One of the most common shortcuts that Realtors try to make is in the buyer qualification process, yet that process is one of the most important services that we provide and one of the most important aspects of our work. It is human nature to want to draw to a conclusion quickly.
It has been said that prescription without diagnosis is malpractice.
We often will try to categorize things into what we already know. This tendency compels us to assume we know what the buyer wants and, worse, what the buyer qualifies for in terms of a purchase price.
Buyer qualification is about more than finances, however; it relates to the desire and ability to buy. It is as much emotional as it is financial. Some people just aren’t ready to buy.
To effectively conduct a buyer qualification the agent must meet with the buyer – I mean face-to-face. The preferred meeting location is at the office, although meeting at a restaurant or at the prospect’s home is also workable. The interview should be conducted with a prewritten and branded form that the agent fills out during the discussion. The form lends credibility to the process and professionalism to the agent. The process of buyer qualification can be broken down into seven distinct steps.
Do not overlook the referral.
By systematically moving from one subject to the next the agent looks professional and earns the buyer’s respect and trust. Furthermore, the agent obtains the information needed to achieve success for the buyer.
Many people believe that the best place to start building rapport with a prospective new buyer is at the house that they are interested in seeing. Rather than inviting them into the office for a face-to-face meeting they arrange to show the buyer a few houses. The idea is that they will soft-sell the idea of qualification. The challenge with this approach is that a few houses often turns into several more houses for the next appointment and then the next appointment, and the buyer qualification process is pieced together through a series of brief, sometimes awkward conversations between property showings.
Too often this approach leads to disappointment and heartache that could have been avoided if the Realtor had insisted upon a professional qualification.
Let us also address the importance of Realtors being able to perform their own financial qualification. Some agents create unnecessary delays by delegating the financial qualification step to a mortgage lender.
Realtors do not need to be familiar with every loan program in the market to be reasonably proficient at qualifying buyers. Using simple formulas and conversational techniques a Realtor can very quickly estimate a buyer’s financial ability.
A conservative estimate would be that a buyer’s house payment should not exceed 28% of their gross monthly income and their overall debt, including housing, should not be greater than 36% of their monthly income. We know this.
So in conversation with a buyer we could say, “…so for instance, if you make $60,000 per year then you could afford a house payment of 28% of $5000 per month, or (using your calculator) that would be $1,400 per month. How does that compare to your current rent?” Posed this way the dialog encourages the buyer to correct your calculations with the accurate figures – “well actually I make $70,000 per year.” Furthermore, by comparing the monthly payment with their rent the conversation is framed in a context that the buyer can relate to. This will invariably create a reaction from the buyer – either “oh no, there’s no way I can afford that,” or “that sounds reasonable; it’s about what we were expecting.” Now were qualifying buyers.
This conversation adds value to the buyer’s experience with you and clearly establishes you as a pro. It also opens up a more detailed dialog where you can ask about other debt and educate them about how that relates to qualifying for a mortgage. It can also open up a conversation about their credit. The line I like best is simply, “how’s your credit?” Used at the end of an honest dialog about income and debt that question usually gets a very honest response. Use that question early, and you can’t necessarily rely on the response to be valid.
Certainly, you will want to follow up your financial qualification with an appointment with a mortgage loan officer to get a firm preapproval. However, with the basic qualification process that we have discussed you can immediately have a fair degree of confidence in a buyer’s ability to buy, and therefore, begin to show them properties without doubt.
The bottom line is that when you begin to routinely qualify buyers you take control of your business.