The Bait and Switch

When I came out of college, I got a job selling cars and some of my fellow car salesmen were involved in the old “bait and switch” tactics of selling. If a customer came in and it looked like they were not going to be buying that day, the salesman would let them leave the dealership with a monthly payment that no one in town would be able to match. The price was so low it was almost hard to believe. Of course, the customer would go and shop around for the same car, but as expected, no other dealer could match the price. The customer eventually came back to the dealership to buy the car, but that price was no longer available. This tactic is not unique to the car business. In fact, many different types of businesses have been guilty of this practice. In real estate, the most common form of this happens on the lending side of buying a home, and here is how it goes.

A buyer, we’ll call him “Joe,” will call around and speak with a few lenders about getting a loan to buy a home. They’ll talk about rate, fees, and what’s needed to close the deal. Joe may get promised a lot of things over the phone. In fact, he may just strike an incredible deal, but it means nothing until Joe gets it in writing. Now, if the lender that made all the promises really can’t deliver, chances are, he won’t put them in writing. If he does, he may try to put them in a document called an “Initial Fees Worksheet.” The problem with an IFW is that it is not a binding document.  If Joe wants to find out if the lender is serious and can deliver on his promises he’ll ask for a GFE, or Good Faith Estimate. This is a binding contract between the lender and the buyer. The lender must provide the loan stated in the GFE to the buyer as long as the buyer was truthful with the information provided to the lender on his or her financial picture. If a lender is not willing to send you a GFE, then he or she is not willing to stand by their promises they made to you over the phone.

Buyers should beware of bait and switch tactics. Incredible deals and rates given over the phone mean nothing until you get it on a GFE. Once you have it on a GFE, then you can shop it around.

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