The answer is that every seller absolutely should do this. If they are selling their home themselves, they should do this and if they have hired a real estate professional to sell their home, they should ensure that their agent is doing this.
Why is this important?
Unfortunately, there are people who love to look at homes, but are not qualified prospects. You don’t have time to waste, and these folks are time wasters. There are others who are scam artists or thieves. It’s your responsibility to screen out these people so that your sellers are not at risk. In fact, some sellers of homes request that their homes only be shown to qualified prospects (this is most typical with more expensive homes but can be requested at any price range). Remember if you qualify anyone – like first time home buyers – you may be discriminating if you don’t prequalify everyone. Qualifying is simply good business.
Pre-qualifying your buyer prospects is important regardless of price range. If you are hesitant to broach the topic of qualifying with your prospect, remember that if you’re asking some buyers whether a lender has pre-qualified them, but not asking others, you are most likely violating fair housing laws by treating potential clients differently.
Don’t jump to conclusions about an individual’s ability to buy based on the car they drive or how they dress. Instead, qualify them. A simple question to start the qualification process is, “How do you prefer to pay for the home you are considering buying?” One successful agent starts her prequalifying with, “Do you prefer to pay all cash for the home you’ll be buying?” She says her prospects seem to love the fact that she believes they might be able to pay all cash.
However you choose to start the conversation, don’t be hesitant to ask how they plan to pay. If they indicate that they will want a mortgage loan, offer to introduce them to a mortgage loan originator who can qualify them. If they indicate they have their own lending source, encourage them to initiate the approval process as quickly as possible. If they say, “We’ll be paying all cash,” that’s terrific, but you still must prequalify them.
Develop scripts to help you ask for financial information. For instance,
For those who wish to purchase with a loan and don’t yet have a lender: “As you can understand, many sellers of properties require that only pre-qualified prospects be given access to their homes. To ensure that I can show you the homes that you’ll want—and need — to see in order to make a smart buying decision, and to maximize your negotiating power when you find the home that’s right for you, we’ll need to get you approved for a loan as quickly as possible.” Then offer to introduce them to a loan originator who you know and trust and give them a gentle nudge to start the process “in the next 24 hours.” Be sure to share the benefits of being prequalified, so that they understand the advantages and are motivated to start the qualifying process.
For those who plan to purchase with a loan, but already have a lender of choice: Use the script above, and indicate that they need to start the approval process immediately with their lender. “I’m sure you see the importance of setting an appointment with your lender in the next couple of business days.”
For those planning to buy with cash: “That’s terrific. As I’m sure you’ll understand, many sellers of properties require that only pre-qualified prospects be given access to their homes. To ensure that I can show you the homes that you’ll want—and need —to see before making a smart buying decision, and to maximize your negotiating power when you find the home you just have to have, we’ll simply need to have your banker, broker, or other financial institution provide a standard letter of financial introduction which verifies that you have sufficient assets on deposit to purchase in the price range in which you are interested.”
Be sure you have a system for requesting and collecting written letters of financial introduction (sometimes called asset verification letters). You may want to develop a standard form which your prospect signs granting a financial entity permission to give you information confirming that your prospect has assets sufficient to purchase at a particular price point. When this document is returned to you, be sure to verify the phone number. In other words, check with an online address/phone criss-cross directory to be sure the number on the document really is a valid number for the financial institution. Then, pick up the telephone and call the individual who has signed it and confirm your receipt of the document.
This is not just a courtesy, it is a critically important double-check that the phone number is actually a number for the specific financial organization and that document is real. If, when you call the financial institution’s number on the letterhead and Tony’s Pizzeria answers, you know you have a problem! You don’t want to put your sellers at risk or waste your time with unqualified lookers.
Some agents take the qualifying of cash buyers a step farther. Once an all cash contract has been negotiated, a date prior-to-closing is agreed upon for the buyer to deposit the cash into an escrow account at the title company (or other appropriate place). This is good business.
Qualifying prospects is an important first step in getting started with a home buying prospect, if your prospect resists, proceed with caution. He or she may not be a real prospect.
Important points to remember when qualifying prospects
- If you qualify any prospects, you should qualify all prospects. Otherwise, you may be discriminating.
- First qualifying question: “How do you prefer to pay for the home you intend to purchase?” Alternate question: “Do you prefer to pay all cash?”
- A “letter of financial introduction” provided by a financial institution is sometimes called a “verification of assets.”
- A verification of assets provided by a CPA /accounting firm is not acceptable. An accountant usually does not know an individual’s current financial balances.
- In the event of an all cash transaction, arrange for funds to be on deposit in an escrow account prior to the closing date.
Checklist for creating an effective qualifying script
As you begin to develop your own qualifying process for wealthy prospects, here are a few things you’ll want to keep in mind.
- Use the phrase, “How will you prefer to pay…” This is a soft, but direct way to open the conversation and implies that they have several options from which they can choose.
- Tell them the benefits of being qualified as soon as possible. “So that I can show you all the properties you will want and need to see to make a good decision and so that you can negotiate from a position of strength when you find the home you want…”
- Tell them what they need to do and gently nudge them to initiate the appropriate action.
- If they need a lender. .. “Let me introduce you to a mortgage loan originator who can immediately start the mortgage loan approval process for you.”
- If they have their own lender… “I encourage you to contact your (lending source) today so that you can document your purchase qualifications as soon as possible.”
- If they prefer to pay all cash… “ All I need from you is a letter of financial introduction from a financial institution where you have assets on deposit sufficient to purchase at the $__________ price point . If you will sign this request for asset verification, I will fax the form today.”
- Reinforce the importance of being qualified as soon as possible. “As an owner of a home yourself, I’m sure you’ll understand when I say that many of our sellers will only allow their homes to be shown to fully qualified prospects.
- If someone is offended by the qualifying questions, that’s a red flag. The prospect may not be qualified. A good business person understands why you ask and sees the benefits of being qualified in advance.
- You and need to decide how you will handle prospects whose agents have not qualified them in advance. Allow a showing or not?