Trust But Verify

Real estate agent also acting as loan agent is a conflict of interest

In the last couple of years, we’ve noticed a dramatic increase in the number of agents representing buyers who also act as loan brokers. Likely, this is because there are so many new agents chasing a limited number of deals and originating the loan for the buyer is an efficient way to maximize one’s income from a given transaction. Lenders themselves have encouraged this with software packages and web links that make it easy for agents to originate loans.

But this practice represents a big problem from the listing agent’s point of view. When I am evaluating an offer on behalf of my seller, I need to assess the buyer’s ability to obtain financing. Normally, an offer is accompanied by a “pre-approval” letter from a lender or loan broker. If I don’t have any prior experience with the person who wrote the letter, I will most likely call them and ask a series of questions designed to see just how far the loan process has really gotten. Questions such as: Has she actually received a completed loan application? Has she verified the buyer’s source of down payment? Has she run a credit report yet?

You can start to see the problem now. If the person who is answering these questions is the same as the agent presenting the offer, I gain no independent verification. Like Ronald Reagan once said of the Soviet Union: “trust, but verify.” Without the ability to verify, I won’t be very confident in the offer. If my seller is lucky enough to have other offers to consider, preference will most definitely be given to the buyer with an independent loan source. If this is the only offer, then I warn the seller to “fasten their seat belt. We could be in for a bumpy ride.”

Not so coincidentally, the majority of offers we have seen coming from agent/lender combinations is in the lower end of the market, around here being $450k and less. And most frequently, the purchase price is 100% financed. Is there also a correlation between this and the implosion of the sub-prime market? Duh!