Champagne Taste on a Beer Budget - Why Pre-Qualification Letter is Important for Buyers and Sellers

Posted by Robert Alexander on Friday, March 11th, 2011 at 9:43am.

Nothing makes me more irritated than when I feel like my time is wasted… especially if it could’ve been prevented all along!

Many of you know my wife and I just recently put our home up for sale (http://www.2075mountlebanon.com – shameless plug I know).  My wife also just so happens to be a Realtor® and the Broker-in-Charge of Delco Realty Group, Inc. and has the listing on our home.  I overheard a conversation she was having with the buyer’s agent to get feedback on a showing…

My wife (listing agent): Hello, I wanted to follow up with you and get feedback from you / your clients on our home.

Buyer’s Agent:  OMG!  My clients LOVED your home.  In fact, the husband wanted to make an offer on the spot (serious mancave at my house – 4 car garage with 1/2 bath and air conditioned office on 8.21 acres so I’m not surprised  LOL!).  BUT the top end of their price range is $250,000 (our house is listed for $315,000 and comparables are $299K – $450K+).

Ok, the conversation went on, but all I could think was, “Are you kidding me?”  First of all, WHY on God’s green earth is this buyer’s agent even showing their client a home well outside their price range?  If I can only afford a Chevy, I shouldn’t shop for a BMW, right?  Strike One…

As the conversation goes on… it was evident that the buyer’s agent also did NOT pre-qualify their client.  Especially in today’s economy and the new ridiculously tight lending practices, it seems to me that this would be one of the very first things a real estate agent would do with their client.  Strike Two…

I am thinking… is this all that hard?  really?…

A Real Estate Buyer’s Agent Handbook for Qualifying Your Prospect  (And a Buyer's Guide to the Pre-purchase Process)

Step 1: NEEDS ANALYSIS...  Present/Demonstrate to your buyer prospect what services you will provide for them while acting on their behalf in the search for a new home; they may also need to sell their current home in order to purchase as well.  An Agent's job is to understand all the challenges in the real estate equation (buying criteria, selling a home if required to buy the new home, financing, etc.) 

It's not a bad idea to offer a guarantee to your services as well - let your prospect know they can fire you at any time if you do not provide the service they are expecting from you. 

Delco Realty offers all of it's clients a service guarantee. 

Let's hope after your buyer's presentation, they sign the buyer’s agent representation form agreeing for you to represent them in the purchase of a home.  Completing this step may take some additional time investment on your part.  This is good though!  It allows you to decide if you want this buyer prospect as a client and also gives your buyer prospect a chance to see if they want YOU representing them when buying as home.  It is about relationship. 

Agents that focus on building a long-term relationship vs. a transaction-oriented one will most likely build a strong referral base.

Meet with new prospect, face-to-face, if possible, and do a needs analysis – this is where you ask questions…

  • do you have a home to sell before you buy? (selling a home?  Acting as a Listing Agent for your client? – a whole new set of questions we won’t address in this specific post…) 
  • How many bedrooms? Bathrooms?
  • Any special needs / access requirements wrt floor plan or layout of home?
  • Do you have large furniture – does the SIZE of a room matter?  (King size bed, large SUV, sectional or other large furniture? – might need to consider the size of the bedroom, garage or living room respectively)
  • Location… near Schools? Place of work? Church? Shopping? 
  • Unique features – acreage? pool?, 3 car garage?, master bedroom on main level if multi-story home?, etc. 
  • What is driving the move? (Need more space - bedrooms? Relocation due to job? Move up?
  • Is there a time constraint to your move and/or purchase? 

You get the picture?…

Step 2: FINANCING...  Connect you new client as quickly as possible with a mortgage person (if they do not already have one) and get them pre-qualified.  This is especially important in today's credit-tight economy.  Many clients are not real sure how much home they can afford.  How much money a buyer puts down, monthly net income, debt to income ratio, credit score all affects this equation.

My wife actually teams with one or more lenders to make this EASY for her clients.  They can help clean up any surprises on credit reports and provide tips to maximize a client's credit score to get the best possible rates.  With all the different loan programs available today, it will take time to pick the right loan program that suits a client's needs.  Many loan programs available to a cleint will depend on how much money they can put down on the home.  Down payment can affect the interest rate as well.  One local mortgage company I have used and highly recommend is Alex Lilla at Benchmark Mortgage.

Step 3: LOOK FOR THAT NEW HOME!... Start doing home search with client based on information gathered in step 1 (Needs Analysis) and step 2 (FINANCING - getting the Mortgage pre-qualification letter).

Granted, I have WAY oversimplified the process and even left out a few steps, but the steps above are the bare essentials.  Pre-qualifying your prospect is what successful professionals do – in any economy and in ANY profession where things are bought or sold.  If this buyer’s agent would’ve pre-qualified their client, it would’ve eliminated a frustrated buyer seeing a home they cannot afford and the event wasting everyone’s time.

Good Listing Agents REQUIRE a Pre-qualification letter BEFORE confirming a showing appointment 

Now… there is another side to this story….

If you were the seller, you would be calling your listing agent anxious to know the feedback of the showing on your home, right?…  Now, if I was told, “they loved your house, but they cannot afford it,” I would not be very happy with my listing agent either…  Why?  I have a family… the house is in constant chaos - beds not always made, always could use vacuuming, dusting… clothes piled up in the laundry room, toys scattered. counter tops cluttered with appliances, dishes in the sink, etc.  ”Staging” the home to make it “show ready” is not a 5 minute exercise in my house and a good listing agent knows it takes quite a bit of effort on the part of the seller to prepare the home before EVERY showing.  Furthermore, I work out of my house when I am not in front of customers and I now have to leave my office as well for at least a two hour window ( typical showing appointment time frame they give you) so the house can be shown.

That is why my wife (when acting as a listing agent) will typically ask for a pre-qualification letter BEFORE she allows a showing appointment to be confirmed.  Some exceptions are if the home is vacant or if it does NOT inconvenience anyone to show it.  

My wife says, letting buyer’s agents show a home she has listed is like a Open House where the buyer’s agent is doing all the work instead of her!  If it doesn’t fit that client’s needs, then at least the buyer’s agent has seen the home and can potentially market it to other clients it might be a perfect match for.

So… back to the story… being that the listing agent is also my gorgeous wife who I adore completely… I timidly asked her outside of striking distance, “What happened?  Why was this agent allowed to show our house to someone obviously not even qualified to buy it?”  After a few moments of deafening silence, she said, “the house sure looked beautiful.  Thanks for cleaning it.” 

I realized that I had been had…  Wife 1, Husband ZERO…  Note to self… never forget you married a brilliant woman.  Dang!  She just schooled me. 

All was not lost, though…  ’cause when momma is happy… EVERYONE is happy!  a clean house… PRICELESS  :-) .

* This post was originally put on my personal blog - The HighTech RedNeck - A High Tech Guy Who Lives off the Beaten Path, March 4, 2011) 

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