Question: I am finding that one of the most difficult things for me to do during my initial interview with prospective buyers is to ask them how much money they make. It seems kind of tacky to get so personal when you hardly know someone. Isn't it reasonable to assume people are going to be able to afford what they say they are looking for in a house?
Answer: I'll take the easy part of your question first. No, it is not reasonable to assume that people can afford to buy what they say they are looking for. Just trust me on that one.
I can say with great conviction, based upon personal experience and the input of every broker with whom I've ever discussed it, that properly qualifying your prospective buyers is an indispensable, critically important first step in your relationship with them. It comes right after establishing proper rapport -- but definitely far ahead of jumping in your car and showing properties. Even if you, at some point, get them to a loan officer to prequalify (a great idea, by the way) you need to do the initial prequalification so you can chart your course of action properly.
1. Deliver the Goods - Get Paid. First, let's look at the whole thing very selfishly. You are going to get paid when you produce tangible results. While some agents may get their clients to agree to pay them on an hourly basis, that's still the exception. Reduced to basics, it simply means that when working with buyers: no sale, no paycheck. What then could possibly motivate you to want to spend hours, let's say, showing a young couple a dazzling array of palatial mansions in the hills when all they could possibly qualify for is a modest little starter home in the flats?
2. Whom Do You Represent? Second, let's assume you are representing the buyers in the agency relationship. Why get their hopes up by showing them homes they can't afford? And when they find the home of their dreams and make an offer, the most important factor in whether or not the sellers accept will be their financial strength and credit worthiness. A full price offer from people with questionable (or unknown) financial capabilities is a lot less desirable than a lesser one from blue chippers. That being the case, and since you owe your buyers a fiduciary responsibility to advise them properly, you simply have to know as much as you can about their fiscal strength. On the other hand, if you were representing the sellers, it would be your job to determine how qualified the potential buyers are to be able to counsel them properly.
3. A Routine Procedure. Let's assume I've convinced you that for your own interests and those of the people whom you represent, you've got to get the financial facts. How do you do it gracefully and without offending or scaring off your potential buyers?
If you've established a professional, business like atmosphere it shouldn't be all that tough. You will need to explicitly point out that at some point in the home buying process they will have to sit down across the desk from a steely eyed, no nonsense loan officer at a lending institution and provide the information about which you are inquiring. You might even want to give them a copy of a standard loan application form to show them what's involved. Your broker may have an abbreviated form in the office that will do the same thing. You also need to emphasize that it would not be fair to them to waste their time showing them properties for which they could not realistically qualify.
4. It Gets Easier. After you work with people for a while you will become more confident and more adept. The more professional you become the less threatening it will be for the buyers. It is, however, a vital step that you simply have to master. I once spent literally days upon days showing properties to a couple who had convinced me with glittering generalities and flashy exteriors that they could easily afford the most expensive homes in town. To be charitable let's just say that as it turned out their tastes exceeded their financial capabilities -- by a very wide margin.
Rather than spending my time figuring out how much commission I was going to make on a high six figure sale I should have spent it asking the tough up front questions, like: "how much money do you have for a down payment?", and "what is your income?", not to mention, "what are your debts?" Someone is eventually going to ask those questions, so it might as well be you. And it might as well be very soon after: "please have a seat."
