Sellers Are Justified in Requesting Buyer’s Financial Credentials

J Philip Faranda October 8, 2010

Your business IS our business if you wish to do business. 

Buyers in today’s market are in many ways in the driver’s seat in the purchase of real estate. However, they answer to a lender prior to closing, and in the case of cooperatives in New York, they also have to pass the board application process. Since a co op transaction typically lasts 90-120 days in our market, sellers are rightfully cautious about tying their home up in contract with a buyer who either can’t get financing or pass the board. Therefore, they do more homework than usual; a pre approval is just a start. 

Co op boards often have requirements that are above the procurement of financing. Buyers can expect many standards to meet, such as: 

  • Minimum down payment
  • Minimum income
  • Minimum credit score
  • Debt to income ratio threshold
  • Post closing liquidity requirement
In addition, co ops often prohibit non-owner occupant or rental arrangements, and have strict “house rules” on noise, remodeling, carpeting (to minimize noise), and even parking and storage. Why they are this way is another blog post. Suffice to say that co op ownership is technically that of a shareholder in a private corporation and not truly a parcel of real estate, so they can do things someone selling a house cannot. I have seen co op sales be rejected because of the sale price! That’s just the way it is.
If we open our home, you open the books. Therefore, there is plenty that must be ascertained about a buyer before singing contracts and waiting for them to get financing and board approvals over a period of months. Mistakes can cost a third of a year. The seller has a vested interest in the buyer getting approved, and has every right to ask for asset and income statements, credit scores, and even tax returns along with the lender pre approval.
A co op buyer in New York or Westchester who objects to this sort of scrutiny on the basis of privacy is missing the big picture. Your business IS the seller’s business. Your private finances affect the seller, and taking a home off the market while in contract with a buyer who won’t pass the board is a terrible loss of time and often, money. I have gotten some great deals for buyers on co ops that just had a buyer fail their board application. Great for the buyers. Bad for the sellers. 
Any agent who has done a relocation deal sees the same due diligence and scrutiny from relocation companies. They verify funds. They ask about transactions several dominos down in a row of purchases to protect their position. And while they are a pain in the neck, they are by and large right. I have never seen a relocation deal die because the relocation company overlooked something. 
While my focus is on cooperatives in New York, I think that my reasoning is just as sound for a farmhouse in Kansas to a fair degree ( tax returns might be overkill, but proof of down payment isn’t crazy). The buyer’s finances are the seller’s business. If you are going to do business, you are going to subordinate your privacy to disclosure. This is business, and business is business. 

 

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