I recently had an interview for an article on "why a mortgage puts a home buyer at a disadvantage and how can buyers beat out the cash bidder" by Amy Hoak from Market Watch.
While I understand that reporters typically can't publish the entire interview, I just wanted to comment on some of the ways I recommended to Ms. Hoak how the finance buyer can make their offer appear stronger that she wasn't able to publish. First and foremost, I recommended that prospective buyers get "pre-approved" for a mortgage and not "pre-qualified". I went on to explain the differences between these two processes.
Calling up some 800 for some big, national, retail bank (or worst, some internet lender) and spending a few minutes on the phone giving some unlicensed bank clerk your name, address, phone number, social security number and whatever amount you told them you make so they could run a credit report is not a "pre-approval".
Getting a letter from said big, national, retail bank saying that based on the info you provided, you are "pre-approved for XXX,XXX.XXX" amount is absolutely worthless. Typically, this type of letter says nothing about your qualifications other than what your credit score is and a true pre-approval is about so much more than just your credit score.
Furthermore, most of these worthless letters from the big, national, retail banks provide no contact info on them in order for the listing agent (or even you or your buyer agent) to be able to actually talk to someone about the status of your application. This does nothing to strengthen your offer, quite the contrary; it actually weakens your offer with a seller and their listing agent.
A "full" pre-approval would entail a licensed and experienced MLO to review all of your qualifying documentation (paystubs, tax returns, bank statements, id's, etc...) in order to make a complete and accurate assessment of your ability to get a loan. A pre-approval is not a guarantee to get a loan but rather a "conditional" pre-approval, providing you fulfill certain conditions.
Another thing that I often advise my borrowers after I've pre-approved them is to be serious and don't play games, especially on run-down, dilapidated, dumpy REO's that are typically not eligible for financing anyway.
I don't know what other markets are like but here in Los Angeles & Ventura counties, these properties are typically not suitable properties for financed buyer and as such are getting scooped up by cash buyers.
The bank sellers for these money pits are much more interested in accepting a lower cash offer with no contingencies than a higher financed offer that they know doesn't have a chance in the world of closing because the property is such a dump.
So, if your strategy is to lowball a bunch of dumps in an effort to get a "good deal", you may as well just continue renting (or living with your parents if that's the case) because you don't have a chance in the world around here against a cash offer.
Furthermore, lowballing nice and decent properties that have been upgraded or are move-in ready does not improve your chances of getting the property either. Once again, it just weakens your offer because chances are there are already lowball cash offers on it as well as higher financed offers. Your ridiculous lowball financed offer will simply be ignored and probably won't even get a counter-offer.
My comment to Ms Hoak about buyers working with sellers for equity sales was in reference to investors who purchase distressed properties in bulk and then turn around and totally rehab them and then flip them. These sellers are not the least bit interested in lowball cash offers. Furthermore, because they have completely rehabbed the property, they're not worried about inspection issues and if they've priced it right, they may not have to worry about appraisal issues.
Lastly, as I mentioned in the article, many financed buyers, especially here in Los Angeles & Ventura counties, need to be patient. Chances are they are probably going to lose a few offers and properties before they actually get one accepted, even if they are making serious offers on nice properties. Around here, there is a lot of competition for the nice properties and the ones that are priced right go fast! Quite often in a matter of days!
So, if you see something you like, don't dilly dally around showing it to everyone you know or hem hawing about what to offer. Get your fair market offer in fast and make it your best and highest from the get-go. That way you not only increase your chances of actually getting your offer accepted but if you do lose it, you know that you did the best you could.
If you lowball it and lose it, you will only be mad that you didn't offer higher and that you didn't get a second chance to go higher. You know the saying, "you never get a second chance to make a first impression".
Today's real estate market can be really scary, which is why it's important to get as much information as possible before starting your search. The home buying process is not a simple process and it's because it can get really complicated and convoluted, that borrowers today need affordable loan options that are best suited for their own needs.
If you have any questions and/or concerns or if I can be of any further assistance, please feel free to contact me, Donne Knudsen at 805.2069123 or donne4loans@earthlink.net.
Photos courtesty of flickr: marketwatch jpearsons carolyncoles favoritegamesguide klimet giacomomacia
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Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
Those are some really good tips Donne. I don't know about the market in LA/Ventura (except when read your posts), but the market in San Antonio has a lot of inventory and REOs. There are a lot of buyers thinking they can find a "good deal" and so they wait or offer low on all types of properties despite being counseled otherwise.
