You need to have a segment in your buyer consultation to focus on the five specific areas of a buyer's financial picture. Don't let a prospect get away with the response, "Don't worry. I have that handled." When someone said that to me, I began to worry more than usual. It was a clear sign, in most cases, that they didn't have it handled. The five specific areas to discuss are type of financing, where to obtain it, the difference between pre-qualifying and pre-approval, earnest money deposit, and access to funds.

1. Type of financing

We want to express to the client the vast array of financing options they should evaluate. The product line for home mortgages has changed dramatically since 1990, when I became a real estate agent. I believe there have been more changes in the last ten years than there were in the previous ten or even twenty years.

The need for the agent to have enough knowledge about the loan options to provide some level of counsel is more important today than in the past. The loan your client ultimately selects could have a bearing on when they see you again for your services to represent their interest in another purchase.

As I predicted years ago, I personally believed that too many people were rolling the dice on the interest rate game. Interest rates declined for so long and hit historic low levels. We, as consumers and real estate agents, failed to take advantage of the historic rates to lock in those rates long-term. We have exposed ourselves to a high level of risk when the rates normalized to what the average interest rate has been over the last twenty years. Many got caught without a chair when the music stopped.

As real estate agents, some of our clients, because of these "poor" decisions, are forced to sell because they can't make the payment on the home long-term because of the interest rate hike.

2. Where to obtain financing

I believe this is an area where agents fail to exert enough influence. Agents or the brokers are too scared of RESPA laws and of being accused of "steering" the client. Where the habit of agents giving out three names got started I will never know. It was probably someone's conservative corporate attorney who wanted to cover everyone's behind. This approach is not the Champion's approach and is a recipe for disaster. I believe this philosophy reduces referrals, opens the door to future competition, increases stress for the clients, and reduces service quality. The final reason is you will work harder to close the transaction. I am convinced that any one of these is a valid reason to help your client select the best solution for them in the short and in the long run. There are numerous benefits when they work with your number one mortgage person or mortgage partner.

A. No surprises with your mortgage partner

The service is always better at your favorite restaurant or the restaurant you frequent regularly. They give you that extra special level of service. The same will be true of your clients when using your mortgage partner.

Too often, in my early career when clients brought their mortgage with them, it didn't turn out the way they had hoped. The lender didn't do what he said he would in terms of rate, points, fees, or timing. The stress level on the client's part went through the roof, especially right before closing. I often got pulled into fighting a number of battles for them because they couldn't.

That type of a situation is bad enough, but it's worse when it costs you referrals in the future; and it will. In the end, if the experience was unpleasant, no matter what you do, you won't be able to divorce yourself from the transaction. The poor feelings they have for the lender and lending process will spill over to you, as well.

Because the service was below standard, your referral position is compromised, even if you had nothing to do with selecting the lender. If the service standard was not met and exceeded by everyone involved in the transaction, you share in the blame, even if you were not the cause of it. You will be forever linked until the next transaction (if there is a next transaction) to all the people in this transaction.

This position of limited control in exceeding expectations will affect your long-term referrals and refer-ability. One of the first rules of generating referrals is to be referable. If you don't do at least a good job, don't expect referrals. The amount and quality of your referrals will be influenced by the others who provide service, as well.

Champion Rule: If the lender is not your "mortgage partner", you will work harder … guaranteed

A Champion Agent is a master at evaluating their time invested against the return on investment. They are focused on leveraging themselves to create more income. Your clients will receive better service and a high priority when working with your mortgage partner, so you also won't have the fire drill where everyone has to move heaven and earth to close the transaction.

Remember, your income is essentially fixed when you decide to work with a client. Usually, someone who is going to buy a $400,000 home doesn't change their mind and decide to buy a $750,000 home instead. The money you will earn has been determined as a relationship between sales price and commission percentage. The remaining questions are how soon and how much effort in time will it take with your fees basically set based on sale price. The variable that kills productivity and profit is based on the time and energy you have to invest to earn the commission. Those expenditures of resources are the only variables that are left. You increase your odds of a smooth transaction while investing the minimum time on your part by using your well-selected mortgage partner.

