I believe the prequalification letter is a negotiating tool. Buyers must use this important device wisely when making offers to purchase a home.
In today’s uncertain and changing market, a Buyer has only two fundamental advantages when bargaining with Sellers. Remember, Sellers are still holding all the cards on price and timing of a sale. Those Sellers who aren’t “real” Sellers, will just sit it out until they can get their price or they finally give up, take the sign down, and head for the backyard barbecue grill.
Too, there are many “real” Sellers who want to believe beyond all hope they can still get top dollar (read: Summer 2005) for their home. As such, they’re not willing to negotiate on price, closing deadlines, downpayment, financing, or incentives (tossing into the sale price that freezer in the basement they would otherwise sell you for $350!). They really do want to sell, but haven’t gotten it through their heads, yet how dramatically the market has changed.
If you’re a serious Buyer—that is, you really want to get out of the rat-trap of renting an apartment—you’re faced with the dilemma of breaking through this impregnable mindset of Sellers. I don’t believe we’re in a “Buyer’s Market” yet, and there’s no guarantee this market will become a full-blown “Buyer’s Market.” Therefore, you have to focus on the fundamentals if you are truly to accomplish your goal of homeownership.
A Buyer has two devices, tools, or “weapons” in the quest to make the dream come true.
The first is the ability to get up and walk away from the negotiating table. I’ve said it before, and I’ll say it again a thousand times, a Buyer’s power is defined by the willingness to get up and say, “No, thanks.” You have to draw the line, and force a Seller to negotiate. If they come running after you as you leave the table, great, you’re making progress. If they don’t, well, you’ve just saved yourself a whole bunch of aggravation and potentially financial distress.
The second tool is the prequalification letter. Never show a Seller your maximum loan qualifications. If you’re negotiating down a price of, say, $425,000 to your offer of $387,500, and your prequalification letter says, “$500,000” the Seller has absolutely ZERO incentive to bargain with you. After all, according to the letter from your Lender, you can handily afford the price the Seller is asking. Boy! You’ve got nerve trying to bargain that Seller down when you’re obviously well-off enough to afford more than the asking price! The nerve!
Your letter should reflect only the price you are offering. If you increase your offer, have your mortgage person increase the prequalification letter. If you have to do this three or four times to get what you want, then so be it!
I have always customized my prequalification letters based on the offers my clients are making. Since
I specialize in 100% financing, the offer and the letter are usually the same amount.
But, there’s more to the use of this important tool. The letter is just a piece of paper, and you want the Seller (and their Realtor) to truly have confidence in you. You want to present yourself as the one and only Buyer for this home, so, “Take my lower offer NOW!”
The prequalification letter should be delivered immediately you make the offer. If you made your offer on a Saturday afternoon at 3:30p.m., the latest the prequalification letter should be delivered to the Seller is 10a.m. Monday morning. I usually send mine within hours of the offer, even if it’s a Sunday evening. Yet, too often, I hear from Realtors how they’re still waiting for a prequalification letter the following Wednesday! Frankly, I think that’s ridiculous.
This delay only serves to dilute your credibility in the mind of the Seller. And if you’re trying to get the home for less than asking price, if you’re strong enough to use option one in bargaining (walking away), then why would you knock yourself down a few pegs by working with a mortgage person who isn’t as aggressive as you are? The speed with which you—and your team of professionals: mortgage person, engineer, attorney—work puts action ahead of words. As the old saying goes, “Actions speak louder than words.”
Two tools. Buyers use them to get what you want: your dream of homeownership at the price you’re willing to pay. Sellers beware!