“Nice Try” Department

“Lake Wobegone . . . where all the women are strong, all the men are good looking, and all the children are above average.”

–Garrison Keillor

I certainly understand what the listing agent is trying to accomplish by including the line, “Strong pre-approval letter requested with offers” in the “Financial Remarks” section of the MLS listing.

After all, who wants to enter into a deal with a weak Buyer?

Unfortunately, that language isn’t likely to cull any inappropriate Buyers.

“Nice Try”

That’s because weak Buyers (and their agents!) seldom announce themselves as such — and lenders issue Pre-approval letters about as freely as therapists hand out tissues.

As discussed previously on this blog (“Pre-Approval Letters and Written Statements“; “The Second Most Important Date in a Home Sale“), Pre-approval letters are inherently non-binding, caveat-laden representations from lenders that ultimately amount to . . . very little.

Which is why so much in a residential real estate transaction hinges on the Written Statement — a legally significant document, typically due within 3-4 weeks after the Purchase Agreement is signed, indicating that:  a) the home has appraised; and b) that the lender has finished vetting the Buyer’s finances, and completed underwriting their loan.  See, “You Mean, There’s No Deal AND They Get Their Earnest Money Back??”

Alternative Seller Strategies

So, does the foregoing mean that Sellers must simply wait 3-4 weeks and hope that their Buyer qualifies for a mortgage?

Fortunately, there are some other steps that Sellers may take — besides asking for a “strong” Pre-Approval letter — that increase the odds of the Buyer being able to financially perform.

They include:

–Requiring a sizable earnest money check.

–Requiring a larger downpayment — ideally, 20% or more.

–Amending the Financing Addendum to say that the Buyer’s loan shall NOT be contingent on the home appraising, or stipulating that the Buyer’s earnest money shall be non-refundable once the Buyer’s Inspection Contingency is removed.

“Cash Buyers Only”

Of course, the ultimate way for a Seller to protect themselves from a Buyer who cannot perform financially is to require cash (and critically, a Proof of Funds documenting same).

Needless to say, however, restricting the pool of prospective Buyers in such a fashion is probably not the way to maximize a home’s sales price.

Call it “winning the (financing) battle, but losing the war.”

P.S.:  What about beefing up the language in a Pre-Approval letter so that it actually includes some teeth?

Perhaps even making it “guaranteed?”

Here’s my take on one local lender’s efforts to do exactly that.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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