What can a Buyer really offer a Seller as proof that they are qualified to purchase their home?

By
Real Estate Agent with Chinowth & Cohen Realtors License #142914
http://actvra.in/7Cb

What can a Buyer really offer a Seller as proof that they are qualified to purchase their home?

After having TWO Tulsa home buyer’s financing fall through days before closing, I’m beginning to wonder what a Buyer can really offer a Seller as proof that they are qualified to purchase their home. Obviously the pre-approval letter from Bank of America presented to my Tulsa home sellers along with the offer was not worth the paper it was written on.

And we find out three days before closing that our Buyer does not meet all of the bank’s underwriting requirements?

BankReally, the earnest money provided is not sufficient. In this case, we have already made all requested repairs and removed all staging furniture. Our listing has been off the market for over a month and it’s impossible to quantify the number of qualified buyers we may have lost out on.

What can a Buyer really offer a Seller as proof that they are qualified to purchase their home?

In NINE years of real estate, this has only happened to me twice – and it happened twice just in the last four months. I understand that our banking industry has tightened its guidelines and underwriting requirements, but are Lenders just loosely issuing pre-qualification letters?

If I receive a pre-approval letter from Bank of America, am I suppose to question it? Should I speak to the Buyer’s Lender directly twice a week?

My Tulsa home Sellers are paying me to bring them a QUALIFIED Buyer – that’s a significant reason why they hired me. We didn’t accept an offer from a Buyer pre-qualified through an internet Lender – what more am I suppose to do to ensure that a Buyer is truly qualified?

LENDERS, I’d like to hear from you!

 

Originally Posted at: Midtown Tulsa Real Estate - Lori Cain

 

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Please visit my web site if you are shopping for Tulsa homes for sale or call 918-852-5036 for more information about Midtown Tulsa Real Estate. In addition to my advanced grasp of the internet to market your Tulsa home for sale, I include a home staging consultation with every listing AND professional photography - at no aditional cost to you!

Lori is a residential Realtor with Chinowth & Cohen Realtors serving the greater Tulsa area and specializing in downtown Tulsa and midtown Tulsa real estate.

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Morgan Mason 04/03/2011 01:14 PM
  2. Dana Devine 04/13/2011 04:06 PM
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Show All Comments
Rainmaker
598,840
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Lori - I like your requirement of the sellers or the listing agents preferred MLO/lender speak with the buyers chosen MLO/lender; I actually highly encourage this and even state so in my approval letters.  Professionally, I wish more listing agents actually did this but sadly many don't.  As Rodney #50 states, until Realtors/agents start insisting on better qualified clients, you will continue to see transactions falling apart during escrow. 

Furthermore, why should the seller or the listing agent be the ones questioning the pre-approval.  Every Realtor/agent should be verifying their own buyer clients pre-approval long before the buyer ever gets into escrow.  It's one thing to ask a prospective new client if they are pre-approved but what Realtors/agents should be doing is going one step farther and actually talking to their buyers MLO to find out what has been done to pre-approve the buyer.

Just the other day, I had some Realtor telling a prospect I was working with that they (the buyer) should just get pre-approved with their in-house lender because I was asking for way too much and refused to give the prospect a pre-approval letter until I got all the documentation I was asking for.

Anyway, as I pointed out earlier, you can demand that any buyer submitting an offer on one of your listings must double-app with your preferred MLO/lender but be prepared for some prospective buyers to pass up on your listing and it won't be because they aren't qualified; it will be because they don't want to share their personal info with parties who are working for the seller.  I speak from experience when I say that.

April 03, 2011 02:08 PM #56
Rainmaker
532,567
Cynthia Larsen
Safe Haven Realty - Cotati, CA
Sonoma County Real Estate Broker

I have 3 houses on the market that have gone through 3 buyers each. That's a lot of work for no pay. Underwriting today is vicious!

April 03, 2011 03:19 PM #57
Rainer
192,259
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton

Dear Lori,

It happens. I try to get my buyers underwriting pre-approved before going out there to write offers and still, occasionally there is something that pops up at the 11th hour that makes settlement impossible. It is frustrating to have it happen twice to the same client. I had a listing some years ago that went through four buyers before selling. It was gorgeous. At the same time, I had a dog that I thought would never sell, that settled quickly in three weeks. So long as your sellers know that it is not their or your fault and you can laugh about it later, you are doing your job. If RE were that easy, everyone would be doing it.

April 03, 2011 03:50 PM #58
Rainer
157,943
Dave King, GRI, ABR, Green. S.T.A.R.
Long and Foster Realtors - Reston, VA
"the Path to Your Dream Home"

I've noticed that if my BS detector goes off, I'm usually right.  I call and try to see how quickly they respond.  I also google the lender if I'm not familiar with them to see if they have a "real" office and staff, etc...  I had one one time that was a CPA that was licensed to loan on the side.  Ironically, the deal closed and the transaction, although taking more of my time than normal was actually quite good...  You just never know.

