Questions Every Real Estate Agent Should Ask About Buyer Financing

As a manager of a real estate brokerage since 2010, and a coach since about 2013, I’ve noticed a few things that impact agent success.

• Willingness to prospect every day. 
• Humility to know when you need assistance. 
• The gift of ‘gab’ and the ability to build rapport. 
• Negotiation skills. 

But at, or near, the top of the list is: the ability to ask intelligent questions without fear. My former real estate partner’s wife taught me the power of asking questions. She said that everything starts with questions.

I’ve also noticed that some agents can tend to throw a lot of spaghetti at the wall in hopes that some of it sticks. And, while I applaud the *ahem* stick-to-it-ive-ness of this approach, it isn’t necessarily the best way to achieve consistent results for our clients or our own businesses.

Does it make sense to write offers for buyers that simply can’t close? Of course not. That’s wasted effort, disappointed people that thought they could buy their dream home, and a long list of other people like sellers, agents, administrators, mortgage professionals, etc., that have made efforts to get a deal in place and to move it forward only to have it fizzle out.

Disappointment all around.

The Listing Agent’s Perspective

As a listing agent, what questions are you asking buyer’s reps when they bring you offers conditional upon the buyer obtaining financing?

From the selling side of the equation, your obligation to your seller includes determining the likelihood of any deal you help to negotiate eventually closing. That means that you have an obligation to dig into the details. Too often, lately, I’ve seen conditional offers fail after acceptance because the buyer was unable to obtain financing. Why? Before entering into a negotiation, the buyer’s should know their client’s details and ability to close, shouldn’t they? So why are half of the failed deals I’m seeing failing as a result of financing contingencies not being met? I believe it’s because we aren’t asking enough questions on either side of the negotiation.

When dealing with an offer contingent on the buyer obtaining suitable financing, it’s crucial to gather as much information as possible to advise your seller client effectively. Here are some questions you might ask the buyer’s rep:

Financing Details

• Pre-Approval Status: Has the buyer been pre-approved for a mortgage? If so, can you provide the pre-approval letter?
• Lender Information: Which lender is the buyer using? Have they worked with this lender before, and are they known for timely closings?
• Loan Type: What type of loan is the buyer applying for (conventional, CMHC, high ratio/high risk, ‘B’ lender, etc.)? Each loan type has different implications for the seller.
• Down Payment: What percentage of the purchase price is the buyer planning to put down? A higher down payment often means a stronger financial position.
• Creditworthiness: Can you share any information about the buyer’s credit score and financial stability?

Condition Specifics

• Contingency Removal: How long does the buyer need to secure financing? Can the conditional period be shortened?
• Backup Plan: What is the buyer’s plan if their initial financing falls through? Do they have alternative financing options lined up? Or are they planning to simply walk away if their first option fails?
• Proof of Funds: Can the buyer provide proof of funds for the down payment and closing costs?

Commitment

• Deposit: How much is the buyer willing to put down as a deposit? A larger deposit can indicate a serious commitment. (And it’s harder to simply walk away!)

Potential Red Flags

• Employment Status: What is the buyer’s employment status? Have there been any recent changes that could impact their financing? How long have they been at their current job or industry? 
• Debt-to-Income Ratio: Does the buyer have a high debt-to-income ratio that might complicate their loan approval? Have they recently purchased a new truck – like, since they started looking for a home?

Communication and Coordination

• Lender Communication: Can we establish direct communication with the buyer’s lender to stay updated on loan progress? Yes, I understand that this is a stretch. But if you don’t ask, you don’t get, as the saying goes.
• Past Performance: Has the buyer experienced any issues with financing in previous transactions? In other words, are they asking their rep to throw more of the proverbial spaghetti at the wall?

Market Conditions

• Buyer Demand: While not a question for the Buyer’s rep, you should have a handle on how competitive are current market conditions. Are there other potential buyers who might make a similar or better offer without financing contingencies?

Competing Offers

• Other Offers: Are there any other offers on the table, and how do they compare? If not, what is the likelihood of receiving additional offers soon?

The Buyer Agent’s Perspective

When you’re working with buyers you still have obligations to ensure that they can successfully complete any transaction that they choose to enter into. Again, persistence is admirable, but your persistence should be intelligently directed. You wouldn’t want your buyer to fall in love with a property only to be disappointed when they can’t get the money to close the deal, would you? 

