Demands Listing Agents Make That Aren't in Their Clients Best Interest

One of the things I see all the time is notations made on the listing that demotivate buyers agents, or give them a reason not to show the property. This practice has had a drastic fall off for a while, with listing agents and brokerages desperate to sell after nine months on the market, but it came back with a vengeance more recently, and it's never in the client's best interest to restrict the field, or to give other agents a reason not to show your property, but that doesn't stop some listing agents from doing it, particularly in hot markets or particularly desirable neighborhoods.

"Seller to select all services." Well, duh, if they're paying for them, which they are in the case of owner's title insurance, and half for escrow. But my client is paying for lender's title and the other half of the escrow, and to say it's not even on the table for discussion is not only a violation of RESPA, but it tells me that the listing agent or brokerage likely has their hands out behind their backs, and that's a transaction I'd prefer to avoid. Either that, or they want to steer revenue to an escrow company in which the brokerage has an interest. Escrow officers with "captive" brokerage clients have a very high percentage of cluelessness, and their motivations to give top notch service aren't exactly stellar, either. Furthermore, in such cases my client is likely going to end up paying sub-escrow fees due to splitting the title and escrow, and if that's not the most useless waste of money in the business it's darned close. Suppose my client gets cheap rates for title or escrow, or free? Suppose I've got a contract with a different company for cheaper rates? Suppose I simply know of a company that gives better rates for the same product and still has top notch providers? If you're not willing to discuss it with my client and I, there are most likely some issues going on, and unless the seller gets reduced rates or free escrow and title, something that is far more rare than the notation, there is no reason for this notation. A major variant on this is "Title and Escrow already open." This makes me ask "Why?", and the only answer I can see is that they are trying to preempt the choice. The vast majority of buyers need loans, and the title and escrow are going to be ready long before the loan. Yes, the seller could already have filled out a statement of information with them, but that's not important to my clients.

"Buyer must be prequalified" or "Buyer must be preapproved." Neither one of these means anything real. They are both garbage requests. Not too long ago, minimum wage earners could be "pre-qualified" for million dollar properties. Even "pre-approval", which is supposed to be stronger, suffers a very high fall off rate when they actually have a purchase contract. In theory, pre-qualification means that you should be able to afford the payments on the type of loan you pre-qualified for, and pre-approval should mean that the application will be approved as soon as the blanks for the specific property are filled in. In neither case is what's really being done by most loan providers even vaguely in line with the billing. In many cases, the buyers have a hidden issue that has not yet come out, but with several hundred thousand dollars on the line, you can bet that the lender will find out about it before the loan actually funds. In a large number of cases, it may look like they might be able to qualify, but their loan officer wants to make a little too much money.

These days, with lenders being far more careful who they lend money to, it's even worse than that. At the minimum, until I have a loan commitment with conditions I know I can meet, every transaction is in jeopardy. Very qualified people are having difficulty getting their loans actually funded, and until you get pretty deep into the actual loan, there really isn't any way to know. Some buyers look beautiful as far the numbers go, but there's something lurking in the background that is going to mean no lender will approve them until the bond market paranoia dies down a bit.

(That paranoia will die down. But I don't know how long it's going to take, and the Federal Reserve isn't helping matters.)

Neither one of these makes difference to the purchase offer I write. No buyers agent wastes their time working with people that they do not believe will qualify for the required loan. Once I've got a credit report, income information and a liabilities statement, I ask if there's anything else that's going to show up, and ask about any changes or bumps in their career situation within the last two years. It used to be that providing a good loan officer gets the whole truth at that stage of the game, the loan should have gone through. That has now changed in a small percentage of cases but it's not smart to give that percentage too much weight as it is completely unpredictable.

