Not providing a preapproval letter may have cost the buyer's agent a $1M sale

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Not providing a preapproval letter may have cost the buyer's agent a $1M sale

TRUE AND RECENT STORY in East Bay, CA: There is an agent we will call Agent 1 who submitted an offer on a $1.2 property. The problem was, the agent didn't provide a preapproval letter or some form of proof of funds.

It isn't just the price that dictates who wins. The best and highest offer can mean how well the offer is prepared and presented, too.

The listing agent, who got burned once when this property was previously in escrow with a buyer who kept asking for extensions, was willing to give it another go.

This time, she isn't taking any chances, so she wanted to make sure the Agent 1's buyer is capable of completing the transaction. But Agent 1 always had some kind of excuse when the listing agent asked for the preapproval letter.

Where was Agent 1's sense of urgency? Why is she not fulfilling her duty and obligation to her buyer?

In the meantime, Agent 2 submitted a thoroughly clean offer with all the requisite documents to prove his client's credit-worthiness, including a preapproval letter from Wells Fargo.

SURPRISE! At the same time, Agent 1 finally came through with a preapproval letter from --- guess who? ---Wells Fargo.

So why is it that Agent 2 had no problems getting that preapproval letter whereas Agent 1 took nearly 2 weeks to get one?

Whose offer will be accepted? In weighing who might be better prepared to close the transaction and which agent would be easier to work with and is more responsive, the seller will accept Agent 2's offer which also happened to be slightly more than Agent 1's offer. And Agent 2 will get a counter offer for her buyer to a higher price and in back-up position.

Unpreparedness, unresponsiveness and a lackadaisical attitude may have cost Agent 1 the $1M sale, and her buyer the property.

Posted by Pacita Dimacali - ePRO, SRES, CDPE, MBA Alain Pinel in Alameda County CA on 05/02/2009 02:34 PM

Comments (56)

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56 Comments on Not providing a preapproval letter may have cost the buyer's agent a $1M sale

MAY

2009

I make sure every buyer that come to any of my properties has a pre approval letter in hand before walking through the door.

Some buyers do not see the urgency when they start looking at homes. It is the agent's job to explain the importance.

Pacita, There really is no excuse for an incomplete contract. In Maryland there is a provision in one of our many addenda where you can stipulate when the pre-approval letter will arrive. Rich

I have all of mine up front. No approval no show and sell. It would compound the urgency on higher priced homes.

Often times, getting buyers to understand that getting approved up front is the best (only) first step in buying a home. But I persevere, and one of two things happen: 1) they come back to me with that approval, and we find them a home, or 2) I never see them again. I suspect they either discover they aren't in the financial position to buy (some actually call to say they're going to wait), or they go find an agent who's willing to show them homes without doing that first step in the process, and hence waste their time researching, showing, & writing offers on property that can never be closed.

Pacita...

I always tell my buyer clients that the better the ability to demonstrate funds, the better the offer. Good post.

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I tell buyers to get a pre-approval letter before they begin their home search. When they find the property they want to buy, they are ready to do so and we have the information needed to fill in the contract.

Aren't we supposed educate the buyers..? Isn't this part of your job? One of the first things I do after only one time out is to request that the buyer go ahead and get the pre-approval paperwork. Usually they really appreciate my urgency about this. This way they are really ready when they find the "right one and they know exactly what they can afford.

Pacita -It sounds as if Agent #1's buyer did not have their heart in the transaction and was just fishing. Not uncommon in the higher price ranges. Also there is a possibility that Agent #2's buyers had the same type og attitude previously and lost a great house and now are "ready" to buy.

Either way , I'm sure the right buyer just bought the right house for them.

Gotta love those Scout Realtors.....we are among those who are PREPARED....gotta wonder where any agent's head is who doesn't make sure their buyers see a lender first....

We closed ona foreclosure home last month that was purchased for about $20,000 less than an earlier offer. No pre-approval. The agent told the client he'd get it after a quick weekend vacation. That client lost the purchase and is now suing the agent.

It is always nice to present and clean, professional, and complete offer from the very beginning. But, not every agent comes from the same mod I guess.Those who don't play by the rules will definitely lose out!

Pacita, this Buyer will find out the hard way the importance of pre-approval.

In this day and age, even a pre-approval isn't proof of qualification, but it sure goes a long way in demonstrating a buyer's willingness to take the necessary steps toward a successful transaction. What a timely illustration of the importance of crossing those t's and dotting those i's.

Luke --- besides asking every prospective buyer if they are represented by a realtor, we should also ask them if they are already preapproved before looking at any property. That's the first step in educating the client.

Gita --- I completely agree. Educating the client is extremely important. If they don't get it the first time, do it again and again.

