Friday, February 22, 2008

Do I Still Need the Approval of Others?

We put in our first bona fide offer last night, offering 20% down.

The agent is now asking for a preapproval letter.

I can see how preapproval was a “must have” during the boom, when multiple offers were rolling in, because it hedged sellers from wasting their time accepting offers that were not realistic.

But now that the RE heyday is over……and offers are few and far between (this home has been on the market well over 100 days), can a pre-approval really make a difference?

Our offer, which was about 15% below asking, if accepted, would mean a short sale. Now if they really don’t have any intention of accepting our offer, why the heck does the agent need a preapproval letter?

Personally I don’t like the idea of getting pre-approved with each offer because it means my credit will be checked (my old letter is from June of 2007). Each time my credit is checked, it means my score will take a hit. Given that this is likely to be a long process (finding a home someone is willing to sell at a price I am willing to offer), I don’t want to hit my credit each time I make an offer because it could bring down my credit score and eventually affect my rate when I really do go to apply for a loan. I don't want to provide a blanket amount either, cause then the seller will know how much wiggle room we have (our not so current letter is for 8% more than our offer).

The RE industry seems to be dominated by dogma, so much so, that no one really stops to question why its being done that way in the first place. Pre approval letters benefited sellers when they had the upper hand. But now that buyers have the upper hand, I think they should be able to dictate the terms.

48 comments:

Westparker said...

From a lending standpoint, pre-approval letters don't mean S*it. All they were invented for was to push a buyer to use the realtor's mortgage broker so the realtor can make a cut from the loan.
Make your life easy, have a broker friend send you their pre-approval letter template in word and then edit it depending on the offer you want to make.

Anonymous said...

Good Luck BT. No counters allowed. You say you don't think you should have given them a preapproval but you are. ??? Well, the buyer only holds the cards in a buyers market if they BELIEVE that they do. No biggy, you'll probably get it and as the head of this blog I have no doubt it is a great deal.
Good luck.
Anon-101

Patient Renter said...

I'm with you on this for all the reasons you mentioned. I'd tell them to take my offer with no pre-approval... of course it's easy for me to say that since I'm not the one making an offer :)

Buying Time said...

Anon - My preapproval letter is for more than I am offering. So I don't want to tip my hand to let them know how much we can afford.

As to being a great deal...not sure there....but the home has almost all the elements we are looking for, and is in my favorite neighborhood in EDH. I have always maintained that if we saw the perfect home we would attempt to buy, despite the state of the market. However that perfect home wouldn't be a tract home, cause I can get one of those once the market has settled down.

AgentBubble said...

The best approach in this situation is to have a lender you can trust and know that he/she will be able to send you revised letters as needed. It doesn't affect your credit for them to print up different amounts on separate letters.

Something else to think about...A majority of REOs are requiring that you get pre-approved with their lender now. For example, I just went into escrow on a home where my buyer was already pre-approved with his lender, but the listing required that he also get pre-approved with Countrywide. They said offers would not be accepted without the Countrywide pre-approval. This is a bank requirement, and the bank can set the terms. I'd say 90% of the REOs out there are doing this.

Seems like some people still think it's a seller's market.

Anonymous said...

Wow, sorry, but I think your thinking is flawed here, BT.

I anticipate that the seller asking you for a preapproval letter is a -good- thing for you. First, the seller didn't reject your offer out of hand...so, that may suggest that they're not completely put off by your offer at 15% below. Second, as difficult as it may be for many would-be buyers to obtain financing these days, a seller likely doesn't want to engage in negotiating with you unless you can demonstrate your ability to perform. And if you *can* demonstrate your ability to perform, then you become more attractive to the seller, putting you in a better position to negotiate.

Get over the "it's a buyer's market, so I shouldn't have to...neener-neener" mindset. Who cares? If you desire the home, then do what it takes to put you in the best position to acquire it under your parameters, period.

