Holding an Offer HOSTAGE for a Second Preapproval

By
Real Estate Agent with Liberty Homes RS-#62825

Many seller's agents are requesting for the buyer's to get preapproved with XYZ  lender as a stipulation for submission with their offer.  What if the buyer trusts their OWN mortgage broker or loan officer of choice?

In a situation where I've had a repeat customer who did choose their own loan officer and the seller's agent  demanded a preapproval from the funding lender of their choice is when my clients became very leary. 

The cons of ‘forcing' a buyer to get preapproved AGAIN:

  • They trust their own loan officer because they've used he/she before and did a great job.  (AND..it was their choice so there is no conflict of interest)
  • They are getting leary as to why they HAVE to have another lender pull their credit ....again.
  • If the seller's agent has stated to use XYZ  lender for a preapproval ...they really start getting leary.
  • They dump their loan officer and go with an unknown loan officer who promised them the world and doesn't perform.
  • There is nothing in writing to the buyer from the seller stating that they are requiring the buyer to run their credit again and get a preapproval from a funding lender.  

The pros of having a buyer get preapproved AGAIN:

  • Shows the seller that they are qualified with a funding lender and no worries that the qualification IS worth the paper it is written on.
  • Gives the seller's agent some control over the situation in presenting a more solid offer to the seller.
  • If this stipulation is on the listing agreement and signed by the seller then it IS the seller's request and not the agent.  (might as well go further and have the seller sign something to present to the buyer.)
  • The buyer's offer will be considered amongst multiple offers submitted for the same property.   

There are times I've given my buyer's a list of loan officers I've worked with (especially relocating military who know no one here) and they speak to and choose which one they want to work with. But I do NOT choose a lender or loan officer FOR them!

In summary, my belief is that there is NO solid transactions until recording. There are always bumps in the road and other circumstances that buyer's will back out of a contract (i.e. home inspection, title issues, termites etc.)  ........But HAVING TO get a SECOND preapproval letter with a XYZ lender after they have already gone through a complete credit and application process with their own loan officer  is when I think that a demand for a statement signed by the seller requesting to do so may be a good option.

........for all involved.

Posted by

                                                       

 

Celeste "Sally" Cheeseman  is a Realtor-Associate® and Certified Residential Specialist (CRS) with Century 21 Liberty Homes in Mililani, Hawaii. With a sharp understanding that a listening ear is the key to a client's needs  she serves the island of Oahu (Honolulu County) and all Hawaii Military Relocations, Hawaii Retirees, Hawaii Job Transfers and Hawaii Residents, Home Buyers and Sellers.

 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Christopher Webster 08/01/2010 06:15 PM
  2. Lewis Poretz 08/02/2010 09:26 AM
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Rainmaker
271,985
Matt Stigliano
Kimberly Howell Properties (210) 646-HOME - San Antonio, TX
Sally - I think it's a dangerous game that agents and sellers are getting involved in more and more. Although it may be perfectly legal (and I agree there should be something in writing from the seller), my fear is that as the practice grows, it will come under more and more scrutiny. Although no one is saying you have to use that lender, there is a certain implication that comes with it. An implication of preference. My guess is that there will come a day when it gets to the point where someone will step in and swing the RESPA hammer. The fear is that with all corrections, the hammer will swing too far. Perhaps there will come a day, when we find ourselves unable to even discuss the lenders with our clients. When saying that Lender XYZ has or hasn't come through for your clients in the past becomes a violation. I'm very curious to see how things like RESPA evolve over time because of our (or others) actions. Look at the HVCC. Although we all groaned about it, there was a good reason it came about. It was meant to fix a problem - unfortunately the agents and lenders who manipulated the system of appraisals created a situation that needed to be corrected...but how? Enter the HVCC, which was designed to correct a problem in our industry, but at the same time swung the pendulum so far to one side that it created its own set of problems. We have a tendency to overcorrect. That's my fear.
Aug 02, 2010 02:02 AM #54
Rainer
36,027
Jennifer Archambeault
Cardani Group, REALTORS® - Austin Texas - Austin, TX
An Austin Texas Realtor

As primarily a listing agent, my clients and I have requested this.  Many of my builders require this if the buyer will be making many color selection changes or choices as they want to be 100% they buyer is approved... and they want to hear those words from someone they know and trust.  I do not see a problem with the second request for approval. 