It's important for buyers to know that unless they have a lot of cash, they are most likely going to lose out to investors. The financed buyers need to look in their price range and make reasonable offers so that they can get into a great home for themselves :)!
Great post as usual!
Oh...and congrats on the interview!
Congrats on the exposure and thanks for posting this well crafted blog Donne. Serious buyers understand they typically only get one chance at a nice property...for the others, if you really want the property, make an offer like you can't live without the home. In my area, lowball offers are rarely successful.
Congrats on the interview, Donne! Great suggestions for buyers -- we preach the same about pre-approval vs. pre-qualified letters. It's also imperative for buyers to not "dilly-dally" about making offers -- the good properties are going quickly, don't want to miss out because you wasted time. I'm usually a "closet suggester", not today -- this one needs to be read by MANY!
Hi Donne --- congratulations! When I see a pre-approval letter from either one of my buyers or on a listing, I'll call the originator of the letter and ask questions. Have you met in person, do you have tax returns, etc. You can get a feel if this was a call-in/email "approval" or something more in-depth as well as if this a person who will answer questions promptly and honestly. Afterall, you may need to make lots of calls to him/her should the offer work out.
Outstanding post Donne. All points to be considered by buyers making offers on properties. We actually collect paystubs, w-2s and taxes before offering a pre approval.
Great going on getting the interview. Very good point. You need a quality loan before you go shopping.
Donne, this is excellent advice for home buyers in Kansas City as well! Everything you said is right on the money!
Excellent points, congrats on your interview.
Super cool! Congratulations Donne.
Congrats on the interview Donne, but more importantly thank you putting this out there again. This type of post should be featured on a daily basis. There are still too many people accepting meaningless "prequal" or bank/internet "preapproval" letters. Everyone gets burned in the end.
Taking an extra day or two at the beginning to truly pre-approve a buyer saves much heartache later. Again, awesome post.
Getting an interview with such exposure had to be exciting.
Congratulations on the interview, Donne, and kudos for pointing out that investing is not for the faint of heart. There are people with deeper pockets out there who will have found the "deal" and made their offer way before the newbie.
Donne,
You've spelled it out accurately and straight. Buyers need to read and adhere to your advice. Nicely done.
Congratulations on your interview! Great post!
Congrats on the interview. And the feature! You are just rolling in it!
Congrats on the interview and the feature. Super duper information and everything you said has been my experience.
Congratulations on the interview and the feature. You make a lot of great points, and Brenda is right from the perspective of what I hear from the realtors around here. Don't play games.
Spot on with the comparisons. I wish you had this talk with my recent clients. They just aren't gettng it!!
Brenda - Some buyers just don't get it. Around here, buyers actually need to be looking at the bottom of their price range and by bidding a little higher, they have a much better chance at getting their offer accepted.
Anita - Around here, buyers really need to start out with their best and highest because if you play games and start off too low, the seller will just ignore the offer. And the only lowball offers that succeed are all-cash offers.
CA - I'm glad you liked the post. I just wanted to blog about the stuff that the reporter couldn't publish. Don't even get me started on worthless "pre-quals". These days, the only ones I think putting out those things are the big, national, retail banks.
Michael - Good for you! I wish more Realtors/agents did that. I typically don't get calls on my letters until the listing agent gets it with my borrowers offer. The thing I want to know is why more buyers agents are verifying their buyers pre-approval. When I take an app on a prospect, the first thing I do is verify everything, and I do mean everything, on that app.
Bob - ABSOLUTELY!!! I'll even collect rental agreements as well as any credit LOE's for any derogs. After collecting my borrowers documentation, I start verifying everything!
Thx for stopping by everyone; I really appreciate it. Have a good night everyone and a wonderful weekend. :)
Donne - First congrats on the interview and getting featured. I came to the party late again and bamm GOLD STAR. I am sure it was a fun interview to express your knowledge of the processes for your buyers to get pre-approved. I am kind of surprised that you did not mention that you also do a DU after the Pre-approval is done. Pre-qual's NO MORE.