By the way, check into the credit report issue you mentioned -- I believe that it may *not* count against you on your credit score if you have multiple inquiries from the same lender within a certain time frame. Also, you do have a valid concern about not wanting to disclose the maximum amount that you're pre-approved for. So, just have a pre-approval letter prepared in relation to the particulars of the offer you make. It's a bit of a pain, but not a biggie in the grand scheme of things.

Sippn said...

The size of the deposit check, the preapproval vs pre qualified letter, and a copy or letter from the bank showing your source of the down payment all add credibility to your offer that could SAVE YOU MONEY.

Get it?

A $390k offer with all that can easily beat out a $400K offer that is not supported.

Its nothing personal, but the seller is trying to separate you from all the BS out there.

This isn't buying a car. Once the seller and you come to an agreement, that listing becomes "pending" and that asset is in your hands until you either perform (close) or mutually rescend (back out) and the seller wants some proof (other than your word) that you are trustworthy.

You might say,"hey I signed the contract" but this is California, where those contracts and deposits don't mean alot. Consumer real estate deposits are rarely held.

Anonymous said...

We asked our broker to approve us up to $400,000. He did so by checking our credit once. All of the letters we've requested so far are in the 300-320 range, so there's no need to have our credit pulled again and we can keep putting in offers.

mcb44 said...

BT, First, best wishes on your offer. I have a different POV about your concern about tipping your hand.

Qualifying for more than your are willing to spend shows that you have both ample capability to complete the sale and other options. It's not logical to presume that in a declining market a buyer should be willing to spend as much as a formula qualifies them for.

Buying Time said...

I really appreciate everyone sharing their point of view...its kinda why I ask these questions...I learn a lot from you all.

My addtional issues....don't really like my lender, he came as a recommendation from the super slimy agent, so as a result I feel uncomfortable with him now, and don't plan to use him anymore. Haven't bothered to get a new one cause we haven't really needed to.

Didn't mean to imply "neener neener". The broker I worked with hit my credit 2 times in 6 months, not grouped together...so as a result, my credit score is lower. I would prefer to avoid this if I can in the future....unless I have a compelling reason to do it...and some have been provided.

Paul said...

I have found lenders who will give pre-approval based on my current, free annual credit report. Thus, no hits to my credit file.

And I agree that even though it is a buyer's market, the more info you can give to the seller (most of the time, a bank these days), that shows the bank you are bonafide, the better the chance your offer will be accepted.

That having been said, it will be an extremely cold day in hell that I give any personal or financial information to the "sellers" lender (especially Countrywide)if I have my own lender and pre-approval. I am extremely sensitive about keeping my personal financial situation confidential.

Sold in '05 said...

You’re right about not wanting to pull credit reports. There are WAY too many people who are too eager to pull someone else’s report and if you let them, you will pay. It’s a very valid concern.

So instead, offer the seller a contingency for an easy out option...

Provide him your old letter and state that upon acceptance of the bid, you will produce a new pre-approval within five working days, if you don't produce, the seller can walk with little or no damage to his sale and you have not tapped your credit report for a seller who is not serious. He can even drag his feet on flagging the listing as pending for that amount of time.

Just a thought.

Gwynster said...

BT,

We were looking at a house were the seller's lender was requiring us to go through them CFC). This was on top of them requiring we use their appraiser as well. Talk about letting the fox in the chicken coop. We didn't even bother to make an offer. The house is still sitting there being reduced week after week.

In light of what we found from that one instance, we just got a whole lot pickier. The more I see, the stubborn I'm getting. I figure we'll wade back in again in Aug and play lowball. I hope you're ready for the most difficult buyer you're ever dealt with Agent **winks**

sacramentia said...

If you actually buy a house what happens to the blog?

Buying Time said...

So do any of the regulars have someone to recommend as far as getting a pre-approved...if so please e-mail average_buyer@yahoo.com

Sactia - I dunno....I really doubt they will accept our offer....(I am trying not to get my hopes up, even though the house is really suited to us).

mbc said...

Are you really sure you want to settle in EDH? There is an interesting article in the Atlantic Monthly regarding the pendulum swing back from the 'burbs to the central city, and I completely agree with it. Even if you don't, it's interesting reading.

anon1137 said...

