Why Are Borrowers Always Shopping For a Better Hard Money Loan?

[Corey Dutton]

I’d like to share a story about a frustrating experience that lenders in the private money space experience all the time.

We are a private/hard money lender and we get a ton of requests from real estate investors and others who need a private money loan for investing or business purposes. I can’t tell you how often I find out that clients are still shopping for better loan terms, even after they’ve signed our commitment letter. (This means we are moving full steam ahead towards closing their loan).

For example, I have a client that we’ve worked with in the past on a rehab loan for an investment property. He was very happy with our customer service and follow through, and the speed in which we funded his loan. He came to us with a new deal last week that we really like. We immediately sent out the commitment letter after performing some due diligence on the property. The borrower signed it and then started sending us some items we needed to close. We began working on closing it, expending both time and resources to do so.

Two days after I received the signed commitment letter back from this borrower, I received 3 different emails from other brokers that were trying to send me the same deal from this borrower!! I promptly called all 3 brokers and asked when they received the deal from this borrower. They both said they were solicited by the borrower AFTER he had already signed our commitment letter. If this borrower was so happy with our service and timeliness on his last deal, why is he still shopping? This is frustrating for me because I’ve bent over backward for this client and I’m confused as to why he is still shopping us for a better deal.

Now if you are also a private money/hard money lender, you would probably agree that this is just part of the business. And it IS part of the business, but it still doesn’t make me feel any better because if excellent customer service, follow-through, and speed won’t keep your clients loyal, what WILL keep them loyal? It’s almost self-defeating, you know?

Now if you are anyone else who isn’t a lender, you are probably saying, “So what? He has every right to go shopping around for a better loan option.”

But, probably 75% of the time, the borrower that walks away and leaves us hanging because he/she thinks they found a better deal, ends up coming back begging for us to do the deal anyway. This is because there are a lot of bogus lenders out there promising the world and then can’t deliver when it’s crunch time. Most of them don’t even have money to lend!!

I’ve seen countless borrowers come back at the last second asking if we can still fund their deal after they’ve gone cold on us. Many times they end up losing the deal because they shopped it so long and then can’t get it funded because they fail to commit one lender and move towards closing it.

I think a good rule of thumb for borrowers looking for a better deal is:
If you’ve got a bird in the hand it’s certainly worth more than 2 in the bush.

[Ann Bellamy]

Corey, I feel your pain. However, shopping around AFTER the borrower has signed the loan commitment leaves a bad taste in my mouth.

Personal feelings aside however, it is both common occurance and bad business practice.

First, if the borrower is shopping after signng the loan commitment for the purpose of "keeping you honest" or negotiating your rate down further, then at the very least he is wasting someone's time: yours if he jumps ship, or another brokers if he stays with you after he's already committed.

Second, although it may be "just business" to try to get a better rate after a signed commitment, it speaks to a lack of integrity. I'm with J Scott on that. If one of my borrowers asked me to drop the rate based on past lending experience with that borrower, I'd certainly consider it, but the time for that is before the commitment, not after.

I'd still keep my side of the commitment if I found a borrower still shopping around after signed commitment, but I'd probably have a conversation with him about both of us keeping our commitments.

In the past few years, we have expanded our base of regular repeat customers. Our conversations are frank and open and there are no issues such as you describe with this group of borrowers. It is a positive business relationship and I value it. It appears from your post that you do the same, maybe it's time to sit down with that borrower and have a frank and open conversation.

Having said that, there are still going to be lots of people who value your services on price alone and who feel that by charging "hard money rates" you are opening yourself up to whatever "comes around". Just part of the business and goes with the territory.