Are Home Purchase Preapproval Letters Helpful?

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Dear Monty: We have a showing scheduled next week for a home. The seller’s agent is asking for a copy of our preapproval letter. Our approval is for quite a bit more than we are willing to offer, and we are concerned that when they learn we can pay more, they will not be as open to a lower offer. The preapproval request was the first time this had happened. It doesn’t appear to be a good idea for a buyer to share this information. We would appreciate your take.

Monty’s Answer: Media reports about multiple offers over asking prices and buyers waiving home inspections are just some of the tactics that have home sellers and real estate agents adopting new policies. Another tactic some overzealous buyers use is puffing up their income to get an acceptance—then the financing is denied. In the meantime, the seller’s home has been off the market, and lost market time cannot be recovered.

In many regions, a buyer commonly had to produce a driver’s license for many years before the pre-approval letter became common. A driver’s license is also required to see an apartment in those areas. Because real estate transactions involve large sums of money, an official photo ID can prevent various scams. A driver’s license requirement will most likely frighten a scammer away.

Considerations

Real estate transactions commonly start with neither party knowing the other. So, it is natural for both parties to have their guard up. It is also natural for people to want to be seen positively in a civil society. It is widespread that as people share information about themselves, they discover common bonds or interests. This writer believes the majority of people are considerate and kind. It is also genuinely possible that people can agree to disagree. Buyers and sellers want to protect their interests in a real estate transaction. Still, they also have a common goal: a successful conclusion.

While the seller may react in the manner that concerns you, it is also possible that the seller may see that you are conservative and more likely to secure your financing with the lower credit risk. In any event, even if the seller did not accept your lower offer, it may not be because of your pre-approval letter. One of the essential facts in real estate negotiations is that there is no exact price for any home. Homes are worth different prices to different buyers. Three common occurrences validate this statement.

No. 1: When a contract fails to close and a home returns to the market, it rarely sells for the same price when the second contract is accepted.

No. 2: Multiple appraisers evaluating a home on a given date will each arrive at a different conclusion. They provide their opinion, which often differs from a buyer’s opinion.

No. 3: Multiple buyers rarely offer the same price.

What is apparent is that every home has a range of value—not a price.

Options to Consider

• Provide the preapproval letter, and if they request a driver’s license, honor the request.
• Ask your lender to modify your preapproval letter to reduce the mortgage amount.
• Inform the seller that you want to see the house but will not provide a pre-approval letter.

If you are genuinely interested in the home, consider the first option.