Also, a word of mention, although I agree that cash is viewed mush differently than financed. I was surprised last year when I submitted an offer on an REO, full price financed, found out the other guys were all cash. But we won. What a shocker. I don't know any more specifics maybe there were other contingencies but it was a successful financed close.
Gene - ABSOLUTELY!!! I still don't understand Realtors/agents who put prospects with no pre-approval in their car and drive them around for days or maybe even weeks looking at umpteen properties.
Maria - Sounds like KC is a lot like LA & Ventura counties. Around here, competition is fierce and financed buyers are losing the battle big time. All-cash investors are getting more and more prevalent and all-cash sales are increasing exponentially.
Robert - Yes, it's true that underwriters are being more nit-picky than ever before. Furthermore, every borrower is guilty (of anything and everything) until proven innocent - that's my job, proving my borrower is worthy.
Lyn - Thx; I appreciate it. :)
David - Thx it was nice, just wished more of our conversation got published. Ms. Hoak and I were talking for almost an hour but then, I pretty much said a lot of the same things as the other interviewee.
Thx for stopping by everyone; I really appreciate it. Have a good night everyone and a great weekend. :)
Kevin - Don't even get me started on worthless pre-quals; they just piss me off. I have to say that in the last couple of years, I've been getting more and more calls from people who are in escrow and asking me if I can help them because their loan has just been denied from their big, national, retail bank.
While sometimes, I have been able to help them, most of the time, these people are nowhere near being eligible for a mortgage loan. Had they been properly "pre-approved" from the get-go, they would never have been allowed to open escrow or even make an offer or even look at properties. JMHO
Eileen - It was exciting but I was a little disappointed that the nearly hour conversation ended up in two paragraphs. Oh well, such is life - right? :)
Jane - There is definitely at least three types of cash investors out there (at least those are the ones I've identified) and just today, I met a whole other kind and that kind is actually the scary kind.
Judi - Wouldn't that be great if all of my prospects and clients actually adhered to my advice. LOL On the other hand, I have to admit that it is pretty cool to hear them say, "I wish I had listened to you Donne, you were right". It does happen from time to time. :)
Pam - Thx and I'm glad you liked it.
Thx for stopping by everyone; I really appreciated it. Have a good night everyone and a great weekend. :)
Sandi - I assure you, this does not happen to me a lot, an interview and a feature. But just the same, it is nice.
Jill - It would seem that your market is similar to the LA & Ventura county market. In markets like ours, buyers need to be serious and committed or stay home. JMHO
Ron - Markets like this don't treat stupid silly buyers very well.
Carla - Some buyers just don't get it. I've even had borrowers who started out playing the lowball games. Most of them though learn the errors of their ways after they've lost a property (maybe two or three) that they really wanted. When that happens, then they start getting more serious. Hopefully, yours will learn soon.
Ken - Yes, that's true and since you and I have worked together before, you know how thorough I have to be when pre-approving my borrowers. Unlike so many other Realtors/agents, you actually call on those pre-approval letters both when you're a buyers agent or a listing agent. I don't know why more Realtors/agents don't do what you do.
Thx for stopping by everyone; I really appreciate it. Have a good night everyone and a great weekend too. :)
Nothing kills your faith in the system like being interviewed and then reading the interview.
Great idea to flesh out your ideas on your own blog, Donne.
How true, Tni! Congrats Donne! As a fellow MLO, I appreciate your willingness to "tell it like it is"! That always benefits the consumer and that is why we do what we do!
Tni - While I was honored that of all the people in the country she had to choose from, I was one of them, so in that regards, I thanked her for contacting me and talking to me. Furthermore, before she asked me anything, I made sure she understood who I was and prefaced the interview that anything I said was strictly my professional opinions (I used no stats) based on my professional experiences with my own borrowers here in Los Angeles & Ventura counties. I also let her know that I primarily worked with low-medium income borrowers purchasing in the low end (400k<) of the market here.
However, based on our hour long conversation, it was rather disappointed that it all ended up in two paragraphs. LMAO Such is life. I knew from the get-go that would probably happen but I was glad that she did identify my market.
Ed - LOL I'm glad that you appreciate my blogging style; that's nice of you. I am who I am and I have always felt that the most important advice I can give my borrowers is how to deal with the realities of our market here. If they can't handle that, then they will never be able to handle the home search process or the loan process.
Thx for stopping by folks; I really appreciate it. Have a good too. :)