Aug 02, 2010 02:21 AM #55
Ambassador
3,061,218
Debe Maxwell, CRS
www.iCharlotteHomes.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

We do this up front, Sally.  We include in the listing that the buyer has to provide a pre-qualification from the seller's lender (generally a foreclosure, short sale or builder listing).  The buyer is not required to USE this lender, just get a pre-qual through them.  This gives everyone a better feel that the transaction will ultimately CLOSE!  We don't, however, tell them AFTER they've presented the Offer unless their original pre-approval/pre-qualification letter comes from a lender witn a horrible reputation (say, some that do them online, never even pulling the credit of the buyer).

Aug 02, 2010 02:31 AM #56
Rainmaker
397,276
Rodney Mason
Angel Oak Home Loans - Atlanta, GA
AL,FL,GA, SC, TN

Most REO sellers are going to require a Pre-Qualification from a specific lender.  They are doing this in an effort to reduce the extremely high fall out rates of actual closings.  I regularly see borrowers supposedly "Pre-Qualified" elsewhere who really don'tqualify at all and I don't see how they ever could have. 

I actually had a buyer's LO email me one day, with a cc to the listing agent no less, that her client was in the middle of getting re-scored and she was not at a 620+ yet.  She was positive it would get the score above 620 which was the minimum score for the bond program that she was doing.  This was an LO issuing a letter based on speculation of what a credit score was going to be.  Funny thing is, the buyer told me this is now her 2nd re-score since the first one didn't work.  Would you want your seller to take that letter?

I have one on my desk right now from someone who makes $2,000/month and says she has been qualified for a $200K home.  Her tax returns don't show her making over $18,000 in either of the last 2 years and there is no co-signer.  You have to wonder how she got that letter.

The ones (buyers and agents) who put up the biggest resistance know they have issues and they don't want the sellers lender to see them.  This is the red flag to us.  They know their chances of their offer getting accepted will be much less.  Some agents have even told me they don't care if the buyer qualifies now or not, they just want to get the property under contract and deal with qualifyingpart later.  That is just an agent desperate for a closing.  Do you really think any seller wants that buyer?

REO sellers want viable buyers who can actually close.  Since so many LO's still issue garbage letters, this is the only way to control the process and reduce the marketing time of their properties.

Aug 02, 2010 02:47 AM #57
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Erica Ramus
Erica Ramus - Ramus Realty Group - Pottsville, PA - Pottsville, PA
MRE, Schuylkill County PA Real Estate

I hate it when a seller requires you to be preapproved with their own lender. Of course, you can still choose your lender of choice, but it's one more hoop for the buyer to jump thru and is it really necessary?

Aug 02, 2010 03:20 AM #58
Rainer
80,957
Patrick Harfst
Realty Executives - Phoenix AZ - Gilbert, AZ

Here in AZ, we see this alot. Banks do not trust anyone, especially other banks. They know the swiss cheese letters, because they developed the concept! What they probably under-calculate is the showings that do not happen when the listing has this language. Many buyers will not go along with this tactic, thus it is filtered out before they hit the streets. Do the banks care? Do they even know?

Aug 02, 2010 04:01 AM #59
Rainer
128,727
Dan Quinn
The Eric Steart Group of Long & Foster Real Estate - Silver Spring, MD
Dan Quinn

On several occasion I have talked to the listing agent about this provision and the agent has relented and said they would present my client's offer without the approval from the seller's bank. 