If/when I buy a house, I plan to get financed (incl. pre-approval letters) through my primary bank. I'll get a standard 30-y fixed rate mortgage. I will *not* use a mortgage "strategist".

Good luck, BT.

Anonymous said...

That article seemed curiously odd to me...until I noticed that the author is a 'Professor of Urban Planning' and a 'Real Estate Developer.'

There's nothing quite like talking your book.

And EDH isn't Elk Grove or Floodtomas...

Gwynster said...

Actually, that article mirrors exactly what myself and my extended circle of friends and aquaintences (late 20s to early 40s) are doing, which is only looking at homes in close proximity to our workplaces.

sacramentia said...

"Are you really sure you want to settle in EDH?" Why wouldn't you want to settle in EDH :)

Patient Renter said...

AB: A request that you add "bando" and "Lost-note Affidavit" (LNA) to your bubble terminology, hehe

http://patrick.net/wp/?p=575

Bando is my choice for bubble word of the year so far :)

big n rich said...

Screw them.tell them to go to hell.

Anonymous said...

Gee Gwynster, I guess if you and your cadre of friends are doing it, then it must be the next national megatrend. /rolleyes

The reality is that different strokes suit different folks. For every rationale that exists for urban living, there's another rationale, equally valid, that exists for suburban living.

mbc said...

"For every rationale that exists for urban living, there's another rationale, equally valid, that exists for suburban living."

I could agree with the above statement if you substituted "rural" for "suburban." The suburbs have all of the disadvantages of rural living (long commutes, need to drive everywhere), plus those of urban living (small lots with neighbor ten feet away, congestion). To me, suburban living is the worst of both worlds.

Plus, the suburban areas east of Sacramento (Roseville, Folsom, El Dorado Hills, etc.) are full of right-wing conservatives, which, based on her previous posts, don't seem to be the best fit for BT (Mr. BT maybe?)

alba said...

A question on short sales: do any of them close in 30 days? I've seen houses sit for months PS, as the buyer and seller wait for the supposed lender (who knows who really owns the loan) to approve the agreed-upon price.

Buying Time said...

mbc - I have struggled with this issue since we first moved here. If public schools anywhere near downtown were reasonable, I would be much more inclined....but since RE prices are high, and private school is the primary alternative, we can't afford both.

I still keep an active look out for homes closer to the city.....as I often waiver about whether EDH is right for me.

AgentBubble said...

alba,

Only if the agent talked to the lender(s) and got a pre-approved price. If not, 30 days is very unlikely.

Gwynster said...

Hey Anon, why all the hostility? If we're the only ones doing it, why care?

Anonymous said...

mbc, not sure how you're defining "suburbs" and "rural," but it stands to reason that a commute from the burbs certainly is not as far/long as it would be from a rural area. Further, there's plenty of homes in the burbs with nice sized lots...unlike in the city. In a rural area, you can have an acre lot, but many neither need nor desire *that* much space. Surburban living actually can be the best of both worlds, which undoubtably is part of the appeal that led to its popularity to begin with. As far as your generalization/stereotype re: political orientation, that's really a disingenuous comment.

Gwynster, that wasn't hostility, and I don't care. I just found it amusing that your reply had nothing to do with the point made about the author's apparent bias.

Alba, I'd be surprised if a short sale could close that fast. There's no reason it couldn't, in theory, but as a practical matter I anticipate that lender's aren't able to react that fast under prevailing circumstances, especially if the loan was securitized.

alba said...

So how do you know if your bid is within the pre-approved price? I wouldn't want to enter into a contract with a seller, if they agreed on the price, but its below the lender pre-approved price. It could take 3-6 months, from what I've seen.

mbc said...

BT,

That's a good point about the schools, I kinda forgot about that. We got tired of the Rocklin suburbs and wanted something more like Land Park, east Sac., or even Davis. All those areas were, and still are, out of our price range, and, with the exception of Davis, the public schools are iffy.