Rich --- glad the preapproval letter is a requirement. In our California purchase agreement, there is also a paragraph that provides for a period of time when we can verify if the buyer has proof of funds to close.

Laura --- saves us all time and energy to preapprove a buyer from the get go.

Charlene --- it's a simple question, isn't it? How can buyers decide what to look for if they don't know what they can afford? I just tell them I don't want them to be disappointed if they fall in love with a house that is out of their budget range.

Richard W - thanks for the feature. We have to keep reminding buyers (and us) the importance of being ready to write an offer, starting with getting preapproved.

Carolyn --- thanks for the feature.

Renee --- if we can mandate that the buyers should be preapproved before they start looking for a house to buy, we should!

Judy --- absolutely, yes! We must educate buyers. And on another end, we should also insist that the their agent conforms and performs the most basic requirement: get that preapproval letter!

Laura --- to add insult to injury, Agent 1's buyer had, a year ago, asked the listing agent to show her the property. Then turned around and used another agent to write the offer. When the listing agent showed the property, she had asked the buyer if she was represented by an agent, and the buyer said no.

Sally and David --- like any other job, we should take our job seriously and always do our best.

Gabe --- you just gave another extremely good reason why an agent should be thorough and timely in presenting an offer. We also should protect ourselves from a lawsuit!

Melissa --- just think. Agent 1 could have had this sale because it was the only one for a while....by the time she came around with the preapproval, another agent came in with the right package. Imagine losing out on $1M!

Michael --- $1M deal.... $1M deal....$1M deal.

Dedra --- presentation and responsiveness are always a good indication of how well an agent will do his/her job. And reputation goes a long way in getting one's offer considered.

What a great lesson for us all. I just wonder, why was Agent 1 so reticent to provide the documents? It's best for the seller that they'll be working with the prepared Agent 2!

That photo of the raging fire and the guy futilely trying to put it out is such a great image of what happens in so many tranactions. One against everything trying to disupt the transaction. Great image.

Pacita - A very good post. If the seller takes Agent 1's offer, however attractive it may be........they are begging for trouble. Especially, in our technological environment where it is so easy to comply. Anyway, appreciate the post.

Cheers

If a buyer is really ready to go, they will do what it takes. I have gotten letters proving financial capability from attorneys, trust managers, etc. without a problem from truly able buyers.

It's the weak buyers who balk about providing proof. And poor representation not to ask for it right away.

Pacita, I will never in a million years understand why an agent will show houses to abuyer that has not shown their ability to purchase in writing. This is real estate 101.

When I get buyers that don't want a preapproval first, I blow them off. I don't play that game.

We require pre-approval letter from Buyer with all offers and require Buyers to bring the same before showing any properties. We are not tour guides, we are Realtors and professionals. Pre-approval shows that Buyer has completed a bit of preliminary work. Happy Selling.

Good Post. I have a hand out for all of my buyers regarding what to expect when buying a foreclosure and after my last transaction, I'm preparing one for the buyers' agent as well. I have hesitated to do this out of professional courtesy and generally not wanting to insult the intelligence of some of my colleagues but I've found a couple lately that didn't have much to insult. I have always made a habit of telling buyer brokers to be sure to submit proof of funds/pre-qual w/contract but am amazed by the number who don't bother. Part of the problem is the fact that with the regular market all but dead right now we are seeing more and more agents try to crack this segment without proper training and understanding of the process. You pretty much have to have some to get into the listing end of REOs but with the buyers' end, not so much. Also, I get tired of phone calls on the weekends wanting to know if I've heard back from the bank today. There's a reason they call it 'bankers hours' .

Happy Closings ;)

Hmmmmmm.....based on what you wrote, it surely sounds like the Seller choosing the offer presented by Agent #2 is the far better option.

I agree that 2 weeks is WAAAAAAAAAAAYYYY too long for a Buyer to secure a preapproval letter....wonder what caused that big delay....??? Doesn't create a very positive vibe from the start!

I do find that with people who have never purchsed a home before, they frequently have the process backward ("I want to look around, to see what I like, and THEN I will get a pre-approval...????")

Once I have the opportunity to explain why that is the "less than ideal" approach, they understand....and we get that pre-approval document in hand!

Edith Schreiber - Dallas, Texas

Hi Pacita -- It just goes to show, regardless of price range, truly doing your fiduciary duties is a minimum, especially in this crazy market.

This is an agent failure. Although the buyer may have been slow providing the lender with the information for approval, the agent should not have presented the written offer without a solid pre-approval letter.

While having one doesn't always get the contract, NOT having one surely prejudices the seller against the buyer with an incomplete contract package.

When I work with buyers I suggest to them to get a pre-approval letter before they begin their home search.

At times it is difficult to get your client to provide all the information on their end, so its not always the agents fault. If you see this happening over and over with the same agent, its probably the agents fault.

