers.  If a buyer is bringing in a pre-qualification letter from a lender with a bad reputation, or online lenders that no one has ever used locally, then it needs to be brought up.  I and other agents have also had problems with the big banks that do not have local loan processors and don't understand our contracts

Some Buyers Come to Us With Their Mortgage Company of Choice

Although I can try to get them to consider one of my reputable mortgage companies, I cannot force the issue.  So every once in a while I have to deal with a mortgage company I've never used before.  In the many years I've been in the business I haven't had much trouble with my own buyers.

But I did have a buyer that was very angry because instead of using one of my lenders, which he got pre-qualified by, he used an online company that made him a promise that they didn't keep.  If he had switched lenders by the time he figured it out he could have lost the house.  Keep in mind, when you sign a contract stating that you will close by a certain date, the seller does not have to give you an extension if that can't be done.  

So Who Is to Blame?

I don't blame buyers, especially first-time buyers who just don't know any better.  And I truly believe they do not know better as it can be very confusing to understand the mortgage process and underwriting rules.  Even a more seasoned buyer can find the process and documentation confusing.

Unless a real estate agent is working a scam with a bad loan officer/mortgage company, I don't see how real estate agents can be held accountable for selling to buyers that should not have gotten a loan in the first place.  We are not loan officers, we might not have all of the buyer's financial information and most buyers prefer it that way.  We are hired as their agent to find them their home to purchase.  The loan officer/mortgage company is hired to provide a mortgage so the home found through the real estate agent can be financed.

Countrywide Financial is being investigated and there might be lawsuits in the future.  That lawsuit will not trickle down to agents that sent their buyers to Countrywide or that worked with buyers already qualified or approved by Countrywide.  Wells Fargo is being sued by the city of Baltimore and there are multiple lawsuits against many different mortgage providers.  Again, as far as I know, there are no lawsuits against individual real estate agents regarding an agent's liability for selling a home to a buyer going into foreclosure.  I'm well aware there are many other lawsuits against agents and if you do a search on REALTOR Mike Little being sued you'll have hours of reading.

Buyers Need to Take Some Responsibility

I have worked with many buyers that were pre-qualified for a much higher monthly mortgage payment than they were comfortable with.  I am currently working with first-time Scottsdale home buyers that are not looking up to the limit of what they can afford per their pre-qualification.  This was a decision they made so I created their automated search based on what they are comfortable with.

Let's say they drive by a home that ends up being at the top of their price range and want me to show it to them.  They love the home and get their offer accepted.  They move in and start feeling the pinch of their mortgage on their young lifestyle.  Maybe one of them loses their job or one starts spending like crazy on the house and runs up the charge cards.  Maybe the home loses value next year and they are upset that they're now paying a mortgage that is more than the home is worth.

Am I to blame for any of these situations?  I do not give my buyers guarantees that their property will increase in value.  I also give them comps before they write an offer.  In fact, if a buyer views at least 3 homes they will be able to quickly figure out which one is priced the best and what is overpriced.

Lawsuits Will Point the Finger in the Right Direction

Current investigations and pending litigation will set the bar for who is to blame for the increase in foreclosures.   If it is proven that buyers were given mortgages that should have never been approved to begin with, then the mortgage companies involved need to be punished.