The letter that a buyer's agent provides with an offer to demonstrate to the seller that they are well qualified for the property. The handhold that the seller relies upon to give insight as to the buyer's qualification and first impression concerning the offer and financial strength they bring to the table.
I love to receive these lender letters and comb through them for varied elements of information. Dear Mr. & Mrs. Buyer, Congratulations, you are pre-approved for a loan amount of $200,000 with XXX terms. Yea, they can afford above a $200,000 sales price. Yet my listing is priced for $175,000 and the offer is for $160,000. Another yea .. Mr. & Mrs. Seller, according to the lender letter, we have a very well qualified buyer for your home. I know they offered fairly low but they can certainly afford much more. The buyer's agent said that they aabsolutely love your home and their daughter and grandchildren live only two blocks over, I just feel we can negotiate very favorable for your price, after all they can purchase for higher!
Did the lender letter compromise the position of the buyer? I contend it did. By stating the buyer's full qualification it was like playing poker and having all your cards faced towards the other players. It gave away the hand being held and now all know. (The Realtor also provided a little too much information as well about the family nearby but that is another post and discussion).
There are varied arguments concerning the lender letter and the terms it reflects:
- By providing the great qualification of the buyer it provides strength behind the ability to purchase.
- The seller may look at the higher ability to qualify for more of a home as a great candidate and negotiate more favorably for less for a strong buyer rather than wait for a possible weaker one to show up who will pay more.
- The seller may feel the buyer can pay much more and be more aggressive in their bottom line.
- The buyer will only negotiate to where they feel comfortable so it doesn't matter how much they can qualify for it will only be what they are willing to pay.
The lender letter and components that it should provide:
- On official stationary for the company with full contact information/location.
- Specifically tailored for the offer is wonderful - addresses the property, type loan, loan amount & terms mirrored in the offer. Exceptions certainly are needed if you are making an offer over the weekend and the lender is not available to write a specific letter.
- Defines what pre-approval means - credit report was run, employment verifications obtained, etc. reviewed and meets requirements with the disclaimers that the home must appraise, etc.
- Invites the parties to call should they need information (not confidential but check on things like .. do they use appraisal management companies, are they a banker or a broker, etc.).
The lender letter is the very first impression that a seller has regarding the offer. It is critical that Realtors ally themselves with a lender they can trust, has an excellent reputation, a consultant that has experience and communicates. By providing a letter from a lender and loan officer with a great reputation has just allowed your buyers to jump over one of the negotiation hurdles. It is the buyer's agent responsibility that the letter reflects the type of information that is to the best advantage of your client and a conversation before the home search takes place with the client and their lender to see how they wish to be handled.