We never even begin to show homes at all until there is a pre-approval letter in place.

Pacita,

It really is very common nowadays that offers are presented with a mortgage pre-approval letter. Most real estate agents I know don't even go out with buyers before they get one.

I don't know what the excuses of Agent 1 were, but maybe Agent 1's Wells Fargo Mortgage person wasn't good. I do a few REO listings for Wells and was assigned a lousy Wells Fargo Mortgage person who was terrible. Slow, mean, discrimitory. Then I found a good Wells Fargo Mortgage person and it's been great since.

Pacita - Times have changed and Buyers and Agents must change with them. Agents especially must posture their clients in their best light to achieve their objectives. Its a shame when an agent gets in the way of someone getting the property they want.

I won't work with one without a PQ. We have to have out offers so tight in the REO world right now. All I's dotted, all T's crossed. Everything is under a microscope and if I am competing with more than one offer (the norm here) I want to make sure I am the buyer's agent you described.

MAY

2009

Marianne --- even the listing agent couldn't understand it. The listing agent held on to the offer for two weeks(the standard expiration date for an offer is three days), periodically reminding the buyer's agent that the preapproval letter was needed before the seller was going to respond. At that time, that buyer's offer was the only one on the table.

Wayne --- what the photo tells me is that putting out a raging fire with the least resource is a futile effort. Preventative measure, or quicker action may have contained the problem before it was out-of-control.

Fredy --- it's amazing what agents experience from day to day....when the listing agent told me this story late last night when we were the last ones in the office, I couldn't believe it.

Dawn --- It seemed like the offer looked good on paper, but needed to be substantiated by a preapproval letter.

Bryant --- you're right. RE 101 starts with "Are you preapproved?" and "Are you represented by a realtor?"

Angelia --- good for you. If the buyer isn't willing to be preapproved first before looking, then maybe the're not serious about buying either.

Steven and Marti --- I like what you said: "We are not tour guides." Reminds me of when someone on a blogging/social site said that realtors only provide transportation and a key to open doors. AAARRGGGHHH!

Chris --- I also give my clients who are looking at REOs, a document giving them an extensive explanation of what to expect, starting with not automatically thinking of submitting lowball offers because in many situations, the price is artificially lowered merely to stimulate demand and competitive offers. It always helps when they see that certain situations must happen enough times to warrant a handout with specific recommendations on how to write an offer.

Edith --- I always give my first time buyers the homebuying guides that title companies provided. If they won't take it from me, or if they don't remember what I told them, here's something they can refer to.

Chris --- You're right. We should always strive to do it right the first time.

Lenn --- That's what happened. Because of the agent's failure to deliver critical and requested information, the seller was indeed not predisposed to view that agent in a favorable light.

Lana --- we should always, always, always get that preapproval letter.

Aaron --- IIf the buyers say they have a lender, I always attempt to get the info directly from the lender. I never submit an offer without it.

Bob and Carolin -- this should be Rule #1 by a buyer's agent: Don't show property to a buyer without getting a preapproval letter.

Esko --- if more agents make that a requirement to get a preapproval letter first before showing property, then all prospects would know that this is standard procedure.

Marc --- After requesting a preapproval letter and the lender takes more than a day to give a preapproval letter, either the buyer hasn't spoken to a lender, or isn't serious about buying. . Hence, we move on.

Jim --- can you imagine how that buyer would feel knowing that for lack of a letter, a property was lost?

Renee --- and this is another reason why all offers must be tight: a lot of REOs even require submitting proof of funds and credit scores in addition to the preapproval letter.

Thank you Pacita for bringing this issue up to the table, as of tonight, I have an agent that faxed 9 of the 10 pages of the contract for one of my listings, missing page is the last one where we have the agent's infomation, I have not being able to tell where is this realtor from, it is not from our area and I cannot reach him. No preapproval letter of any kind. We do not show properties until we have a preapproval letter, there is no point in going out and showing homes without one. This is a very expensive lesson to learn.

Antonio

Antonio

Whenever I submit an offer, I do three things: I call the agent to tell him that i am submitting an offer, I fax it (with verification of delivery) and then I email it. Can't take a chance that my offer gets lost in a sea of faxes, especially in situatios where there may be multiple offers.

Your example certainly underlines the importance of not only being complete and careful when sending important communiques, but also of following up.

As Reagan said, "Trust, but verify."

True story: Whiel driving around with a buyer who was unsure of why I am so adamant about a preapproval, I got a call from an agent with an offer. I asked the agent quite a few questions about their buyer, stressing that we wouldn't take our house off the market into contract unless the buyer was absolutely able to perform.

After my buyer heard that conversation from the seller's side on the importance of the matter, she said she now understood.