There is a significant threat in our industry from third party lenders. Besides exposure to poor service, another real threat is loss of future business due to competition for the client. These third party lenders, especially many of those that are Internet based (some even have local offices), come with huge television ad budgets and are trying to reposition real estate agents in the transactions. They are working diligently to move us out of the hub of the transaction and themselves in to it.

They are trying to establish their relationship with your clients to market them in the future for lending and real estate services. Once they get a foothold, they offer large inducements or incentives to use them or their affiliates to represent the clients' interest in selling their home or buying another one in the future.

These inducements or incentives take many forms. They use $2,000 gift cards to Home Depot, airline miles for free travel, reduced commission arrangements, any and all means to separate you out of the future transaction with your client.

If your client uses them, or others like them, for their loan, your client will be bombarded after closing with offers of inducement for years to come. Worse case, you lose the client's future business. Best case, they will have a negative impact on your future earnings and commission rate.

This strategy by lenders has increased speed because of the enactment of the No Call Registry. The lenders have figured out that after closing you are limited in your phone contact, unless you receive written permission to call. Without written permission, we can only call past clients for eighteen months after the sale. The eighteen months is significant due to the exclusions in the law. The law states that contact is allowed for eighteen months after the last sale, last payment, or last delivery. The lender can use the last payment provision for, in some cases, thirty years if the mortgage goes full term. The last payment for most of us was only thirty days ago.

They can use this across company lines. Any division inside a company is exempt from the law. If the banks decide to open real estate divisions, they will be allowed to prospect the past clients of their lending division for real estate services longer than you will. This usurping of our relationships is a growing threat that can only be dealt with by directing our clients to our preferred mortgage relationship and solid service and communication after the sale.

3. What is pre-qualifying verses pre-approval?

Our goal in this section of our interview process is to get prospective buyers to understand how important and valuable pre-approval is to them. We need to sell the benefit of this approach. The value of pre-approval centers around three benefits: Negotiating, Stress, and Security.

These three, when linked, can save them money, time, and unpleasantness in acquiring their next home. We can help our client achieve a stronger negotiating position with the seller. It can help us get selected over other offers or reduce the sales prices or improve the terms of the transaction.

Pre-approval reduces the stress in the weeks from the offer to approval of the loan once the appraisal is completed. They know that they have the loan, so all parties can start packing once acceptance is complete.

It also increases the security because there are no surprises. When pre-approval is granted in writing, it allows the client to avoid surprises of changing interest rates or increases in points or fees at closing; all these are items that affect the security for a purchaser.

4. Earnest money deposit and access

Too many agents don't counsel their client about earnest money before they make an offer, so they don't understand the power, position, and attention that a strong earnest money commands. A significant earnest money demonstrates to the seller the serious nature of the buyer. The purchaser will be putting this amount of money into the house and more. A Champion Agent wants their client to get noticed. What is typical in your marketplace as a percentage of the sales price? If it is low, for example $5,000 on a $500,000 home, be sure to counsel your client to raise the amount.

We must know where this earnest money is coming from and how accessible it is, as well. Too often, buyers think they have it, are saving for it, expect to get an inheritance or another big windfall, and it doesn't come through. It can save you embarrassment later on when things are delayed because they couldn't get it, or it's taking longer to acquire it than expected.

Published: December 17, 2010

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Dirk Zeller is a sought out speaker, celebrated author and CEO of Real Estate Champions. His company trains more than 350,000 Agents worldwide each year through live events, online training, self-study programs, and newsletters. The Real Estate community has embraced and praised his six best-selling books; Your First Year in Real Estate, Success as a Real Estate Agent for Dummies®, The Champion Real Estate Agent, The Champion Real Estate Team, Telephone Sales for Dummies®, Successful Time Management for Dummies®, and over 300 articles in print. To learn more regarding this article, please visit www.realestatechampions.com.