Misrepresentation of Cash Offers a concern for Regulators


June 30, 2014

The article below was sent out by the Colorado Division of Real Estate. We are re-posting this information for our students.

The summer selling season is warming up and the inventory of available homes for sale is very low.  As a result, sellers are receiving multiple offers, often times higher than the asking price and many of these offers are written as an all cash purchase.  As such, buyers are structuring offers to be the most attractive for the sellers given their individual circumstances. 

The Division of Real Estate has received reports of real estate brokers submitting offers as an all cash purchase based on a buyer's pre-approval letter for financing.  A pre-approval letter is not a commitment to lend or a guarantee that a buyer will receive a loan, but rather an estimate of purchasing power and the ability to repay the loan based on information provided by the buyer to the lender.  Pre-approval letters are usually subject to verification of the buyer's employment, assets, credit, and collateral.  Under no circumstance would a buyer be considered as a "cash buyer" when they have engaged the services of a lender for the purposes of obtaining a mortgage loan for the purchase of the subject property. 

The Real Estate Commission would consider it a misrepresentation and a possible violation of license law for a real estate broker to submit an all cash offer based on a buyer's pre-approval letter.  Regardless of the working relationship, single agent or transaction broker, a broker has a duty to exercise reasonable skill and care.  The omission of information in section 3 (Dates and Deadlines), specifically the loan objection deadline, and misrepresenting the purchase price and terms in section 4 of the Contract to Buy and Sell Real Estate may be considered negligent and subject to disciplinary action.  Additionally, pursuant to sections 12-61-805(3)(a) and 12-61-807(2)(b)(VII), C.R.S., a broker has an obligation to disclose all adverse material facts concerning the buyer's financial ability to perform the terms of the transaction. Care should be taken in accurately completing the sales contract. 

Note that the information is from the Colorado Division of Real Estate and the rules mentioned are specific to Colorado brokers. However, licensees in other states would also potentially be subject to sanctions who . "Reasonable Skill and Care" is a fundamental requirement of all real estate professionals. 

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