All the best ~

April 03, 2011 04:04 PM #59
Rainmaker
797,252
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

I think Corrine (#8) has the right plan - insist on full doc approval. Don't trust B of A.

Meanwhile... as much as I'd rather blame the banks and their sloppiness for everything, it might have been the buyer's fault. They might have done something stupid at the last minute. We had buyers once who went out and bought a new car a week before closing - and of course the closing never happened. Their debt to income and their scores were both shot.

April 03, 2011 05:37 PM #60
Rainmaker
973,701
Sharon Alters
Coldwell Banker Vanguard Realty - Fleming Island, FL
Your Fleming Island Relocation Agents.

I personally have had no problem with BofA - but I get letters that have a loan commitment with them. Will have to be on the lookout for a mere pre-qual or pre-app letter.

Sharon

April 03, 2011 06:18 PM #61
Rainer
90,309
Maya Swamy
Funds Available - Long Beach, CA
Ph.D. Long Beach, CA - fundsavailable.com

Echoing Marte above I don't know how many deals I have had fall through because the boyers went shopping for their new house and ran up their credit card balances at the last minute. You tell them and you tell themdo not use your credit cards at all until after closing. But often they don't listen.

As for double-apping it is simple. It hursts the buyers credit everytime a lender checks their credit. It is really that simple.

April 03, 2011 06:26 PM #62
Rainer
177,469
Rosalie Evans
Meritus Group Real Estate - Sioux Falls, SD
The Evans Group, Sioux Falls, SD Homes For Sale

Two in a month, really! Wow some people have all the luck! On the other hand its got to get better right?

April 03, 2011 07:07 PM #63
Rainmaker
397,835
Kathryn Acciari
RE/MAX Professional Associates, with offices in Sturbridge, Charlton, Auburn, Spencer, and Shrewsbury - Sturbridge, MA
Realtor - CDPE, CIAS, Sturbridge MA Real Estate

Make the buyers get pre-approved by a lender/mortgage pro who YOU rely on.  Or ask for more money down.  It's tough.

April 03, 2011 08:36 PM #64
Rainmaker
496,359
Lori Cain
Chinowth & Cohen Realtors - Tulsa, OK
Midtown Tulsa Real Estate Top Producer

Thanks for so much feedback. Just got in from showing houses, so will be back to respond to new comments in a bit!

April 03, 2011 09:47 PM #65
Rainmaker
496,359
Lori Cain
Chinowth & Cohen Realtors - Tulsa, OK
Midtown Tulsa Real Estate Top Producer

Linda (comment #49) interesting - we don't have that requirement here.

Rodney (comment #50) great observation that a pre-qual is a snapshot in time.

Jeff (comment #51) The issue that killed the 2nd deal is that the Buyer was transferring to our state but would not be employed until mid-summer. So, he's evidently UNEMPLOYED during current underwriting with promise of new job. Had I known these details, I would have red flags all over the place. Buyer claims he discussed entire scenario with BofA at time of application.

Morgan (comment #53) I am also learning a lot from this discussion and comments. I didn't post this to vent, but to learn how to prevent this from happening to my clients in the future.

Donne - (comment #56) You KNOW I respect your opinion, and I appreciate you coming back to comment again. Agree that requirement of Seller's Listing Agent be able to speak with Buyer's Lender is probably the best solution.

Thank you ALL for your contribution and suggestions!!

April 04, 2011 12:05 AM #66
Rainer
34,278
Gerard Falzon
- Gianni Property Group - Cary, NC - Cary, NC
Rental Property Expert, Investment Property Expert

I've found that pre-approvals, when prepared by a loan officer, are worthless.  What we need is approvals from UNDERWRITERS.  I know that an underwriter's time is more valuable that a loan officer's time so that is why the loan officer is tasked with basic analysis of a buyer's financial fitness.  I think that we need a new model where a buyer can pay a small fee ($100 - 200, plus or minus) to obtain a full approval (subject to the property) from an underwriter.  This approval should fully underwrite a borrower for 30 days from the date of the letter.  

As listing agents and sellers, we should demand to know whether what kind of approval level a buyer-prospect has before we approve appointments.  If I were a seller and someone asked to tour my home during the dinner hour, for example, I'd like to know whether this buyer is fully approved or not before I disrupt my schedule.  I would be more inclined to do that if I knew that a buyer had a "Underwriter's Approval Letter".  

April 04, 2011 09:29 AM #67
Rainer
34,768
Melanie Thompson
Mortgage Equity Team - Lynchburg, VA
Registered Mortgage Advisor

Word of experience on a Bank of America PQ letter: definitely not worth the paper it's written on when calling in to the REO department for a mandatory PQ before offer or to the 800 number.  The details do not matter to them.

