You never need to know anything about a prospective client's finances. In fact, given the impact of technology you no longer have the leverage to require that they share this information with you. Not only is it none of your business, but you can earn their loyalty and personal referrals in a better way with an approach that is more comfortable for you and for them.

During initial interviews with prospective clients, always ask the same questions every time. This protects you as far as fair housing laws go. Remember that from the perspective of most fair housing officials, you are guilty until you prove your innocence. If you adopt the approach discussed here, the most immediate change in your business is that you will be asking consumers different questions and getting better results.

Naturally you want to assess a client's motivation by discussing their finances, but this is only possible if you ask every client the same questions at the same time. Your list of questions, dated, and with the consumers' answers written down in your notes are the proof of your professionalism. If you add questions to the list, include the date when you began asking these different questions.

You should ask this question of all potential buyers and of all sellers likely to turn around and become buyers - “Have you been prequalified by a lender in the last two months?”

Before they answer tell them - “I never need to know anything about your finances.”

Here's how it works.

Instead of digging into their personal affairs, you would like to suggest a mutually beneficial arrangement. Before they say how much they wish to spend, promise them you will never bump them up in price, never show them properties listed for more than the price they give you, and never even send them information on properties listed for sale at a price higher than the number they provide.

In exchange, ask them to promise you never to visit a property, look at the specifics on the Internet or view virtual tours for properties priced higher than the number they are about to tell you.

That's the Two-part Promise.

You demonstrate up-front that you care more about them than the other agents they are contacting. You are now the best agent not only for all of their contacts, but also for all your own friends and neighbors. Put the word out that if they work with you, you never need to know anything about their finances or what they can afford!

But, before you can proceed on selling your prospect a home, you still need to know the facts - what they can afford and what they want to spend.

Fact 1. Your prospects have been prequalified by residential real estate expert. It could be you or a lender. In my experience with buyers and sellers, 30 - 40 percent of my prospective clients wanted me to prequalify them. In my more recent experience teaching agents in Delaware, New Jersey, New York and Pennsylvania, I estimate that less than 40 percent of real estate agents can qualify a buyer.

If your prospects want you to do the numbers for them, that's fine. If on the other hand, they prefer to keep their finances to themselves, that's fine, too. The point to understand and to convey to them is that it's a new world, you are an eager participant in it, and the choice is theirs! You can prequalify them or a lender can do it.

Give them the names of several lenders you recommend and then follow-up with the lenders and confirm that the buyers are qualified. You can still use real estate finance as a tool to assess their motivation. Only work with buyers whom you or a lender have prequalified.

Be consistent. Don't ask the lender how much they can afford to spend. If you are familiar with the importance of front-end (the housing ratio) and back-end (the debt ratio) ratios and/or FICO credit scores, make sure not to ask for the numbers. Instead, ask the lender if the buyer's ratios or scores are satisfactory. Honor the buyer's decision to remain private. The issue is not whether you know how much they can afford, but what they are willing to spend. You want to ensure they are looking in a price range at homes they can afford.

Fact 2. How much do they wish to spend?

How much are your prospects comfortable spending?When you ask buyers in person, over the phone or at an open house how much are they willing to spend, they will pause before they answer. Multiple reasons exist for this pause, but be ready because taking advantage of it will help you immediately differentiate yourself from the other agents the buyers are considering.

Jump into the pause: “I never need to know how much you can afford.”

Talk to your prospects instead about how you want them to avoid wasting their time. Just as important, your better-off buyers need to know how much they can spend and not become house-poor. I've had buyers qualified for a $400,000 mortgage set their price cap at $250,000 because they were worried about spending too much. They wanted to buy a nicer property, but not at the expense of family vacations and the kids' summer camps. Once my partner and I went over the numbers with them, because they asked us to, they bought a house for about $350,000 and still enjoy life.

That's what counts - what they are comfortable spending, and that they are qualified to spend that amount.

Published: April 9, 2002

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