If the buyer's offer is solid with a strong preapproval letter and Buyer's Financial Statement these "required" approvals sometimes can be avoided.

Aug 02, 2010 04:02 AM #60
Rainmaker
232,679
Ken Barker Realtor® GRI, E-Pro Certified
Dilbeck Real Estate - Burbank, CA

Sally - My blood is boiling. It so irritates me when the listing office, not always bank owned, requires this. If it is with my MLO of choice that the buyer has gone with, my MLO provides not only the information that a pre-approval should have, but a fully executed DU. This shows that the buyer is who the MLO says they are.

Like what Donne says sometimes they can call the "lender required" and give the DU and documents required directly so the BUYER is not inconvenienced with having to do everything all over again.

O.K. I am better now.

Aug 02, 2010 05:20 AM #61
Rainer
42,886
Don Corson
Coldwell Banker King Thompson - Columbus, OH

It's interesting to me how many agents will "pass" on showing certain houses just because extra requirements from the seller.   Bank of America is one that almost always requires that preapproval.    I couldn't fathom eliminating showing any and every B of A house, just because of extra work invovled.   I coach my buyers when looking at bank owned homes and short sales--this is THEIR game, and we have to pay by THEIR rules.  If the house appears to be an over-priced money pit, sure we'll pass it over.  But for my buyers, bank owned homes and short sales are worth the effort, in my opinion.

I'll give the Tutas' an exception -- there are SO many to choose in their market in Central FL, its probably no big deal to skip a few...

 

Aug 02, 2010 05:48 AM #62
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Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

Wow!  We have many opinions about the situation and I think many agree on:

1) Most likely a bank owned or short sale may be requesting a preapproval from a funding lender (specified one) and we should educate our buyers that it most likely will be a possibility (especially if it is listed in the listing agreement)

2) A listing that says to preapprove with a XYZ lender and a regular sale may have a hidden agenda

3) Ultimately it is up to the seller to request...or NOT and the buyer to comply....or NOT.

I do however agree with #54..... Matt Stigliano (RE/MAX Access (210) 646-HOME) that it is a growing practice and a concern that implementing without written authorization from the seller and signing off from the buyer could cause more harm than good...without it.

 

Aug 02, 2010 05:55 AM #63
Rainmaker
601,327
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Sally - First and foremost, Matt is correct that this has become such a problem that HUD is finally investigating this practice.  I hope you don't mind but I am including the link that TBWS recently did on this issue and how HUD is now considering on making this a RESPA violation.

Pimpin Their In-House Mortgage & Escrow Companies

Secondly, I get so sick of all the Realtors and their preferred bank lenders claiming that every other lenders pre-approval is a worthless piece of paper.  I have lost count on how many borrowers I have helped over the years because some bank rep and/or "preferred lender" screwed up some escrow so bad because of their worthless pre-approval.

Don't even get me started on the REO banks and short sale negotiators who are absolutely clueless as to what the LA is doing in regards to forcing prospective buyers get pre-approved with their (the LA's) "preferred lender".  For the record folks: it is a RESPA violation for MLO's to provide anything of value to a Realtor for the exchange of referrals.  Any MLO engaging in this type of conduct is at risk of losing their license.

As someone mentioned earlier, here in CA there has to be a written authorization from the seller and/or bank stating that they are requesting this particular process and, of course, any BA asking for a copy of that authorization automatically gets dismissed and/or ignored.

Aug 02, 2010 06:13 AM #64
Rainmaker
516,433
Russell Lewis
Realty Austin, Austin Texas Real Estate - Austin, TX
Broker,CLHMS,GRI

WOW...Like you I insist on a preapproval letter and also some discussion with the lender but having an agent get a 2nd approval and forcing it to be with a particular lender is ridiculous and may even represent some sort of conflict. What if the 2nd approval is not accepted or worse accepted and then falls trough because of actions by the 2nd lender. This is making my head hurt thinking about the possibilities!