I still do the due diligence when I'm on the listing side, I just know that there's a certain percentage that are going to fall through no matter what preliminary investigation I do. I've learned the hard way never to trust a prequalification or preapproval that I didn't do, and when I'm on the listing side, I have a form I require to be filled out by their loan officer and signed under penalty of perjury. I want to be certain I get enough information to be certain I could or could not do the loan in the absence of bond market paranoia striking it down. The alternative is to be very hard nosed about the deposit in negotiations - the information is easier and has less of a dampening effect upon negotiations. If I could get the loan done based upon the information, we've got a live one. If my listing clients gets the deposit if it falls out, they come out okay. But neither prequalification or pre-approval means anything real unless it's done by a loan officer with realistic expectations and the right attitude, something a listing agent has no real way of knowing. Indeed, the request for pre-approval or pre-qualification tells me it's a lazy listing agent who doesn't understand how to separate the wheat from the chaff, or is unwilling to do so. They're just filling in a little check box to perform CYA manouevers ("It's not my fault the transaction fell apart! We had a pre-qualification!").

"Must be prequalified/preapproved with lender X": This isn't a demand I'll even consider giving in to. Indeed, under RESPA, it's illegal.

From the text of RESPA:

Business referrals No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

Thou shalt not require the other party to use your lender, and even requiring a qualification with a particular lender is giving that lender a "business relationship" i.e. a thing of value. Even as a buyer's agent, I would never consider requiring a client to use me for the loan. Carrots only, never sticks. You are giving that lender something of value - a business relationship with the client. They can use this for targeted solicitation, sell the person's information to third parties, etcetera. Anybody want to argue that's not a thing of value?

In most of the cases, the lender specified is one that I wouldn't wish on my worst enemy. Especially not if I want the transaction to close on time. High margin providers who promise something great to get people to sign up and then show up with something completely different at closing. Agents: What do you think happens to your reputation with other agents when this happens?

In a significant number of these cases, the agent has their hand out behind their client's back. Whether it's explicit compensation or just wanting to put the buyer in a situation where they're using a lender that's indebted to that particular agent, and they refer clients back and forth. "I want the listing when this buyer goes to sell, so I'll send all the buyers to the loan officer who will refer them back to me." Agents and Loan officers go to seminars devoted to the idea of cutting out the competition, so they don't have to compete at all. It's not in your best interest to allow them to do so.

Some of them will follow the requirement they are trying to impose about being pre-approved with lender X with "Ok to use own lenders for the transaction." As if that lender doesn't have all my client's personal information. From my first week in the business, I was smarter than that. Of course, my brokers told me about the experiences of other loan officers: Their client was bombarded with multiple calls per day from that loan provider, and when the client tells them never to call again, they sell the client's information to dozens of other loan providers, and so the bombardment gets worse. A prequalification certainly counts as a "business relationship," and it's amazing how often "opt outs" aren't even offered until thirty to sixty days later. So as I said, the smart thing to do is ignore the request. "Here's an offer, take it to your client like you are legally required to do. Here's the qualification information. Ask your favorite loan provider if this is likely to fly". Many agents won't even honor that, but those agents will get caught eventually. I can understand that they want a certain transaction, but there is no such thing. If they're going to serve their clients, they should know something better to ask for in negotiations. It is illegal, no matter how they rationalize it.

Finally, it's often a way for listing agents who want both halves of the commission to discourage other agents from showing the property. If I see a demand that a client be prequalified with a particular lender, I'm either going to ignore it completely or not suggest that property to my clients. Perhaps I'll even show them the listing (usually on paper), and tell them why they should stay away or make a really low-ball offer because of how much of a pain the listing agent is trying to be. It all depends upon how good a deal I think the property might be, and whether I think the agent is desperate enough to be reasonable yet. But as a buyer's agent, I don't have a responsibility to any given seller - the listing agent does. Furthermore, neighbors talk. If George down the street gets twenty showings and four offers on a less attractive property than this agent's client, who gets only two showings and no offers (or nothing but low-balls), that listing client is probably going to ask their agent some hard questions. What comes around, goes around.

Caveat Emptor

Original Article here