Can you make buyers use your lender?

Question

Do any flippers require buyers to use their lender?

I know it happens more on new builds, but thinking this could reduce a lot of wasted time since all lenders are not created equal.

If so, what type of resistance have you ran into, or any suggestions?

Wayne Brooks · Answer

You Can make them get preapproval through your lender, if they agree, but they can still choose their own lender.

Account Closed · Answer

@Francis Rusnak, I am just now studying for the RE exam and in no way claim to be an expert, but I'm pretty sure, you cannot require use of a particular lender as part of a sale as it would be a tie-in violation of Sherman antitrust laws.

I'll be interested to see what some others, more experienced than myself, chime in with.

Jonathan Greene · Answer

If I was a buyer, I wouldn't want anyone telling me who I could borrow from and would immediately think there was a kickback involved, which there probably is at some level, even if by referrals later.

Steve Morris · Answer

Do any flippers require buyers to use their lender?

I guess you could, but barring some real good terms from your guy on final loan, it'll restrict the buyer's choice which impacts the property's desirability (and price).

It happens though.  Especially, if there is an onerous pre-pay on the existing loan and assuming the loan is the only way to make it work.

Francis Rusnak · Answer

I've spoken to people that think it's unethical, and Account Closed very well could be right that it's just flat illegal. But I think there may be a way to ask if they'd be open to using your preferred lender, which doesn't make it a requirement.

In this hot market now we have h/b on most of our properties and when deciding between different buyers it'd be a good thing to know if they have some run-of-the-mill lender or someone we could rely on.

The lender does make/break the deal a lot, and saves a lot of wasted holding time. We have one now that is past 3 months from signing the contract and feedback from the lender is so sparse.

Steve Vaughan · Answer

When selling unique property, I will let prospective buyers know who I have used for lending and insuring that specific asset just to save them time and effort. Require them?  No. What for?

Evan Polaski · Answer

@Francis Rusnak, I am not an expert on new builds, but I believe builders offering financing, not require it.  And then, depending on the builder, I think many self finance the mortgage.  I can see it being an arbitrage game for the larger builders, where they can borrow at lower rates than they are lending, so are making money on the sale and the financing.

For smaller builders, I think it is just an incentive to buyers.  The builder does not force the buyer to use their lender, but instead has prenegotiated fees that the builder passes along to the buyer if the buyer uses their preferred lender.

I cannot state whether your thoughts are legal or not, but it is debatable whether it is ethical or not, but if you are doing a lot of flips and have a good track record with a specific bank, I don't see why you couldn't recommend a lender and have negotiated some incentives for that lender to offer preferred fees/rates to your buyers.

Beyond that, and to help mitigate your current experience, I would just put tighter timelines on everything.  I would also go back to the buyer, not their lender, and say, if you can't get this done by whichever date is set in the contract, we are re-listing the property.  That might get them motivated to find a new lender and fast.  But of course, you need to live by your contract too.

Can you make buyers use your lender?

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