Like most new agents, I started out being exposed to buyers through open houses and internet leads. As I was trained to do, after learning about what they were looking for, I would inquire about their financial situations. I found that those home buyers who were not pre-approved for a mortgage would always respond in one of two ways.
A large majority would always say "We really don't want to do that until we find what we are looking for" and a smaller portion would say "Our credit is great we know we are all set."
I'm going to share with you two real experiences I had as to why both of these thought patterns are putting the home buyers and real estate agents at a huge risk.
First Experience With a Buyer not Pre-Approved for a Mortgage
In the summer of 2013 I received an internet lead from some buyers looking out in the Oxford area. After discussing what they were interested in, she explained to me that she had talked to other agents already, and was upset that they would not show her any homes because they didn't have a pre-approval yet. Being that I didn't have a lot going on that week, I had them pick out 4 different homes they wanted to look at, arranged back to back showings, and instantly became their hero.
After the showings, they told me that one of the homes they saw they really liked and wanted to purchase, so I had them call my most diverse mortgage loan officer and went home to ready my paperwork. About an hour later my mortgage loan officer calls me and says "Thanks for sending those folks over, but unfortunately their situation is a mess and I'd say they are a good two years off from being able to buy anything". This was very painful to hear, because not only had I wasted my time and the buyers time, but the worst part was that one of the homes was occupied, and I had a strong pang of guilt because a homeowner had vacated their home for someone who couldn't even buy it, at my request. To make matters even worse, when I tried to follow up with the buyers and get them professional assistance with their credit, they would no longer speak to me. Most likely out of a combination of emotional pain and embarrassment.
I short, not only does not having a buyer pre-approved for a mortgage loan have the potential to waste a sellers time, a buyers time and your own time, but it leaves the buyers at a serious risk for a serious emotional wound that may stop them from ever trying to buy again.
Second Experience With Buyer Not Pre-approved for a Mortgage Loan
Once I gained a great deal of experience, I found I could roughly qualify an individual with a few simple questions about their situation. This inevitably leads to me occasionally making a pre-approval exception for a few select individuals, who are well educated on the buying process, have great credit, and a great source of income.
As an example. I have a long term client who, in addition to great credit, owns multiple rental properties and was looking to trade up and rent out her current residence. I had taken her to see homes a few times a year, as she was being very careful about her next move, and whenever I mentioned financing she would just say that she would get squared away when she found "the one".
One day early this year I took her to see a estate sale in a fantastic location that was on it's third day on the market. For the first time I saw her get excited and wanted me to make an appointment to come back with her husband.
Now anyone who works in central MA is well aware of how hot it's been the last two years, needless to say, when I called to schedule a second showing, the listing agent informed me that they had 3 offers coming in and that we had until 8pm to get an offer in. Upon delivering this information, there was a sudden sense of panic for both of us. I gave her a number for my fastest mortgage loan officer and went home to write up an offer.
Within the hour my mortgage loan officer calls me up and says "She has great credit and great income, but does not have any of the paperwork she needs on hand in order to get a solid pre-approval and it will take her a few days to get it from the IRS. I just can't do it." Regardless, I still wrote up and submitted an offer (which was defeated), but if we had the best offer and they demanded proof of funds, we would have been shut out by all the other offers that had proof, putting us both at a further risk of undue frustration.
I have found that some buyers have a hard time understanding that buying a home is much more complex than getting a car loan or credit card, and they really need to be thoroughly checked out before getting emotionally attached to a home. This is for their own protection.
In addition, the market is very hot where I live, with the best locations not lasting more than a week. Being that it can take a day or two to get necessary documents for a mortgage loan pre-approval, doing it ahead of time gives any buyer a strategic advantage of being able to move quickly on making an offer. This also is for their own protection.
On the bright side, we all know that experience makes a great agent, and having these personal stories to share has made a world of difference when meeting with new prospective clients. Especially when they are reluctant to get involved with a loan officer.
Real Estate Agent / Northborough, MA
Mathieu Newton Sotheby's International Realty