Aug 02, 2010 06:37 AM #67
Rainmaker
335,361
Jenna Dixon
DRA Homes | Cobb County Real Estate - Marietta, GA
Empowers You With a Better Real Estate Experience

I never liked the practice of requiring second approvals, still don't.  Especially on REOs, this is the real estate industry handing over one more level of control.  I dare say that this requirement often inhibits the sale...I thought the listing agents job was to SELL the house and create no barriers?  Tongue in check!  Snark Snark

Aug 02, 2010 07:09 AM #68
Ambassador
559,134
Peter Pfann @ eXp Realty Pfanntastic Properties in Victoria, Since 1986.
eXp Realty, Victoria BC www.pfanntastic.com - Victoria, BC
Talk To or Text Peter 250-213-9490

it is none of the other agents business, if the buyer is approved, by a qualified lender, it is all that is being disclosed, if the sellers agent does not want to present the offer, my next call is to his/her manager, to request intervention for breach of duty (as in present all offers)

Aug 02, 2010 08:44 AM #69
Rainer
34,262
Nick Setting
Coldwell Banker Bain - Bainbridge Island, WA

And yet no one made mention if the lack in fiduciary responsibilty and confindentiality to your client since once you have them pre-approved through the listing agent's lender that agent/broker now knows what your clients buying power is and now their negotiation position is compromised.

Unless it's specifically an REO listing, I would advise my clients to make the offer minus their unneccessary pre-approval, and in this market any agent that would still refuse to allow me to present my offer is foolish. Further more if they don't have the required documentation by the NWMLS and they still refuse to present my offer will discover how quick I will go to the Seller directly...

Aug 02, 2010 09:15 AM #70
Rainmaker
884,437
J. Philip Faranda
J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY - Briarcliff Manor, NY
Broker-Owner

I see this on REOs very frequently and it is becoming a part of the new landscape of real estate. 

Aug 02, 2010 09:42 AM #71
Rainer
149,377
Paul Warkow
Paul Warkow-D.G. Weber Law Associates - Hauppauge, NY

Let's put aside REO's or short sales.  It is not Mr. and Mrs. Seller who are choosing the lender for the 2nd approval, it is the listing agent who does this.  This raises all sorts of conflicts and fiduciary problems.  In other words, the listing agent is becoming part of the lending process.  This is not a good idea.  Could not  the seller sue the listing agent if the lender of choice refused to qualify a qualified buyer?  Could the buyer do the same?

Aug 02, 2010 10:08 AM #72
Ambassador
1,089,929
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

These are some things to things to think about......

Comment #70 negotiation position is compromised

Comment #64 Pimpin Their In-House Mortgage & Escrow Companies

Comment #67  may even represent some sort of conflict

Comment #68 I thought the listing agents job was to SELL the house and create no barriers?  Tongue in check!  Snark Snark  (I especially loved this for the snark snark lol)

Comment #72 This raises all sorts of conflicts and fiduciary problems

Aug 02, 2010 02:10 PM #73
Rainmaker
658,913
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

With all the bogus loan approval letters I have seen from mortgage brokers, asking for a letter from the funding lender is not unreasonable.  The broker they are using can send it to the funding lender they are planning to use and have them review it.  This makes their offer stronger and helps prevent both the buyer and the seller from going through preventable pain later.

Aug 03, 2010 07:38 PM #74
Rainmaker
550,294
Lynda Eisenmann
Preferred Home Brokers - Brea, CA
Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co

Aloha Sally,

You've got so many comments on this one, I didn't get quite through them all.

This is a topic that came up a week ago at our SoCal CRS meeting when when had the CAR legal counsel as our speaker. It's well within the right for sellers (and we know it's ususally at the suggestion of their agent) to make that request, just as anything else stated in the lising.

Some times we can work around it, yet other times it involves another phone consultation. I agree with Lenn when she says it's also about preparing our buyers.

Aug 14, 2010 04:41 PM #75
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