Who to believe? Broker or lawyer?

January 31, 2007 6:44 PM

Brokers - I think I got some bad advice from a real estate broker when buying a house, and it might cost me the deal... how do I know who's telling the truth?

Before we put in our offer, our broker said that we shouldn't ask for a mortgage contingency clause because it would make our offer more attractive. So, we bid and specified no contingency - and now our lawyer wants us to sign a waiver if she's going to continue to represent us because she says this is a really bad idea. The broker claims in five years of doing closings (this is in Scarsdale, NY) she's never had a contract with a mortgage contingency. Our lawyer and our mortgage broker says that can't be true. Is our broker telling the truth? If she's not, what can she stand to gain?
Our lawyer says that without the clause, the seller sees little benefit but we face enormous risk if it goes pear shaped, which we agree with. Our broker says if we don't agree to waive the contingency clause, we'll lose the deal... has anybody been through this before? What's going on here?

posted by ny_scotsman to Home & Garden (18 answers total)

Do you mean that your buying was contingent upon you obtaining a mortgage? If so, and you can't do the deal without a mortgage, you would be silly NOT to have that as a contingency. Without the contingency, I would think that you are on the hook (at least to the extent of your deposit) if you can't get a mortgage. I assume you are qualified for the mortgage? You might have been better off to pre-qualify before you started looking. Why the broker doesn't want this in there is beyond me. This is a normal contingency. It is not like the purchase is contingent on you selling your present house. Now that one presents some valid objections.

I would have my lawyer call the broker and tell her to write the offer as YOU have told her to write it. If it kills the deal, it may be God's way of telling you it wasn't a good thing to happen.
posted by toucano at 6:53 PM on January 31, 2007

What's going on here is that your broker is trying to close the deal so they get paid, and the lawyer is trying to look after your best interests.

You should listen to the lawyer. That is what they are there for.

If you are worried about losing the deal, put in a slightly higher offer with a contingency clause.
posted by unSane at 6:54 PM on January 31, 2007

Well, do you have a mortgage lined up or don't you? Surely you've talked to a bank (or several) prior to this point? Only you can judge whether the absence of such a clause adds any real risk to the transaction. Bill Gates doesn't need a mortgage contingency clause. Other people might.

(If you absolutely can't figure this out on your own, trust the lawyer over the real estate agent. The agent doesn't get paid if the deal doesn't close. The lawyer gets paid regardless.)
posted by jellicle at 6:58 PM on January 31, 2007

Response by poster: toucano, you're right - we need a mortgage (we're pre-approved for a 30 yr fixed jumbo at 80% financing) - and we don't like the idea of losing the deposit if anything goes wrong. This is our first house, we have excellent credit + savings etc, so it should be a straight deal.

Our lawyer is going to try and sort things out with the other lawyer tomorrow morning. Our broker earlier tonight said that the seller's broker gave us 10 minutes to agree to the no-contingency, but that just sounded so wrong we are worried somebody is trying to screw us. We just have no idea if the no-contingency practise is standard or not and if not, why this is so much of an issue?
posted by ny_scotsman at 6:58 PM on January 31, 2007

Best answer: from my perspective as a retired california lawyer _and_ a former california real estate broker, i can tell you to listen to your lawyer. if you don't have a mortgage contingency clause but need a mortgage to buy the property (because you can't afford all cash) and either you or the property doesn't qualify for a suitable mortgage, you'll lose your initial earnest money deposit, plain and simple.
posted by bruce at 7:12 PM on January 31, 2007

Best answer: Our broker earlier tonight said that the seller's broker gave us 10 minutes to agree to the no-contingency

Your broker is trying to prey on your new-buyerness. She is not representing your interests. Unfortunately, there is relatively little you can do, except realize: she's a bad one. She's not trying to screw you, precisely; rather she's trying to make sure she gets paid, whether or not that turns out badly for you. She has *indifference* to your interests.
posted by jellicle at 7:13 PM on January 31, 2007

Response by poster: bruce, jellicle - thanks for your answers - Mrs. ny_scotsman and I think you both put it perfectly. Since we don't have a suitcase of cash on hand, we need the contingency, and we do think indifference sums up our broker perfectly. She's always been trying to get us to compromise, not make a fuss or negotiate - and this is really the limit. We'll do our best to make the deal with the contingency, but we'll definitely get a new broker no matter what happens.
posted by ny_scotsman at 7:22 PM on January 31, 2007

Get the contingency, and affix the pre-approval letter to your offer.

And get a different broker. ;)
posted by deCadmus at 7:52 PM on January 31, 2007

Get a *buyer's* broker.
posted by megatherium at 8:24 PM on January 31, 2007

That 10 minute deadline is completely sleazy. What's the real estate market like in your area? Is the house so completely desirable that you can't walk away? I'd sure be tempted to after that...
posted by MegoSteve at 9:26 PM on January 31, 2007

Here in Vancouver, Canada, it's been standard for the past 3 or 4 years to do deals without contingencies for financing. When we bought our home (second time) this year, we could not find any sellers who would allow "subject to financing". I haven't heard of lawyers balking at it. Perhaps there's something about your real estate market or your profile that makes the lawyer nervous.

