Let’s stick together

There was an alarming story doing the rounds of some media, which suggested that more than two million Australians have gone to an auction for a property they are interested without pre-approval for a home loan.

A Galaxy poll commissioned by realestate.com.au Home Loans found 18 per cent of the adult population failed to get pre-approval before auction.

While the figures themselves might be a bit questionable, the concept of a potential buyer fronting up on auction day without pre-approved finance is fraught with danger.

In the first instance, an agent is letting both the buyer and seller down… badly!

Let’s bring the focus to RE/MAX (Australia and New Zealand).

RE/MAX real estate agents and Pivotal financial specialists should be working together with clients at a very early opportunity to prepare them for auction. This involves pre approval and acceptance of the lender for the property likely to be offered up as security.

Anything short of that leaves parties at risk.

The fact is, you can bid at auction without demonstrating that you have the capacity to settle.

However, RE/MAX buyers deserve to be better informed than that.

Pre-approved finance benefits buyers, sellers and agents.

For the buyer:

• It determines early in the buying process, just how much they can borrow.
• It provides certainty that they are being realistic with their expectations and are looking in the right market.
• By having pre-approval, and therefore knowing roughly how much they can borrow, they can determine likely repayments and therefore complete some budgeting exercises.
• It puts them ahead of the game and strengthens their position when negotiating with an offer.

For the agent:

• Pre-approval through Pivotal secures the client’s relationship with the RE/MAX agent and protects them from competition. The Pivotal finance specialist is the only other party the agent will deal with through the transaction, and they are on the same team. Why would an agent put their client relationship at risk by inviting others outside of the circle of trust to share that relationship?
• They know that they are showing clients the properties that are in the right price bracket. Half the job is done when you just have to match the pre-approved buyer to the property.
• A pool of pre-approved clients creates something an agent can use to their advantage when gaining listings.
• It means ‘client for life’, and referral.
• The agent is viewed as truly professional.

For the seller:

• It’s obvious – a completed and trouble-free sale

Pre-approval, on its own, should not provide the comfort for a buyer to bid at auction because it simply addresses only one aspect of a lending decision. The suitability of the property is the other. It is, however, an indication from a lender that they feel comfortable lending a set amount of money to the buyer.

An agent should include finance at the earliest opportunity in the sales process.

The time it takes to seek and be granted pre-approval can be both unpredictable and vary significantly – anything from days to weeks – but the sooner the process starts the better.

In order to bid at auction in New Zealand, the buyer needs the certainty of funding, and they also need the property accepted as a security by the lender. This is more than a one-day process, so the earlier the finance specialist is involved the better prepared both agent and finance specialist can be to mutually help the client.

While these restrictions do not apply in Australia and anyone can bid at auction then apply for finance afterwards, it is a very risky approach. Unfortunately it happens more often than it should!