Specifying a Lender. Steering? Illegal? Or just Stupid?


There was a “featured” post on Active Rain (a real estate blogging platform) today that discussed real estate listing agents placing certain requirements into the Multiple Listing Service (MLS). The article, titled Can the Listing Broker Specify the Lender?, (must be a logged in Active Rain member to access) expressed concern with what appears to be a growing practice of inserting into the MLS statements along the line of:

Buyer must pre-qualify for a loan through lender XYZ to submit an offer

In the 120 some-odd comments that followed, many agents expressed outrage at this practice. Some went on to offer the following arguments against it:

  • It’s illegal (a Fair Housing violation) because it is Steering
  • The seller has no right to dictate these terms
  • The listing agent has no right to dictate these terms
  • The listing agent is doing this without the seller’s permission
  • It doesn’t matter what lender performs the buyer’s pre-qualification because all lenders in Arizona are licensed, and held to the same standards

Let’s examine each of these arguments…

Requiring a pre-qual from a specific lender is steering

Steering is illegal based on the Fair Housing Act. What is steering? Typically it is defined as:

The illegal funneling of home buyers to a particular area based on the desire to keep the makeup of that neighborhood the same or intentionally change it (source).

There are many definitions of steering out there, but this is the gist of it.

Requesting a buyer to be pre-qualified by a specific lender is hardly steering as a Fair Housing violation. Just because a buyer may feel “steered” toward using a specific lender, that doesn’t mean it qualifies as illegal steering.

The seller has no right to dictate these terms

Sure they do. It is their home, they can dictate pretty much whatever they feel like (within legal limits of course). A seller can dicate that they will accept only cash offers. Heck, they could dictate they will only accept a sack of nickels if they really wanted to. A seller can dictate that they will only accept a full price offer printed on pink paper. If a seller wants to dictate that a buyer must be pre-qualified with a specific lender, so be it. They aren’t specifying the buyer has to get a loan from the specific lender, only that they want the buyer pre-qualified by that lender.

The listing agent has no right to dictate these terms

This is probably correct. A listing agent could advise their client to restrict buyers to pre-qualifying with a specific lender, but they shouldn’t dictate that term. Personally I think that would be poor advice, more on that later…

The listing agent is doing this without the seller’s permission

Really? And you know this how? Unless the MLS states, “I the listing agent never got my seller’s permission to say this but…” then you are merely speculating that the agent hasn’t discussed this with their client. Speculating on other’s intents and actions is ill-advised. There’s no point in it. Just stop it.

It doesn’t matter what lender performs the buyer’s pre-qualification because all lenders in Arizona are licensed, and held to the same standards

This argument, simply put, is a load of hooey. It’s absurd to think that because lenders hold a state issued license that they are all equally competent. Agents that feel all lenders are the same because they are licensed apparently feel all real estate agents are the same too. After all, real estate agents must also be licensed by the state.

Some commenters on the post mentioned that because there is a standard pre-qual form, all pre-quals are the same.

Another load of bovine fecal matter.

Sure the form is standardized (in Arizona) but that doesn’t mean all pre-quals are created equal any more than all real estate purchase contracts are created equal.

The Bottom Line

The practice of forcing buyers to pre-qualify with a specific lender (or use a specific title company for that matter — something we see far more frequently) is not “steering” and it’s highly unlikely that it is illegal (hey, I’m not an attorney so I can’t say with 100% certainty that it is a legally allowable practice. I’ll go with 99.99% certainty, but not 100%).

Don’t get me wrong. I think it is a ridiculous practice. It’s annoying as hell. Making buyers jump through extra hoops to put on offer on your home is dumb. I know for a fact some buyers simply walk away from houses for sale where this demand is in place. How that benefits the seller is beyond me. I also know agents that will just roll over and accept the demand on their client’s behalf.

If you are an agent and your buyer client is opposed to getting pre-qual’ed with a certain lender, then submit your offer without that qualification. If the seller counters they want their lender to pre-qual your client, counter back with NO. Could your client “lose” the home? Sure, if the seller stands pat on their demand. That’s a decision and risk assessment your client will have to make.

But consider this — we’ve had at least three buyer’s that I can recall that said they weren’t wasting their time pre-qualifying with the sellers choice of lenders. And you know what? Turns out once the seller had that offer in their hand using their specified lender wasn’t so important after all…


 Photo Credit: kevin dooley on Flickr. CC Licensed.




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About the Author
Jay Thompson

I'm a real estate broker in Phoenix, Arizona and the publisher of the Phoenix Real Estate Guy blog. I tend to drive too fast and scream at the University of Texas and Denver Broncos football teams. My two kids are smarter than most adults I know and my wife is simply amazing.

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