Losing your deposit at this point would be very difficult. Could you get the advice of a second lawyer?

FWIW, our bank freaked out about a clause in the contract and backed out at the 11th hour. (Even though they'd had the contract for a couple of weeks.) We had to put backup financing in place, which took a week to set up, even though we had backup preapprovals. It was awful. And we had stellar credit, previous ownership, more than adequate incomes....it was just that the bank didn't like a clause that our seller refused to change. And we didn't have subject to financing, so we could have been over a barrel.
posted by acoutu at 9:45 PM on January 31, 2007

It really sounds to me like you have a sleazy broker working for you. Is the broker acting technically 'a buyer's representative'? That means are they supposed to be YOUR agent for negotiations. If so, either I am missing something (like this being the real estate deal of a lifetime in a still hot RE market), or they just 'don't get it'. Their primary fiduciary responsibility if to YOU. Not to the seller. And not to themselves.

You say that you are pre-approved, but as someone posted, "stuff happens" and you need to be sure that if it does, you are not going to be left holding the bag. Your broker ought to be backing you up on this 100%. Now perhaps the seller's broker is telling your broker the truth and the contingency will kill the deal. But if you are pre-approved (and the house has no major flaws and will appraise out for the loan) I would question whether or not he is giving the sellers good service in their best interest.

IF your lawyer can not get a quick resolution in your favor, you have some choices to make. The biggest one is: how badly do you really want this house? I learned a long time ago: When you are looking to buying real estate, never ever fall in love with a piece of real estate and always be ready to walk away from any deal if it starts to smell.

Believe it or not, if this deal does die, I'm sure that there will be another opportunity just as good. Don't get ulcers. But if required, get a different broker next time.
posted by toucano at 1:00 AM on February 1, 2007

Listen to your lawyer. Your broker is a slimeball.

Talk to your lawyer and see if you can walk away from this house, the sellers and your broker unscathed and then do so. If you signed anything with the broker, specific to an exclusive relationship with the broker/real estate agency during this specific transaction, be sure to show that to your lawyer and have your lawyer advise from there.

I know you both have probably fallen in love with the house, but there will be others. And quite frankly, if you're being bullied and lied to about this, I would almost bet there has been other issues you haven't been told the entire truth on. Definitely get the hell away from that broker and find a buyer's agent if you can. Google will help you there, there are a ton and I'm not going to specifically recommend any of them. You can also ask your lawyer about buyer's agent and how to proceed.

Good luck.
posted by jerseygirl at 4:24 AM on February 1, 2007

And talk to the broker's broker-in-charge and let him or her know what is going on. It is in the b-in-c's interest to know if your broker is not doing his job correctly. A lot of times, the b-in-c can get you out of any contract with the agent.
posted by konolia at 5:57 AM on February 1, 2007

Also, know that brokers get more customers through referrals. If you're not happy, they know you'll bad mouth them around town. That's bad for their business. It is better for them to let you out of the contract than try to enforce it and not only loose a client, but gain an angry one.
posted by onhazier at 6:34 AM on February 1, 2007

I am a Realtor licensed in Minnesota... if I was representing the seller and an offer came in that was NOT contingent an financing, I would expect it to be a cash deal -- thus I would want to see proof of funds. If you said "oh I don't have the cash, we're getting a mortgage!" I would want to see full-underwriting approval already completed, which is impossible unless you already had an appraisal and title work completed.

So yeah, your broker is weird.
posted by thilmony at 6:54 AM on February 1, 2007

It's not clear in your description whether or not you have a buyers agent or an agent acting as a dual agent. Either way, your agent is not performing his duty, acting as your proxy and looking out for your best interests. I'm sure you signed an agency contract of some kind but know that this is a contract of employment - your'e the employer and the broker is the employee. Fire your broker. If you fire your broker and still buy this house though, your broker has "procured cause" by showing it to you and your broker may be entitled to their cut of the commission. Depending on your state laws, I would ask your attorney if you can fire your broker without them getting their commission -- since your broker possibly violated the terms of your contract (by giving you bad advice).

Why a mortgage contingency would make your offer look less attractive is beyond me (in a normal real estate market).
posted by premortem at 9:43 AM on February 1, 2007

Why a mortgage contingency would make your offer look less attractive is beyond me (in a normal real estate market).

Because the seller knows there's something wrong with his property that might make it fail to be eligible for a mortgage, and he wants to be completely off-the-hook for this when completing the binding sale contract?
posted by ikkyu2 at 8:25 PM on February 1, 2007