My New Outside Blog: The Lender Letter - Helpful or Harmful?

The Lender Letter - Helpful or Harmful?

 

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. 

 

 

 

Comment balloon 14 commentsConnie Goodrich • March 16 2011 09:34AM

Comments

Connie,

Well said.  I would never recommend a specific inspector; however I never have a problem recommending the greatest lender in the Metroplex.

Posted by Richard Weeks, REALTOR®, Broker over 8 years ago

Connie, this is spot on! If a lender cannot tailor a letter for a specific transaction in the professional way you describe, I would suggest another lender! I too, look for those tell tale signs when I receive that letter from a buyer on one of my listings!

Posted by SarahGray Lamm, Realtor - 100K Hours of NC Real Estate Experience (Allen Tate Realtors Chapel Hill, NC 919-819-8199 ) over 8 years ago

Good point Connie. Not only does it "show all your cards," it also appears sloppy to me. I want a lender to take a few minutes to create a pre-qual letter with specific details on the deal and my clients. Not a generic "yea it's all good."

I've seen many deals fall out even though the buyers had a pre-qual letter. I like to see a pre-approved letter myself.

Posted by Paul Stokes & Dean Rooke | Del Mar, Solana Beach & Cardiff Real Estate (Harcourts JADE Properties) over 8 years ago

Connie-Most definitely the lender letter needs to be specific to the offer.  When I am working with a lender and we are about to put in an offer on a home, I let the lender know the specifics.  As long as my buyer qualifies, the lender writes the qualification for the offer.  Meaning if they are offering 100,000 that is what the letter will state.  In short, we don't ever show all of our cards.

Great post.

Posted by Brenda Mullen, Your San Antonio TX Real Estate Agent!! (RE/MAX Access) over 8 years ago

Connie,

A very thoughtful blog with very good information. I wholeheartedly agree with all you say including the showing of all your cards regarding what the buyer is qualified up to.

Posted by John Durham, MS, MS, ASP, ARS (Durham Executive Group - RE/MAX/Results) over 8 years ago

I always encourage the buyer/lender to personalize the letter of preapproval, and if possible, state the approval in a payment amount, not the loan amount, so you don't show your hand as you state.  Great post!

Posted by Kristin Johnston - REALTOR®, Giving Back With Each Home Sold! (RE/MAX Realty Center ) over 8 years ago

Connie, I also think the full amount qualified for by the lender hurts the original offer too. Some lenders will turn around and do a lender specifically for the offered amount.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) over 8 years ago

Good morning .. so nice to read that many of my ActiveRain members share the same philosphy regarding the content of the lender letter .. nice to have validation!

Richard - I never hesitate to refer a great inspector as well, I want to make sure my clients have the best and not just a phone book or friend's advice who isn't aware of what is involved.  A good lender is golden, I agree!

Sarah - I just cringe when a client already has their lender setup and I know that it is not one I would recommend.  I do have a strong discussion about the WHY I believe as I do, etc. 

Paul - as I stated .. first impressions, if sloppy as you stated then it just says bad all the way around for this buyer.

Brenda - thanks for your comments and I agree.  I always get my lender recommendation to tailor the offer to reflect what we have extended to the seller.  If we need a revision due to negotiations, then I get an updated one.

John - just is concerning as to how that information will be used.  I'd rather error on caution than be too liberal with the total information if my client agrees with that strategy.

Kristin - pre-approval and a real one, not just a pre-qualification with different title.  I agree 100%!

Gary - excellent point!  Thanks for the addition to my post.

Another thought to add - the pre-approval letter should be closely looked at for realistic terms to match the financing reflected in the contract.  If the terms are unbelievable then I would like to know how and why .. a discussion with the lender before I present the offer.

Thank you all for your comments, visiting my post and contributing extra points!  Enjoy the day.

Posted by Connie Goodrich, CRS ABR (McKinney Realtor)Texas (Keller Williams Realty) over 8 years ago

Connie...

I always have the lender limity the amount to the dollar amount of the offer. It takes more work, but as you stated so well, you don't want to tip your hand!

Posted by Richard Weisser, Richard Weisser Retired Real Estate Professional (Richard Weisser Realty) over 8 years ago

Richard - being from Texas, I do know how to play poker and as we say - cover yourself to other players who get to chatting and let their cards down.  Thanks again for your visit!

Posted by Connie Goodrich, CRS ABR (McKinney Realtor)Texas (Keller Williams Realty) over 8 years ago

I believe in the philosophy that I can afford to pay $15 for a gallon of milk but I won't.  The buyer is going to pay what the buyers is going to pay.  I just want the letter to show they can afford the house.  I agree though I would never share how much my client likes a home.

Posted by Joe Kenny, Better Than Your Average Joe (Realty Executive Midwest) over 8 years ago

Connie, great information. I agree with you, the letter should contain specific property address and the offer amount. Revealing all the cards is not in the interest of the buyer.

Posted by Elizabeth Byrne, Arlington Virginia Real Estate (Keller Williams Realty) over 8 years ago

Hi Connie, you covered all of the points perfectly and I agree...have the letter include the offer amount and no more.  Great post!

Posted by Judith Parker, CRS, GRI, CMRS, Charlotte, NC (ProStead Realty) over 8 years ago

Connie - You and I seem to be on the same page based on what you expect a lender letter to reflect.  I learned a long time ago to tailor my pre-approval letter to the offer and I don't care how many offers you make, I will make a new letter for every offer.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 8 years ago

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