I have a listing priced at 219,000, and we received an offer of $185,000. Not uncommon in this market. The pre-approval included was also for $185,000. Now, I know that the buyer probably qualifies for more, but they don't want to tip their hand. Some of you may not agree with me, but this strategy can backfire. I'll say that in stronger terms:
It is a DUMB strategy.
What that $185,000 pre approval said to my seller was that the buyer is low balling him because they only qualify for $185,000 (a $35,000 price reduction, mind you) by an eyelash. They do not look like strong buyers. And their agent look silly for showing a $219,000 house to $185,000 buyers. So, instead of countering, my client had to be convinced that we wouldn't be wasting our time dealing with unqualified people. And all in the name of people playing an antiquated head game. Do they really think we'll just cave in and give them the house for $185,000 because that is all they qualify for? If they qualify for $275,000 are they afraid we'll counter offer them for $275,000 for the $219,000 house? Madness!
The criteria for any wise strategy is a winning outcome, a losing outcome, or a break-even outcome. With that 185k letter there is no winning. The best they'll do is break even. Break even/lose is not a wise tactical outcome. We countered them, but only with a promise of an updated preapproval. I am all for confidentiality, but not at the expense of making you look like a weaker, less qualified purchaser than you truly are. What if we get another offer and the people qualify for a bigger mortgage? You just sabatoged your case!
There may be scenarios where not tipping your hand is wise. However, with a starter home and 3% down, you'd better come up with a way to make your buyer look strong, or, at the very least, not overthink things to such a degree that they look weak. You just looked all through our closets when you saw the house; we're not hung up on your secrets. Confidentiality is mean to protect, not weaken, a buyer's case. Give me the real pre approval, and we'll be as up front as you are going forward. Show me how strong your buyer is. Give it to me straight!
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What about confidentiality?
I agree 100%. I think the seller would be more apt to counter if they knew the buyers actual buying power..... And Yes the perception is just as you said Lowballing because of unaffordability(is that a word?), rather than an educated savvy buyer negotiating the best deals for themselves.
We don't do this in Manhattan, but I understand the game that is being worked out here. The buyer's agent is not going to be thinking about these other issues of the pre-approval letter even though it could impact their customers if another offer comes in.