We finally moved to Portland to get what we wanted. The older, close-in neighborhoods are still a little cheaper than Sac., although the gap is fast closing. The bigger thing is, Portland Public Schools, while by no means perfect, is still by and large supported by the middle and upper middle class.

AgentBubble said...

alba,

The listing agent will state it in the MLS listing that he/she has already opened negotiations with the lender(s) and a pre-approved price of $xxx,xxx exists. These pre-approved short sales are a cakewalk compared to short sales where the listing agent hasn't even called the lender(s). I know of one house off hand, where the pre-approved price is $475K. The lender has had 2 offers for over a month, but since the offers were both far below that price, they are just sitting on them. In this instance, it paid off, because two more offers came in at asking price.

Cmyst said...

I read the article in Atlantic Monthly, and since it was referenced either on Lander's blog or the HBB, I already knew it was written by someone who had a vested interest in his theories being correct.

Even if you believe the premise of the article (and, like Gwynster, I tend to believe it), EDH qualifies as one of the suburbs that has walkable planned "urban" centers. Now, Lincoln and a lot of the newer growth in Elk Grove -- there you have exactly the situation that the article was describing of suburbs that are bereft of any cultural "center". I'm not a big fan of EDH even though I live here, but I see an awful lot of boisterous and joyful liberals out waving signs on EDH Blvd. quite frequently on topics of the war, the election, and the dubious ethics of John Doolittle; it's not the politics of the place that fall short for me, it's just that I'd prefer to buy closer in. I'm about 16 miles from my service area currently, and I'd rather live in the same zip that I work. (In a small house, on a medium to large lot, with trees and garden/outdoor living area.)

anon1137 said...

Gw - I'm with you. I'd pluck both my eyes out before I'd subject myself to the suburban/SUV/TV/pizza lifestyle.

mbc said...

Cmyst,
I don't know, Lincoln has a honest-to-goodness real downtown area that's been there for 100 years. Maybe not walkable from Twelve Bridges or Sun City, but certainly accessible by bike. El Dorado Hills, on the other hand, has this fakey, Main Street Disneyland feel to their "downtown", kind of like the phony "lifestyle" centers mentioned in the Atlantic article.

Anonymous said...

And we were talking about....?

sacramentia said...

mbc - why is it the conservative areas have the good schools? That's right, being unequally better in education is agreeable even to a liberal.

Anonymous said...

"The reality is that different strokes suit different folks. For every rationale that exists for urban living, there's another rationale, equally valid, that exists for suburban living."

This pretty much sums it up for me. All I see otherwise going on in here is opinonated malarkey by various people trying to push their views on others, for whatever reason. News flash: EDH does not suck, and neither does downtown. How about we leave it for each person to decide what's best for them, given their own unique circumstances and preferences. If nothing else, all of you should be able to agree on that.

Paul said...

Just a little comment on the urban/suburban/rural commute. My previous commute from a 10 acre parcel adjacent to EDH (that I would call rural), was 35 minutes to Natomas. The same commute from where I previously lived in Orangevale, was 45 minutes. Of course, if I bought one of the condos in Natomas (maybe a third floor condo, above the 50 year flood levels?), the commute would only be 5 minutes or less, even if I had to use a row boat. Still living in what I consider to be a rural (admittedly almost suburban) area, I have cut my commute to one day each week, mostly to reduce gasoline consumption. Regrettably, everyone does not have this option. As readily consumable energy becomes scarcer and scarcer, the cost of the commute from the areas like EDH and where I live, are likely to consume an ever larger portion of our incomes.

Buying Time said...

If I had to commute to downtown...EDH would be off the table for sure.

I spend all day cooped up in the house....so given my current situation, I prefer a little bigger home with nice local views which EDH has to offer.

G Spot1 said...

BT, I think you already got the feedback you are looking for on your original question, but I'll echo the thoughts of those who say go ahead a get an approval letter. As someone who recently sold a home (last summer), the qualifications of the buyer are extremely important and would affect my view of what was a good price. If you are going to offer less than asking (duh), the seller will want some assurance that the deal will close at that price. Otherwise they are just wasting their time for a crap offer.

