In Alberta’s competitive housing market, some buyers are choosing to submit offers without a financing condition based on a mortgage pre-approval. While this strategy can make an offer more attractive to sellers, it also introduces risks that clients may not fully understand.
For real estate licensees, ensuring buyers understand these risks is an important part of supporting informed decision-making and protecting your practice.
A Pre-Approval Isn’t a Guarantee
Clients often view a mortgage pre-approval as confirmation that financing is secure. In reality, pre-approvals are only an initial assessment of a borrower’s financial situation.
Final approval happens later in the process and depends on both the buyer’s financial qualifications and the property being purchased. Even when a buyer has a pre-approval in place, financing can still fall through.
Key Factors That Can Affect Final Financing
When discussing offers with clients, it can help to highlight a few common factors that may affect final approval:
- Property value: Lenders typically require an appraisal. If the home appraises below the purchase price, the buyer may need additional funds to cover the difference.
- Changes to financial circumstances: Changes in employment, income, credit score, or new debt between pre-approval and closing can impact a lender’s decision.
These factors can create challenges for buyers who submit unconditional offers.
Supporting Clients in Competitive Markets
In fast-moving markets, clients may feel pressure to waive conditions to strengthen their offer. Taking time to explain the limitations of pre-approvals can help them make informed decisions and avoid unexpected financial risk.
RECA encourages licensees to ensure clients understand that pre-approvals are not guarantees and that financing outcomes can change.
Protecting Your Practice
Clear communication is key. Many licensees find it helpful to document discussions about pre-approvals and financing risks, particularly when clients are considering removing a financing condition.
Providing clear information and documenting those conversations can help prevent misunderstandings and support smoother transactions for everyone involved.