I prospective buyer called me to get PQd on a 160K sales price, as she was "separating from her husband".  After a 15 minute conversation, I realized that she was not "separating" as most of is know it --- "we're not dividing assets or liabilities, I'm just trying to give him a wake up call".  Now that's a game changer.  Based on that slight change in definition, I PQd her for a 55K sales price.  That caused a response of "So how did Bank of America PQ me for 160K and you say I can only borrow 55K?"  Devil's in the details and I have a reputation to keep.  I don't want a seller in contract with a buyer that cannot close.  Bank of America's inbound call center employees couldn't give a hoot if the borrower they PQ is PQd correctly or not.  They are hiring new originators at $12/hour.  What do you expect? 

The NMLS test isn't a test on how to PQ a client.  Kind of like the RE licensing test - neither has much to do with day-to-day activities.  Do you know the law and the penalties that go with a violation. 

I'm thankful the first manager I had as an originator had no clue how to ensure a borrower would be able to close - his notion was to slap it against the wall and some would eventually stick.  "Chasing shadows" was a great analogy I've heard used. 

I ask a boatload of questions because I have to ensure the loan will close when I put my name on a PQ letter.  I have to read an entire credit report, including the public record section.  I have to read an entire bank account statement, including the overdraft loan account details, looking for NSFs and unusual deposit history.  I have to read the entire paycheck stub, including withholdings for uniforms, child support, tax liens, 401K loans, and the like.  I have to read the tax returns and look at them as if I'm an underwriter.  Discrepancies matter.  All of the fine details matter.

I offer second and third opinions on financing for a reason --- I've only conceded a borrower to another lender's better financing option once in the last 12 months.  I have the reputation that if I cannot get a deal closed, it cannot be closed.  And I sure as H do not work for Bank of America.

 

April 04, 2011 03:49 PM #68
Rainer
27,821
Christine DeLay
Bransom Real Estate, Azle, Tarrant County, TX - Azle, TX

Lori, I wrote a blog the other day about exactly the same problem. I had several closings bust in the last minute because the buyer was pre-approved but the underwriter did not approve the loan. Very disappointing and also time wasting. Donnes comment shines some light on it now. Thinking about it, all loans had pre-approvals from big banks.  So the suggestion to get prospects pre-approved by a lender you trust makes perfect sense.

April 04, 2011 04:03 PM #69
Rainmaker
496,359
Lori Cain
Chinowth & Cohen Realtors - Tulsa, OK
Midtown Tulsa Real Estate Top Producer

Gerard, Melanie and Christene - thanks for weighing in!

I am going back through ALL the comments and making notes. This is not going to bite me in the butt again!

April 04, 2011 04:17 PM #70
Rainmaker
598,840
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Lori - I LOVE MELANIE'S COMMENT #68!!!  That girlfriend is how you pre-approve a borrower.  She sounds just like me.  When a prospect contacts me, I ask so many questions first, long before I ever ask for one single piece of documentation.  I have often been chastised by my Realtor partners for scaring the holy beejesus out of their clients that they refer to me with all the questions I ask and the boatload of documentation that I ask for.  Before I ever put my name and contact info on a pre-approval letter, I make sure that my borrowers are actually capable of closing a loan.

April 04, 2011 04:23 PM #71
Rainer
5,467
Curron Eckwood
Coldwell Banker Select in Tulsa, Oklahoma - Tulsa, OK
"Your Real Estate Specialist"

Lori - I would comment but everything has already been said.  I've had this happen to me once in my 5 years so I completely understand.  Now I'm on the Seller side of 2 pending to close right now and I'm praying this DOES NOT happen!!!! Good Luck :))

April 04, 2011 05:04 PM #72
Rainmaker
132,587
Liane Thomas - Corona & Riverside Real Estate
The Jet Team, Keller Williams Realty, Corona Real Estate - Corona, CA
Bringing you Home!

Wow, usually if I get an approval from a big name lender, I think I am ready to rock. However, I have also seen 2 Wells Fargo deals go south. Maybe the loan officers are just issuing letters without documentation? My B of A rep is so good, if she says the deal will fly, it will.

April 04, 2011 05:29 PM #73
Rainmaker
1,240,579
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I have had this problem.  I think you really want to look at the lender and loan officer, maybe get some idea of what they mean by pre-qualified and how far they are into the proccess.  BTW I have had pre-quals from big banks that were useless, so it is not size it is integrity and competence.

April 04, 2011 07:32 PM #74
Rainmaker
81,527
Debbie Solano
Coldwell Banker Select, Realtors -- Tulsa, Oklahoma - Tulsa, OK
CRS -- Tulsa, Oklahoma Horse Properties & Land

Good grief, Lori!  I cannot even imagine how "irritated" you must feel.

Gerard, I love your idea of requiring an "underwriter's approval letter" for a small fee.

April 04, 2011 09:02 PM #75
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Rainmaker
496,359

Lori Cain

Midtown Tulsa Real Estate Top Producer
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