Why I have a love/hate relationship with Realtors

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There is a new article up on Inman (an industry news site) titled "Not playing nice – Diary of a real estate rookie." The article highlights many of the problems that I have with the relationship between Realtors and loan officers. The overall attitude of this Realtor in regards to the loan process is very disturbing and their actions put the loan officer in an extremely difficult position from start to finish.

By "swear" I guess I mean "sound like David Mamet" because that’s what one of my fellow agents said to me, but honestly, we were in a best-and-final situation, and I was just trying to wrestle this pre-approval to the ground. We had a letter for a different property, so I wanted the agent to change it to make it good for the subject property; acceptable. But the commitment we had was for a specific amount, and when we changed the amount I wanted to change the wording: apparently not acceptable.

"Will lend up to $XX" was the phrase that came over in the draft letter.

"Up to?" I said. "That sounds weak, and we’re going into best-and-final. How about in excess of $XX?"

This is the first part that troubles me. Loan officers are supposed to give a prequalification letter based on an accurate assessment of what a borrower can afford using such information as their financial position and the borrower’s desired monthly payment, other obligations, etc. If you’re lucky enough to have a good loan officer, they will actually look for a mortgage with terms that the borrower can afford, not just the max loan amount the borrower can get within the underwriting guidelines of the bank.

This attitude by Realtors to have the loan officer qualify the borrower for the max loan amount forces loan officers, especially good ones, in to the difficult choice of putting the borrower in to a bigger loan than the borrower would normally be comfortable with, or switching to a stated income loan or exotic mortgage (interest only loan, pay option ARM) to qualify the borrower.

If the loan officer doesn’t do this they get derided as difficult, unwilling to "work" with the Realtor to get the deal closed, and are cut off from future transactions for not being a "team player." Amazing that prudent lending practice would garner so much scorn from the Realtor camp. From the Realtor perspective it makes sense, the Realtors want to sell bigger homes for bigger commissions. They want loan officers who are going to be able to deliver bigger loan amounts to the same customers to get them in to these homes. If the loan officer doesn’t cooperate they are lambasted and potentially black-listed by the Realtor.

It begs the question, when a loan officer won’t issue a revised preapproval with significant increases in loan amount with out spending the time and energy to re-qualify and discuss the payment changes with the borrower and the Realtor gives them a hard time, who’s side is the Realtor on? It seems like the only side they are on is their own.

When a loan officer has the guts to say to a Realtor "I can’t approve a borrower for this amount of money" the Realtor should, instead of giving them the 3rd degree, say "Thank you we’ll look at some other more reasonable options." Or will have a meaningful conversation with the borrowers about what their more risky options to secure the home they want look like.

By forcing the loan officer to stretch the approval the Realtor has put the loan officer behind the 8-ball for the rest of the transaction. The loan officer now needs to "get creative" (never a good thing in lending money) to get the loan done. This could mean alternative documentation, letters of explanation and a host of additional hard work for the borrower and loan officer that could be avoided by using a more sensible loan amount.

As the difficulties of qualifying the borrower for a stretch borrowing limit crop up in the lending process the Realtor blames the loan officer again for holding up the process, being unable to deliver on his word, etc. when the problem was started by the Realtor’s over zealous request for a larger lending approval.

Then there was the issue of timeframe. The original timeframe said "7 to 10 days."

Now, I’m not a mortgage broker but doesn’t that sound slow to you? Client has been employed at the same firm for nearly 10 years, is making a 30 percent down payment (and she’ll have the same amount left over as cash in the bank) and is borrowing less than twice her HHI. I’m thinking this decision should take a lender maybe four hours, tops.

Yet somehow my suggestion of "imminently" as a wording for the pre-approval letter was rejected.

Now with a loan approval that is going to take "creativity" to get the borrowers approved at that large loan amount the Realtor wants an approval in 4 hours. Again, a lack of understanding about the difference between selling a home and actually making a sound decision about the ability of a borrower to repay a large obligation is apparent. This type of thinking just perpetuates the the practices of unsavory loan officers. The shady loan officer will say no problem, up the loan amount, reissue the letter, guarantee an underwrite in 1 day and closing within a week. But why not, the Realtor is pushing for maximum loan amount and wants to win the business by promising the sky too.

All this ranting and raving and pushing does is force good loan officers to step backwards down the slippery slope of over-promise, under-deliver. Worse, it could push loan officers to take ethically questionable short cuts and other measures to get the business of this one pushy Realtor.

Realtor’s like this give a bad name to the good ones out there, they force loan officers in to difficult positions from the start of the process and then use them as scape goats as things get difficult during the lending process as a result of their over aggressiveness.

It is my advice that any Realtor that tells you you can afford a home that you in your gut feel you can’t should be told to take a hike. Find out what you qualify BEFORE you meet with a Realtor – that way you can tell your Realtor exactly what price range you can afford, and not the price range your Realtor thinks you can afford.