I say if you are writing lowballs, make your offer look as good as possible by doing things that don't really cost you anything - preapproval (get a lender who will check credit only once), verification of downpayment, strong deposit, even shorten inspection or other contingency periods. Then negotiate hard on price and everything else...

Anonymous said...

Well Paul, you always could just buy a Prius or other hybrid, take light rail from Folsom, or telecommute. Also, I understand that some Class A commercial space is underway somewhere down Latrobe (I presume its good stuff, if a developer is move forward with it in existing RE market circumstances!).

What I'm getting at is that as circumstances change, people adapt and find ways to overcome issues, such as higher gas costs.

PeonInChief said...

I read the Atlantic Monthly piece and noted that it had missed the fact that many enterprises had, for about the last 25 years or so, moved some of their operations to suburban locations--particularly those that require a lot of space. That's why places like Pleasanton and Roseville exist. The author may have been thinking about Henderson NV, but much of the area around Sacramento has job centers located outside of downtown.

mbc said...

I think the foothill areas are better in a lot of ways for more intensive development. They are out of the flood plain, and the thin soils are not so great for agriculture.

I my perfect world, the housing and job centers would both be concentrated in the lower Sierra foothills, and the valley left for agriculture, flood plains, etc.

Ed said...

WARNING - Those links from TENOS are spyware links - do not click them.

That message should be deleted.

- Your friendly geek :)

Patient Renter said...

"El Dorado Hills, on the other hand, has this fakey, Main Street Disneyland feel to their 'downtown'"

LOL. And to top it off, it's on the very edge of town as opposed to the middle, in a part that didn't even technically used to be EDH.

erin@erinattardi.com said...

I know I am way late to this string, but thought I would add my two cents in. Yes I am a Realtor, and have opened myself up to bashing on other forums that ya'll are on in the past. I have successfully negotiated short sales in the past, so I figured I would throw some of my perspective and expertise into the ring (or lack thereof, as some of you may argue).

If the seller decides to work with your offer, and they find themselves in short sale territory, the lender that they are negotiating a lower loan payoff with will require your pre-qualification letter as a part of the short sale approval process. Second, the listing agent (if he/she know what he/she is doing) will want to contact your loan officer to inquire with regard to the solidity of your financing (not how much you can afford). In short sale scenarios, depending on how much advance work the listing agent has done, the seller's mortgage company is not going to respond right away. The listing agent should validate that your loan program requirements will not change during the negotiation process...or if they do change, are you capable of meeting new requirements.

Lending is hairy these days. Loan program requirements change all the time. If you have less than 20% down, a credit score under 700, or if you are purchasing in a 'declining market' you really need to keep your finger on the pulse of what is going on. I know some of you will not believe me, but things are going on beyond the control of the buyer, seller, loan officer, or agent.

I would recommend that you work with a loan officer where you can have a close enough relationship that you can call them at a moment's notice, and he/she can issue you a pre-qualification letter tailored to the offered price of the listing. You are right - you do not want to show your hand and let the seller know your full purchase capability. Get a referral to a good loan officer from someone you trust who has successfully completed a transaction with them.

FYI - the fastest short sale approval I have ever gotten was 3.5 weeks from the date we submitted the offer to the mortgage company. The longest one took about 3 months. I should mention though that banks are becoming much more willing to negotiate short sales these days. The delay in approval generally is the result of a huge workload - not a lack of cooperation from the bank.

You really should submit a pre-qual letter with every offer you submit. As a listing agent receiving offers, if one does not come with a pre-qual letter - I always ask for one. As an agent representing buyers, I always get one from my buyer's loan officer for the amount of the offer. Hopefully ya'll take this comment as informational from someone in the trenches. Just telling you my experience. ;-)

Erin Attardi, Realtor
Lyon Real Estate

Buying Time said...

Thanks Erin that was helpful. I especially appreciate the full disclosure (that you are a Realtor). We do try and keep things civilized here.....and appreciate most view points that are well reasoned.