Preapproval letter pain?
Once a buyer finds a home to make an offer, buyers in need of financing go a lender and receive preapproval for an amount. Most preapproval letters are valid for 60-90 days depending on the bank. Typically, buyers share the preapproval letter with the seller(s) after 24 hours of the offer acceptance. Therefore, the preapproval letter needs to completed for the buyer before an offer is presented. The fear of the buyer is that once the seller sees the preapproval amount, the seller will immediately counter offer. There is no reason to allow sellers to know that you are capable of paying more.
The preapproval letter is key in the negotiation for buyers. The tool shows that you are a ready, willing, and able buyer. But use with strategic purpose!
Ready, willing, and able… but not unprotected
Fortunately, there are a few ways for buyers and agents to combat this problem:
1. Have the lender make the preapproval apply to a specific property location with no mention of price on it. Simply, your lender will state that the borrower is approved to purchase the property located at the specified street address.
2. Another option is to request that the lender produce several preapproval letters to you to coincide with the offers. For example, if you offer $100k, then could have a preapproval stating that you are approved for $100k. If a counter offer is necessary, then you can produce a second preapproval letter with a higher corresponding to the amount equaling your new offer.
While it is crucial to have a preapproval letter before searching for properties, the timing of the disclosure means everything. It is unnecessary to disclose the preapproval letter for a higher loan value than the sales price. Obviously, it hurts the negotiation position of the buyer. The buyer’s strategy is to gain the confidence of the seller by displaying the purchasing ability of the buyer.