Does your due diligence process include protecting your real estate commission? If not, now is the time to start doing so.
This is important because if the seller has issues with equity there could be issues with you getting paid on closing.
You also need to know ahead of time where the line is should a lower offer come in that the seller wants to accept but that would cut into your commission.
When you are the listing agent, you have an advantage in terms of the client relationship. You can ask questions and even ask for documentation.
However, if you are the agent representing a buyer, this isn’t nearly as easy to do.
In either case, you owe it to yourself, your business, and your client to do some due diligence before you agree to the listing.
The first thing to look for is in your standard property search, using your GeoWarehouse Report, for example. You need to know what is registered on the title. You might see something like:
- Multiple mortgages registered.
- One large mortgage that has a lot left to pay off.
- A big line of credit.
- And son.
All of these findings could cause concern and perhaps indicate that there may be some financial challenges if someone has refinanced all the equity in their home.
In a changing market this can also come up when property values dip. People might unknowingly have mortgages that are equal to the value of their home by virtue of a tip in the market.
The only real way to check the borrower’s ability to pay the real estate commission is to:
- Assess what you think the true market value of the property is.
This is important because you need to be able to assess how much equity your client may be able to realistically access.
- Look at a Parcel Register* to check for liens and further details on other possible registrations.
A Parcel Register* acts as a property’s credit report. It will reveal liens and other encumbrances that could affect the deal. This is where you will uncover red flags such as multiple mortgages or an undisclosed line of credit.
- From there you can ask the seller to provide a mortgage statement with a balance as it relates to each mortgage.
This will help determine equity potential. When you know how much they owe on their current mortgage, you will be able to assess how much they will have leftover when the deal closes.
Assessing the equity is good due diligence both for your real estate commission and for your client. The client will most likely want to know how much they can afford to budge on the list price should negotiation come up.
Access Parcel Registers* through the GeoWarehouse Store. Call 1-866-237-5937 or visit www.geowarehouse.ca for more information.
* An official product of the Ontario government pursuant to provincial land registration statutes.