Residential Real EstateWhy The Mortgage Is More Important Than The Property Price
For some reason buyers think purchasing a property is a two-step process: finding the right house and negotiating the transaction. Make sure during the Initial Interview that they know it is a three-part process. Alert them that their lives are no longer their own after the contract is signed. Contingencies need to be satisfied, time is of the essence, and the clock is ticking.
The worst time for a buyer to select a lender and a loan is after deciding on the house they will purchase. During this time, buyers are easily overwhelmed and may just need to get it done rather than make the best decision possible.
Moreover, setting the standard in your practice that you only show buyers property once they’re pre-approved is just good business. I recommend it because it’s best for your buyers and because it’s best for you. It’s a practice that allows you legally to assess their motivation before working with them.
Lots of agents believe as independent contractors they can pick and choose which buyers to serve. Most of the agents I’ve spoken with at length about this are wrong. They’re wrong because the way they pick and choose demonstrates a pattern of arbitrary discrimination.
You can pick and choose which buyers to work with, but only if you do it consistently and objectively. There’s one color you can discriminate against: green. Stated in a more politically correct manner, you can assess their motivation with real estate finance. If they don’t have enough money you don’t have to work with them. But you can’t only ask those people you may not want to work with whether they have enough money. You need to ask everyone. Set your standard: you only work with pre-approved buyers.
So be different. Earn their personal referrals by rearranging the steps of the transaction. Teach them about mortgages before they begin looking for a home. Counsel them to pick a lender and a mortgage when they are clear-headed and under none of the additional stress that a signed sales contract represents.
Buyers pay the price of the house once at settlement. They pay the cost of their mortgage over and over every month. Picking the right mortgage is more important than the final purchase price of the house.
Should you still find a skeptical expression on the buyer’s face when you explain that the mortgage is more important than the price, ask them to look at the truth-in-lending statement the law requires a lender to provide. If they don’t have it, pull out a copy from one of your transactions (you may want to white out the name and address of the borrowers for confidentiality reasons).
Compare the purchase price to the cost of the loan were they to pay the loan off over the life of the loan. The Federal Reserve has calculated and Chairman Greenspan has said that the average American homeowner owns their property for 12 years. The cost of the loan is usually more than 2.5 - 3 times the cost of the property! A $100,000 property costs buyers $250,000 - $300,000 over 30 years.
The mortgage is more important than the price. And the worst time to go shopping for a mortgage is precisely when most buyers do it - after they have signed their contract to buy their next home.
Set a new standard for any buyer you work with and watch your business take off. No guts, no glory, so give a try. Decide to only work with buyers who have made the right decision for their lives ... buyers who have picked the lender, picked the loan, and are pre-approved. You’re providing better service for them and ensuring the success of your career as a confident professional in this great business of ours.