Before you read my explanation of pre-approval letters and proof of funds, I want you to know that I sincerely do want your business. If you have not been pre-approved for financing yet, or cannot provide proof of funds, I will be very happy to meet with you in my office where we can look at homes and get to know each other. I look forward to giving you ethical, honest service, and I enjoy looking at homes, meeting new people, laughing as we have fun driving around, negotiating, and I really enjoy getting my customers good deals. And the best part is, you don't pay me/ReMax. The Seller does when we close on your new home.
I have been in real estate since 2000, and you will find what all of my customers have found, and that is this; I don’t behave like a salesperson. I behave like an attorney. I am NOT an attorney, but the point is, I protect my customers with a firm understanding of real estate laws and contractual requirements. I have been doing this a long time, I have heard and seen it all, and no one is going to trick or take advantage of my customer. I don’t make mistakes, I educate you on every pertinent factor, and you will feel empowered and smarter when you decide to close on a property. So please know that I do in fact want to get right to work, showing homes. However, as a Realtor, we have a Code of Conduct that we all agree to in regards to scheduling to see the interior of homes, and what Sellers expect of us. So keep that in mind as you read my explanation:
One of the most common home buying myths that exists is that when buying a home, you should find a home before getting a pre-approval or providing proof of funds. There are several reasons this is not true of the real estate market, but the most important reason is that it is a breach of the Realtor Code of Conduct, and Home Sellers EXPECT that we are only bringing qualified Buyers in to their home, who have provided their Buyer’s Agent with either a Proof of Funds, or Pre-approval letter. If you have ever sold a home, or plan to sell a home, you will surely understand this requirement. Otherwise, that Buyers Agent could potentially bring unqualified, dishonest, curious, or even criminals into your home. Any agent who takes Buyers into homes without the customer being qualified first, is demonstrating unethical behavior, according to the Code of Conduct we have agreed to as Realtors. So again, please understand that we have principles that we are expected to adhere to. There are some real estate agents who will show a home, or several homes, to a Buyer without knowing whether a buyer is pre-approved or not. This is a trait that you will find in an agent who likely does not sell a lot of real estate, and is willing to ignore ethics and industry conduct guidelines. I have been in real estate since 2000, having worked with countless Buyers and Sellers. Each and every Buyer I have worked with, who bought a property, understood the need to be qualified first. This is true of every agent I know as well.
Some of the most common things buyers say who do not want to get a pre-approval include;
“I’m going to wait until I find the right home to speak with a mortgage company.”
“I don’t need to speak with a mortgage company first, I’ll be able to get a mortgage, no problem.”
“I’m just looking at homes right now.”
Every ethical Realtor you meet is going to ask that you provide a pre-approval letter or proof of funds before scheduling to see the INTERIOR of homes. Keep in mind, you are asking that agent, without compensation, to spend time and money to help you, researching the properties, scheduling each one, driving from home to home, and Sellers will schedule time to leave their home for you, perhaps cleaning up first, turning on all of the lights, gathering pets and loading them in to their vehicle, and possibly asking their children to leave the home for your privacy. I stressed the word “interior” for that fact. You of course can meet with a new agent at their office, and even drive neighborhoods looking at homes from the outside. But once we start asking strangers to let us into their home, that is where the Code of Conduct becomes a major factor. I do in fact meet new Buyers who have not been approved yet, at my office, where we can look at properties online, answer questions, and go over what is happening in our market. So please don’t feel like we can not meet first. This explanation is just specific to scheduling showings.
Below are the top reasons why real estate agents will request a pre-approval letter before showing houses to a buyer. Read on to find out why this is common practice of top real estate agents before you get upset when a real estate agent requests a pre-approval letter before showing you homes.
Realtor Safety
Arguably the biggest reason a real estate agent will request a pre-approval prior to showing a Buyer homes relates to the safety of themselves. Realtor safety has been a very popular topic in the news as of late. There have been in the past year several Realtors who have tragically lost their lives while performing their day-to-day tasks. Each case involved an agent meeting someone in a home for sale, without them providing their pre-approval letter or proof of funds.
You may ask yourself, how does requesting a pre-approval letter or proof of funds provide any safety for a Realtor? If a buyer has been to a lender to discuss their mortgage options and has obtained a pre-approval, the lender has done their research on the potential buyer(s). The lender has information on the buyer such as their social security number, their job history, and other pertinent information. A proof of funds will outline the customer’s name, address, bank, and that they have enough money to buy a home in the price range they want to see. Not exactly information a criminal will have, or will be willing to share.
Requesting a pre-approval from aBuyer is one of the top Realtor safety tips that is preached by real estate professionals. If you’re in the market to buy a home and haven’t received a pre-approval and a real estate agent requests it, remember, that agent has attended countless ethics meetings stressing this safety protocol, and it is not a personal attack on your character.
