Family standing outside their house for sale © iStock

Dear Real Estate Adviser,
We’re a month out from closing on selling our home. We’re trying to buy our next home, too. However, after we signed the contract to buy that home, the lenders raised our minimum down payment from 10% to 20%. That’s impossible for us. Our Realtor, who we’re using to sell our home and buy the new one (she gets commission on each), says we’re obliged to sell or she will sue us. And the sales contract says if we don’t close, the buyer may seek relief provided by law and keep our earnest money. What can we do?
— Flustered

Dear Flustered,
You’ll probably be out the earnest money and will owe your agent for lost marketing monies, but realistically, that should be about it unless someone really gets hard-headed.

A broken link

Unfortunately, one blip in the mortgage-approval process can cause a chain reaction, sort of like the old Christmas light strings where if one went out, they’d all go out. Experienced agents know this fallout occurs and usually move on, though some will graciously try to find a solution for their clients in the form of a different home, seller-finance scenario, etc. Yours, however, seems to be needlessly burning this bridge with her lawsuit threat, unless some detail is missing.

Despite the purchase falling apart, I must mention that it may still be advantageous for you to sell right now, which we’ll get to in a minute.

Perils of dual agency

While I assume you’re contractually off the hook in the purchase, I’ll bet there was no mortgage contingency on you successfully getting funds for your replacement home built into your own selling agreement. That would mean that your dual agent, surprise, wasn’t representing your best interests and was likely stacking the deck in her favor.

At face value, it seems both logical and convenient to use the same agent in the sale and the purchase — until something like this happens. Over the years, I’ve yet to see any compelling evidence that such dual arrangements are better for the consumer than hiring separate specialists for buyer’s and seller’s representation. I have, however, seen evidence to the contrary.

Quandary was predictable

In your case, the agent should have known that you’re either upside down in your house or netting very little on your sale, which would be bound to jack up your down payment on the new home.

If you decide not to sell, you can write a registered letter to the Realtor and his or her agency about what occurred, citing the questionable ethics of it and stating that you’re therefore under no obligation to continue with the sale but that you will be glad to compensate the agent for all documented marketing expenses. Almost always, the agent will back off lawsuit threats for fear of negative publicity and bad online reviews. But if you do end up buying the same house you were seeking before the lender upped your ante, you’ll owe said agent the agreed-upon commission even if you dismiss your lawsuit-threatening double agent.

Should you go ahead and sell now?

About that sale, which you do seem to have nailed down: If the terms are good and they give you any freedom to temporarily rent somewhere and perhaps store some of your stuff, the most important leg of the sale/purchase will be behind you. You won’t have to worry about the nail-biting process of juggling the sale with the purchase.

But if strapped finances, your credit rating and a shortage of affordable housing suggest you should stay in your house to be assured a roof over your head (ideally without falling deeper in a financial hole), perhaps you should wait awhile and try building up a bigger down payment.

Credit surprises are the last thing you want to deal with during the mortgage process. You can see your credit report and score free at myBankrate.

Good luck!

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