Why do seller's agents require buyers to use local banks?

[Lettie T.]

I'm a newer investor, so forgive me if this question is nieve, but I'd like some insight. Seller's agents are refusing to present my offers to the sellers without a pre-qualification letter from a local bank. I was sort of warned of this two years ago, when I purchased my first rental properties. My real estate agent had strongly encouraged me to get local financing because he said the seller's agents showed preference to those offers. Well, I did end up going with a local bank then, but only because that bank offered the most favorable terms. 

This time, however, I got pre-qualified with an out-of-state bank because their terms are much better than any of the local banks I've spoken with. I send my pre-qual letter with my offer, and the seller's agents are saying they will not present my offer unless I use a local bank. Two agents have specified which banks they want me to use. One agent even gave me a deadline; I had six hours to get a local pre-qual letter to her or my offer would expire.

When I've had the opportunity to provide more information to these seller's agents, I've explained that I'm local, so even though I'm using an out-of-state bank, I will continue to reinvest in the local economy. I've also explained that the bank I've chosen came highly recommended by other local investors and that I've had a great experience with them so far. But they still insist on a local bank. I'm hoping someone with more experience can help me understand what is going on here. I'd like to understand this situation from the seller's agent's perspective. I can't think of any reason why they would care so much where a buyer gets their funding. Any insights would be appreciated.

[Joe Splitrock]

Originally posted by @Lettie T.:

I'm a newer investor, so forgive me if this question is nieve, but I'd like some insight. Seller's agents are refusing to present my offers to the sellers without a pre-qualification letter from a local bank. I was sort of warned of this two years ago, when I purchased my first rental properties. My real estate agent had strongly encouraged me to get local financing because he said the seller's agents showed preference to those offers. Well, I did end up going with a local bank then, but only because that bank offered the most favorable terms. 

This time, however, I got pre-qualified with an out-of-state bank because their terms are much better than any of the local banks I've spoken with. I send my pre-qual letter with my offer, and the seller's agents are saying they will not present my offer unless I use a local bank. Two agents have specified which banks they want me to use. One agent even gave me a deadline; I had six hours to get a local pre-qual letter to her or my offer would expire.

When I've had the opportunity to provide more information to these seller's agents, I've explained that I'm local, so even though I'm using an out-of-state bank, I will continue to reinvest in the local economy. I've also explained that the bank I've chosen came highly recommended by other local investors and that I've had a great experience with them so far. But they still insist on a local bank. I'm hoping someone with more experience can help me understand what is going on here. I'd like to understand this situation from the seller's agent's perspective. I can't think of any reason why they would care so much where a buyer gets their funding. Any insights would be appreciated.

 The only reason I can think is that they want to see a local lender who has a track record closing deals in the market. Some lenders hand out pre-approval letters like candy on Halloween. There is no risk to giving pre-approval, accept to your reputation, which may be why they want local lenders. 

In my experience I get better terms with local banks. Sometimes the national lenders advertise better interest rates or no closing fees, but when you look at a sample settlements statement they are charging points or other fees to make it up. Have you considered bringing your terms to a local bank and seeing if they will match? 

I am not sure that the real estate agents can legally refuse to present your offers. Do you have a buyers agent and if so, what are they saying? If you are using the sellers agent, you may want to consider getting your own representation so someone is looking out for your interests.