Just three weeks after they put their home up for sale in August 2008, Lisa Diamond and her husband received an offer of their full asking price of $899,000 for their three-story, Victorian-style home in San Francisco. They were reassured by their real estate agent that the buyer had the money required to close the deal and were encouraged to allow him to move in before the close of escrow because the deal was so solid.

Unfortunately, the buyer turned out to be without the means to buy the property, and the Diamonds had to evict him. Even worse, the buyer caused tens of thousands of dollars of damage to their property.

The Diamonds were much more cautious when they put their home back on the market a short while later. To protect themselves, they used these helpful tools to research, background check and prequalify their new buyer:

  • Google name search on the buyer to check for recent litigation, bankruptcy or bad press.
  • Better Business Bureau check on the buyer’s employer.
  • A look at the records on the buyer’s home to find out how much is owed on the mortgage, when it was purchased, and any other relevant details about its status. (This type of information can be purchased from sites like homeinfomax.com.)
  • A certified letter (requested by the Diamonds) from the buyer’s personal bank attesting to the buyer’s financial status and ability to afford the costs associated with closing on the home.

    • Such steps would have seemed unnecessary just a few years ago, but tighter credit requirements have reduced the pool of qualified buyers — and sellers should be cautious. It’s possible to waste considerable time and energy wooing a buyer who is unqualified to purchase a home. Real estate agents also have their own qualification process to shield their sellers from trouble.

    At a minimum, Marilyn Buckley, an agent with the Buckley-Parshall Team of Nothnagle Realtors in Rochester, N.Y., wants to see a mortgage pre-approval letter from the buyer within 24 hours of receiving an offer on a property. (A pre-approval lender shows that a lending institution has checked a potential buyer’s ability to borrow a specified amount.) But pre-approval on its own is not sufficient anymore. “I also look at the lender,” says Buckley. “Is it a reputable firm or someone I’ve never heard of?”

    Even banking relationships are examined. “The location of the buyer’s down payment is also critical,” says Dana Graham of Prudential California Realty Palos Verdes. “I don’t want to hear that it’s in the Bank of Kandahar.” A major U.S. bank raises fewer red flags.

    Graham uses the time immediately following acceptance of an offer, when buyers are basking in the euphoria of their upcoming purchase, to ask them to apply for a mortgage with a firm he trusts. At this point, buyers are generally more willing to submit to certain requests, he says, to ensure they get the house.

    He also shortens buyer deadlines, such as reducing the time given the buyer to receive mortgage approval and conduct a home inspection, from the standard 17 days to 10. His reasoning? “It’s much easier for a buyer to get out of a deal than the seller,” he says, so he works to keep the sale moving forward quickly while also alerting the seller as soon as possible to potential problems. As the saying goes, “the best defense is a good offense.”