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Should the Seller and/or Seller's Agent know exactly how much we qualify for?

We recently submitted an offer on a house that was less than what we qualify for.  The Lender (recommended by our realtor), gave our realtor the preapproval letter to go out with our offer.  We were not copied or made aware of the amount that was listed on the preapproval letter.  I was not even aware that we were approved.  I only found out when I saw the letter attached to our offer AFTER it was sent to the Seller's agent.  Shouldn't the Lender have our permission before they disclose this information, even if it is our realtor?  I feel this information damaged the negotiation before it even started.  Please advise.  
  • May 16 2014 - Poulsbo
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Answers (16)

When I represent buyers I always ask them to advise their lender that they only want the amount of the offer reflected on the pre-approval letter. Why would you want to 'show your hand'. I would say it was attention to detail that was over-looked by your agent.
  • September 19 2014
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You're right to be upset about this. You get to control the information that is disseminated about you and your buying power, and your negotiating position might have been compromised. I work with lenders who will write a pre-approval letter that says, "Mr/Mrs. Buyer qualify to purchase the house located at ______." The buyer's upper limit is never mentioned.

If this transaction falls apartment, you may wish to hire new representation. Consider hiring an Exclusive Buyer Agent. EBAs represent homebuyers only, never sellers.
 
  • May 19 2014
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Mack, I was addressing your statement that lending officers might not have statutory restrictions similar to real estate agents with regard to confidential information.  I would suspect that there is such a statute, perhaps even federal and state statutes.

As to your question about paragraph i, the last sentence certainly could be read as such consent, but I don't think that answers the OP's question.  There wasn't a problem with giving the letter, but only the letter containing the amount.  What if when asked for an approval letter the lending officer not only provided that information, but referenced and attached a copy of the credit report, copies of three years of tax returns and recent bank statements?  I don't think paragraph i would authorize that, so since the amount isn't a necessary component of an approval letter, I don't think paragraph i can be seen to be consent.

This really though isn't an issue I've thought a lot about.  Although I said below I don't have a strong preference, my wife does.  So for the lenders we regularly work with and refer to, the approval letter will typically have either no amount or the offer amount.  In the latter case we might as for multiple letters in case there is a counteroffer.  For lenders we don't work with regularly, where this situation might arise, I basically just assume the lending officer has permission to give me whatever they give me.  I think that's a reasonable assumption.  And in either case we do let the clients know that the approval letter is a necessary document to be transferred with the offer, and it's often part of the pile of documents presented when the client signs (if it's available at the time).  

Interesting question though--thanks!
  • May 17 2014
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Kary, I will certainly defer to you on the confidentiality issue. Is your interpretation of paragraph i on Form 21 that a pre-qualification letter at a higher price could be considered a "document" and therefore can be furnished to the selling broker?
  • May 17 2014
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Sunnyview, prior to saying "independent" you also used the term "tag team."  I took that as meaning that they shouldn't be a lender and agent who had worked together in the past.  Sorry if that wasn't what you meant.  I consider that prior relationship to be a good thing and something to seek out.  Agents aren't likely to refer to problematic lenders and lenders aren't likely to refer to problematic agents.

Mack, I would be surprised if there were not some corresponding duty for loan officers to keep client information confidential.  They typically get much more potentially damaging information than what agent get (e.g. tax returns).  That said, I'm not sure what a lender will loan is confidential information because it's not information given by the client to the lender.  It's information derived from confidential information.
  • May 17 2014
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I don't really think that there's any "advice" to be had here, 289. You didn't know that the lender might let your agent know that you had more purchasing power than you wanted to let on. That's perfectly reasonable.

In practice, however, I think if you want to keep secrets, you have to swear people to secrecy. Real estate brokers in Washington State have a statutory duty to provide confidentiality, but I don't think that loan officers have that requirement.

All the best,
  • May 16 2014
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"If you follow Sunnyview's advice and dump the agent, then don't follow their advice about getting an agent that doesn't know your new lender."

Lol...I said what? It is Friday so maybe what I actually said was "Find an independent professional who will work hard for you and cooperate with whatever agent you choose..."  I  never said pick a hermit lender who knows no agents, but your lender should not work harder for your agent than they work to make sure you have the loan that best suits your needs.

Your lender can know your agent, but they should not be handing out your personal financials to anyone including your agent without your permission. That includes your top qualification amount. 
  • May 16 2014
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If you follow Sunnyview's advice and dump the agent, then don't follow their advice about getting an agent that doesn't know your new lender.  Having agents and lenders that have worked together is typically a good thing, because it means the lender actually performs (and visa versa).  Trying to find two that do not know each other may mean finding an agent and a lender that are both bad at their jobs.