Pacita,

What a horror story!

That said, if someone has contacted me about a specific property, I will take him or her to see it before worrying about a preapproval. I'm talking ONE here. It mostly depends on the nature of our initial phone conversation - and I will raise preapproval. A visit to 1 specific home gives me an opportunity to establish enough of a rapport and to educate that person so that we can then get the preapproval - before seeing anything else. I have NO flexibility with offers - solid $ backing with each!

Guilty here. In the past I have asked for proof before showing. If they didn't have it,I said lets look so you will be educated on the market. Thinking back now, I have yet to ever close one of those. Great post and responses.

Pacita - Hallelujah! I can't believe any agent worth his/her salt would even CONSIDER submitting an offer without a preapproval, let alone actually doing it. I'm hoping you are the unnamed listing agent who did the right thing for her client. Good job! Laraine

Yes, one must be prepared when they are writing up a contract. If you are not prepared to have the best offer package possible, one loses the opportunity to get their deal accepted, especially in a mulitiple offer situation ! Is a good learning experience for Agent 1 as well as the buyer.

Pacita - Getting a pre-approval letter to go with an offer is a MUST. I know it makes a huge difference to my seller clients in this economic climate. How is a seller supposed to be able to consider any offer seriously if it doesn't come with a pre-approvel letter advising the sellers the buyers CAN actually complete the sale?

Great post.

I start out with this question in the beginning - then we know where to go from there. I do not want to research and take them to properties that they only think or wish they could afford.

Pacita, This is a great story to tell new buyer clients the importance of squaring away approvals right away. Regards,

Pacita, I'll take a client out once without a prequal but not more than that. I won't present any offers without a prequal or proof of funds. An offer without proof of funds is not a serious offer!

MAY

2009

Pacita,

It was an incomplete contratc and the other agent was playing catch up.

It surprises me that Agent #1 wasn't as concerned with the lack of a pre-approval letter as you were! I know I want to make sure my clients are able to purchase the homes I'm showing them, especially before taking the time to write up an offer!

Pacita, No pre-approval... no showing. I do not think this is asking too much. Why waste your time.

Hi Pacita, I don't mean to go off-topic but just wanted to say that one day when I was watching a national news story about the real estate market, I saw one of your signs during the story!

MAY

2009

J.Philip --- hope you had a bluetooth ear piece when you took that call while driving :)

Irene --- showing a prospective client a property at least that one time may be a good way to establish rapport and get to know more about the client's needs. And then after that one event, it's down to brass tacks.

Rob --- Ditto, especially when I was a newbie. Today, I truly prefer to have the buyer already preapproved. Also, I ask them to come to the office and we go through the MLS searching for properties that meet their parameters. That's when we discover what truly are important to them, what they can really afford, etc.

Laraine ---- wish it was me who wrote that $1M offer. Alas, not so. I actually heard about this situation when a co-worker expressed her dilemma to me about the two offers. I may have validated her own trepidation about dealing with an agent who can't even produce a preapproval letter.

Christopher and Stephanie --- even if we aren't in a multiple offer situation, it's good policy and practice to submit a complete offer on behalf of our clients. Not only is the client's offer at stake, so is our reputation. Right?

Stephen --- yes, preapproval letter is an absolute must, and must be our policy and habit. We should try to provide answers about a client's credit-worthiness before the question is even asked.

Kathleen --- we probably all ask the question. I did today, when a prospect wanted to see my listing. When I asked him if he was already preapproved, he said, like they always do, that it shouldn't be a problem. He added that he doesn't want to look into getting preapproved until he finds a property he wants to buy. While we were talking, I checked him out: he owns several properties. So this is no slacker.

Pete --- let's keep telling our clients why it's important to be pre-approved, especially when the market is

Leah --- I totally agree. An offer without a preapproval letter is like a car without gas. Ain't going anywhere.

Terry --- that it is...incomplete. I would be embarrassed to submit an incomplete offer on behalf of a buyer, and to a seller.

Jamie --- the offending agent hurt herself and her client.

Jean --- it this were mandated as a company or as individual policy by the majority, then the buyers will ge the idea.

Shirley --- interesting! I've heard from other agents who saw me on HGTV's "My house is worth what?" Now, my signs are on TV, too? :)

MAY

2009

Pacita, oh my. You just never know what motivates people.

MAY

2009

Marianne --- when the Agent 1 was told she'd be in back up position ONLY IF there is a preapproval letter, the agent was shocked that she didn't get her offer accepted. Shocked?!

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Pacita Dimacali - ePRO, SRES, CDPE, MBA Alain Pinel in Alameda County CA

Oakland, CA

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Address: 6211 La Salle Ave, Oakland, CA, 94611

Cell Phone: (510) 205-2992

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