Again, being curious and getting to know your buyer client will benefit everyone. Slow things down, and ask better questions.

Initial Assessment

• Financial Review: Start with a thorough review of the buyer’s financial situation. Can they provide details on their income, debts, and assets? Understanding their financial health helps you present a stronger, more credible offer to the seller.
• Credit Score: Have they checked your credit score recently? If not, recommend that they do that to understand where they stand and address any potential issues. A higher credit score can make a buyer’s offer more appealing to the seller, as it indicates a lower risk of financing falling through.

Pre-Approval Process

• Mortgage Pre-Approval: Have they obtained a mortgage pre-approval letter? If not, get that process started with a reputable lender. A pre-approval demonstrates to the seller that the buyer is serious and financially capable, making your offer more competitive.
• Lender Selection: Do they have a preferred lender, or would they like recommendations? Working with a lender known for reliability and timely closings reassures the seller that there won’t be unexpected delays.

Loan Details

• Loan Type: What type of mortgage are they considering (conventional, high ratio, private lender, etc.)? Each has different requirements and implications. The type of loan can affect the seller’s perception of the buyer’s financial stability and the likelihood of a smooth closing process.
• Down Payment: How much are they planning to put down? A higher down payment not only reduces the loan amount but also signals to the seller that they have substantial financial backing.

Financial Stability

• Income Stability: Can they confirm their employment status and income stability? Lenders will need documentation, such as pay stubs and tax returns. Demonstrating stable income reassures the seller that they’re less likely to encounter financing issues.
• Debt-to-Income Ratio: Have you calculated their debt-to-income ratio? This is a key factor lenders consider in the approval process. A lower ratio indicates better financial health, making your offer more attractive to the seller.

Document Preparation

• Gathering Documents: Compile all necessary documents, including tax returns, T4s, pay stubs, bank statements, and any other relevant financial records. Being prepared with all documents can expedite the loan approval process and show the seller that the buyer is organized and ready to proceed.

Contingency Planning

• Alternative Financing: Does the buyer have a backup plan if the initial financing falls through? Having alternative financing options lined up provides additional security to the seller, making them more likely to accept your offer.
• Savings for Costs: Do they have enough savings to cover the down payment, closing costs, and any potential financial emergencies? Ensuring they have adequate funds reduces the risk of last-minute financial issues that could derail the purchase. 

Timeline and Communication

• Closing Timeline: Is the buyer flexible with the closing date? The seller might prefer a specific timeline, and being adaptable can strengthen your offer. Sellers often value buyers who can meet their preferred closing dates.
• Lender Coordination: Can you establish direct communication with the buyer’s lender to ensure a smooth and timely process? Maintaining clear communication helps avoid delays and reassures the seller that everything is on track.

Addressing Potential Issues

• Credit Issues: Are there any potential issues on the buyer’s credit report that you should address now? Sometimes errors can be corrected, or steps can be taken to improve their score. Resolving credit issues beforehand shows the seller they’re proactive and committed to securing financing.
• Large Purchases: Have the buyers made or are they planning any large purchases that could affect their credit or debt levels? It’s best to avoid significant financial changes until after closing to ensure the loan approval isn’t jeopardized. See above about the recently purchased truck…

Market Conditions

• Competitive Market: Are you aware of current market conditions? In a competitive market, having financing in order is crucial to making a strong offer. Being well-prepared can make your offer stand out among multiple bids.

Ongoing Monitoring

• Regular Check-Ins: Schedule regular check-ins to monitor the progress of the loan application and address any issues that arise promptly. Staying on top of the process keeps the seller informed and confident in your ability to close.

Client Education

• Understanding the Process: Does your buyer understand the mortgage process and the timeline for approval? Explain each step so they know what to expect. Knowing the process helps them make informed decisions and shows the seller they’re serious and knowledgeable.

I know.I know. I can hear the voices of dissent already. 

“I can’t ask those questions!”

“That’s too personal – you can’t expect me to ask a buyer’s agent those things!”

“That’s none of my business! I would be embarrassed to ask personal financial questions like those!”

Guess what? You can and you should. At the end of the day, no matter which side of the transaction you’re on, you have a legal obligation to get the result you’ve been contracted to accomplish. If that means you have to improve your skills and ask better questions, then that’s what you need to do. Sorry-not sorry.

Need some help getting better at this stuff? Call me. Please, call me. 

I dare you to do better.