Provides Proof of Ability to Obtain Financing
Another popular reason real estate agents request a pre-approval before showing houses to a buyer is because it provides proof of the ability to obtain financing. The reality is that not everyone can get a pre-approval. Real estate agents want to make sure that a buyer can get a pre-approval before spending their time driving around town showing houses to a buyer who cannot obtain financing. Every agent can share a story of when they were new, after showing countless homes, spending several days, just to find out their customer had bad credit or not enough income to qualify. They never do it again.
Nine out of ten “serious” buyers will have no problem with attempting to get a pre-approval. Getting a pre-approval does not take a ton of time to obtain, in fact, a top lender should be able to pre-approve a buyer within a day or two of receiving a pre-approval application.
Buyers who expect real estate agents to show them homes without being approved is one of the most annoying things Buyers do that real estate agents hate. I know that sounds blunt, but I am echoing the comments of all of the top agents in our area. Buyers shouldn’t take it to heart when a real estate agent requests a pre-approval. A real estate agent who is showing homes to a Buyer who hasn’t taken the time to get a pre-approval is actually just running a very expensive taxi cab and tour guide business. In our area of Florida, we receive a constant stream of visitors who want to look at homes for fun while on vacation. They call an agent, tell them they are looking to buy a property, and for them, it satisfies their curiosity. For the agent, it is still the same amount of work and time, yet with no possibility of compensation. You’d be surprised at how many tourists call me to see homes, and when I mention the pre-approval letter, they suddenly “were just curious, and not in the market”. Imagine calling a plumber, or a teacher, or a mechanic and asking them to work for you for fun, because you had already seen the beach and Disney, and now had a free day to fill. They probably wouldn’t be very interested. But our industry encounters this daily, all year long.
Saves Time & Frustration
In today’s society, most people are very busy and don’t have extra time. Another top reason why a real estate agent will request a pre-approval prior to showing a Buyer homes is they are not only attempting to save themselves time but also the Buyer.
A pre-approval provides a buyer, and their real estate agent, information as to what price range they should stay within as well as the range of yearly taxes. A real estate agent who requests a pre-approval prior to showing a Buyer homes is trying to save the buyer time and frustration.
It makes absolutely no sense for a buyer who is pre-approved up to a $300,000 mortgage to look at homes that are listed for $400,000. With lender guidelines regarding income, tax write-offs, current interest rates, and down payment requirements, it is critical to know exactly where you stand before falling in love with the perfect home, just to be denied later after spending money on an inspection and an appraisal. As long as I have been doing this, myself with an 815-credit score, qualified income and money in the bank, still before negotiating on my recent home, I contacted the lender and got qualified first. This is how responsible, serious Buyers behave.
Get Your Offer Accepted/Strengthen Negotiation Ability
When a Realtor submits an offer for you on a property, we are required to accompany that offer with either a pre-approval letter, or proof of funds. This fact, along with fact #1, should by now show you just how critical this is. Because if we are going to look at homes, asking Sellers to leave and allow us inside, then surely, we are doing this to find the perfect home for you to submit an offer contract on. Is that fair to say? With that being the case, your offer is not going to get any movement until you are qualified. The Seller is not going to accept it, take it off the market, and hope that you qualify. Our offer will be dead in the water. And if you wait, that home very well can be sold before you finish qualifying with the lender.
In order to win in a multiple offer situation, it’s paramount you have a pre-approval letter. Having a pre-approval letter is critical, but it also can matter which lender issued the pre-approval. In most cases, it’s best to get a pre-approval from a local mortgage lender and from one who also has a good reputation.
Sellers also do not want unqualified buyers walking through their home, which is a common practice at real estate open houses. In fact, I have had MY Sellers specifically ask me to ensure that all Buyers are qualified before being let into their home, and they did NOT want me to hold an open house. There are many pros and cons to open houses in real estate and certainly one of the drawbacks is there is no ability to screen potential buyers who are visiting an open house.
It’s important to note that even though a buyer may have a pre-approval, there are certain situations where a buyer can be denied for their mortgage even after being pre-approved. The likelihood of this happening is slim, but it’s important that buyers and sellers understand that a pre-approval is not a guarantee of funding.
Final Thoughts
Buying a home is a big deal. There are certain steps that need to be taken in order to be successful. A real estate agent who requests a pre-approval from a Buyer before showing them homes is only attempting to represent the Buyer in an ethical, responsible way that adheres to the Realtor code of conduct, and respects Sellers and other agents. This is not a personal attack on your character. If you take this as “I’m not showing you anything until you prove you got money because I don’t trust you” I am truly, truly sorry, and it just means that my explanation must not have been clear enough. I would never treat anyone like that, and it would personally hurt me to think you feel that way.
If you still want to look at homes without being approved, you can pay ReMax a refundable retainer. That fee covers the agent's time, and is refunded to you in full when you close on a property. If you never close, then the agent has been compensated for their time. Most folks prefer to just get approved, then look at homes so the agent can get their compensation from the Seller.
It’s important when buying a home, you hire an experienced and ethical agent. If we break protocol to help you look, wouldn’t you be concerned we may ignore ethics later that may hurt you?
I look forward to working hard for you.
