Part II: I took a pre-approval loan application from a previous client, but then they purchased a new home and the builder gave them $10,000 in options if they went with their preferred lender. Of course, I lost the loan. Isn't this against the law?
–Larry from Washington
Last week I spoke about whether this practice is legal, without giving legal advice. This week I will address the all-important question: How do you avoid losing your clients in this situation? There is no way to guarantee you will save every deal in which the client gets $10,000 from the builder to use their lender. But you can save some of them instead of losing them all:
- First, make sure the clients have a fully underwritten pre-approval to present to the builder or any seller. This is proof they have not only made application, but their file has been underwritten and approved by the company. Keep in mind that this is different than a “pre-approval” opinion by a loan officer.
- Next, make sure that you counsel your clients not to sign a sales contract before conferring with you. While it is always a good idea to review a contract before it is ratified to make sure there is nothing in there that would jeopardize the financing, this is especially important for new homes. Once the contract is written for the builder's lender, there is no incentive for the builder to make an exception. Let your clients know that the builder may try to take their right to choose vendors away with these incentives, but they could get the incentive and keep their right to choose.
- Most importantly, make sure you are known by the sales agent on the site. This means you should be visiting builders and developing relationships, even if you are not going to service the site. The builder is more likely to make an exception if they know you. Plus, you might get some deals.
Finally, even if you are not successful, keep in touch. The builder's lender may quote a higher rate at the end to absorb that $10,000 – there is no free lunch. Bad service or high rates could steer the deal back to you – if you stay in position.
Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is www.originationpro.com. If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at [email protected].
Are builder concessions legal?
Displaying expertise means staying on top of your customers’ needs