I would also note that some lenders will only issue preapproval letters with the amount stated.  I prefer ones that are more flexible, but that might be what you ran into.  That doesn't excuse, however, their giving out your information without your permission.  I would wonder though whether one of the documents you signed gave that permission, but in a way that was not terribly noticeable.  

I've not had this particular issue come up with lenders, and I don't usually deal with clients dealing with their lenders.  Where I see the issue is home inspectors, and they usually make it very clear that the client needs to give permission to them to send their agent a copy of the inspection.  That technically doesn't have any personal information other than name, but even so they want express and knowing permission.
  • May 16 2014
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Profile picture for sunnyview
NO! Dump your lender and your agent. Your financial information is not a pawn to be used by the silent referral tag team. Find an independent professional who will work hard for you and cooperate with whatever agent you choose without compromising your bargaining position.
  • May 16 2014
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Profile picture for wetdawgs
I'd have a strong word with the lender AND the agent.
  • May 16 2014
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This is an area where you get many different opinions regarding the form of the pre-approval letter (I'm not dealing with the permission issue).  Some like the full amount stated, so that the strength of the buyer can be determined by the seller.  That can be very useful in multiple offer situations.  At the other extreme, some don't like any number stated at all.  If you do state a number that is equal to the offer though, any increased price will need a new pre-approval letter, and that might cause delays (which can be damaging in a multiple offer situation).

I don't have a strong opinion on this and would be willing to go any of the three ways mentioned.  I do believe that just because you're qualified for more debt that doesn't mean you're willing to pay more for a particular property.  Others would disagree.
  • May 16 2014
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I would doubt it would damage the negotiation since the pre-aproval amount has no meaning on the amount the bank will loan on that particular home.
 
The lender should have your permission, and you may have given it to them with out noticing. it may be buried in an online app, or other such notice.

Remember the amount you qualify for HAS NOTHING TO DO WITH THE AMOUNT THE BANK WILL LOAN, that  is determined by the appraisal and your loan packages LTV.  The pre-approval amount is solely the limit they will go, it is not the amount they will loan on the home.  Not understanding that has caused many a 1st time buyer and inexperienced agent great grief at closing.

In my area I have not seen an agent get a letter specific to a property. 

 
  • May 16 2014
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This mostly sounds like a communication problem to me. Possibly your Realtor did not explain the purchase and offer process to you properly.
What normally happens is that your lender will tell you how much you are pre-approved for and he will also tell your Realtor. After all, your Realtor can't very well represent you unless he has this information.
Then when you want to write an offer on a home, your Realtor will get a pre-approval letter from your lender to substantiate the fact that you can afford it. If your offer required, say a $300,000 mortgage and you could qualify for a $300,000 loan, then I and many other Realtors would ask the lender for a pre-approval letter stating that you were approved for a $250,000 loan.
Now if the pre-approval stated you were approved for a $300,000 loan, you may think that it would encourage the seller to ask for a higher price, but in reality, I am not so sure. Just because you can borrow more, does not mean that you will do so and the seller knows that he risks you walking away.
  • May 16 2014
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Profile picture for daveskow
Q:  Shouldn't the Lender have our permission before they disclose this information, even if it is our realtor?

A: definitely yes
  • May 16 2014
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It is very common for a lender to send that to your realtor, but not without first talking with you.

In that same regard, it is odd for them to send the full amount. I taylor make all of my pre-approval letters based on the amount that the offer is being put in for. i.e. if you are approved for 500K but find a house that you want to offer 300K, I would revise my pre-approval letter to simply show 300K, because if the seller knows you can buy at 500K, they are going to counter a higher offer (EVERYTIME).

I would shop your loan around at this point, see if you can find a lender you feel comfortable with and will keep your best options their priority. Feel free to reach out to me via my zillow profile if you'd like to discuss further.

Good luck,
  • May 16 2014
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Profile picture for toddbazik
The pre approval letter is a very important part of the offer submission package.  It's a little odd that your lender chose to email the letter directly to your Realtor.  Your lender should have first consulted with you and explained your options.  It's likely your Lender and Realtor are working together for each other's mutual benefit which is fine...as long as they remember the top priority in the transaction is YOU the client.  As far as the negotiation being damaged, it's hard to tell without more information.  Ask your Realtor and Lender why you were left out of this very critical process.  Whatever the reasoning is, you deserve to know.
  • May 16 2014
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