There is no strategy to your approval letter.....

Greg - I've seen this strategy used and it can definitely bite a buyer in the butt.

I just tell the lender to make it out for whatever they're approved for. That doesn't mean that they are willing to spend all the way up to their maximum. Good points here.

I don't like to have the approval letter higher than the offer as many times the seller will ask for more if the approval letter is for more.

I say that the only thing important to me is that they have been to a lender and submit the letter. What trumps the amount approved is what is the best offer, and second are they going to a lender that has a reputation of good service, quality originators, and closing on time.

Sounds like wise advice Greg, my lender is always concerned about the amount he should write in these letters when the negotiations are still in progress.  Your approach sounds like a winning approach.

Sorry Greg.  You aren't a strong buyers advocate in showing their hand.  A true buyer fiduciary knows the duties that are associated.   Sunshine Buyer is under-represented IMHO and will be overpaying for her property.  She is represented by Agent BOB . . . bend over backwards for the sellers.  Pity. 

Hello Greg: I have had a long held belief that most agents incorrectly advise their clients to only have the pre-approal for the exact offer price for fear of tipping their hand they could pay more. I think this practice is I'll advise and in fact back fire.  My analogy is, "If Donald Trump were buying the property would the seller think he could trick him into over-paying, just because he could afford it"?  The answer is of course not.

You are one of the few agents I know who gets this right.

Hi Greg, sorry, I'm disagreeing with you on this one. When we are representing the buyer we are asking for the lender's preapproval to match our offer. We are not saying the buyer is approved "up to a max of" at all. In our area of the country he's going to counter, or in multiple offer situations, ask for our highest and best offer. There is no reason to assume our buyer is unable to make a higher offer. Our offer also includes the down payment amount which does say something about his financial position.

Can't agree with you. Multi offers may be a different situation but if I represent the buyer, I would prefer the pre approval for the offer amount. It can always be modified.

Greg,

Frankly, I believe that we tend to overthink some things that aren't all that important.

Rich

Great Great Post.  I will always fill out the letter for the maximum amount.  HOWEVER innumerable times the Real Estate Agent Calls me and says "We're offering $x and could you send the letter our showing $x?"

In my business, I halender lender I work with state that the buyer is approved to purchase that specific property, in other words, the Pre-approval letter has the property address listed. Does that mean that the buyer is going to pay the full asking price without negotiating? Of course not. It does send the message that the buyer can afford the property. The contract states the down payment information and that is where a seller can determine the strength of the buyer's offer.  Makes sense to me!

I think that pre-approvals stating the buyer is approved to purchase the particular property is a good way to proceed.  The seller knows the buyer can pay the asking price, but also knows most likely, the seller has built in some wiggle room.

I got to say, I'm in the camp of matching the pre approval to the offer.  You make a good argument Greg that the seller might reject the offer in a multiple offer situation, but then its the sellers agent that "assumed", therefore its he who failed at his fidiciary duty.  Great post and mostly awesome replies.

I think the pre-approval letter should just say, "approved for the purchase price of the home/property". This has worked for me for over 16 years now.

Reallyyy? Sorry, I couldn't refer buyers to you - doesn't appear you would work in their best interest on the negotiation side of things!

That all but puts a sign on someone saying "please counter my offer and by the way counter it by this much".  

You can always counter and get a new lender letter (if they qualify for more). If not then you are not working in the best interests of the seller. 

Advising your seller based on a "Lender Letter" might not be the way to go!

Got to agree with the naysayers.  I would liken it to going to look at a car where the seller is asking $800.

I pull out ten $100 bills and set them on the table.  Then ask if they will take $600.

Not going to work very well is it?  I get your idea in theory, just don't think it will work in practice.

Interesting post I enjoyed reading both the post and comments here on AR we are always learning. Thanks for sharing.