Mortgage Companies partnering up with Realtors... Legally? Or not? (Part 1)

I don't agree with the assumption that just because a real estate agent might get a cut of a mortgage commission that the rate has to be padded to accomodate this.  As a real estate agent, I love to get referrals and gladly pay a 25% referral fee.  I don't have to increase my fee or cut my services. I look at the 25% I give up as less time and money spent on marketing to get a new client. If referral fees are so bad, why do real estate agents feel OK about helping clients find another agent in a another town and receiving a referral fee for this?

How much time and money does an average loan officer spend on getting a new client?  If you have a stable of real estate agents feeding your pipeline, your costs are going to go way down.  If one were to set things up the right way for loan officers to be super productive, there should be plenty of money to share with agents and still be able to have the buyer get a good deal.

I think the intent is the key and also full disclosure.  My intent is always to find the best services and products for my clients.  It saves my clients valuable time.  If we disclose everything and our intent is honorable, I really don't see a problem.  After saying that, I also will tell you that I have never received and never requested any sort  of referral fees from loan officers. 

Several agents have stated that they would never take a kickback but sure do like when an loan officer reciprocates with a referral back to them.  Isn't that the same?  You are looking for something in return instead of just looking for the best interests of your client.  Just my humble opinion.

There are very specific rules on how agents must "play" with lenders.  Our focus is on recommending Lenders that get the job done.  Not a sign of any brown bags!

Tim.....   I only say padded because I have worked for several lenders in the past. And even if the loan officer says that he or she don't pad their loans - rates....  then the company does. It's just a fact. And even if it's 1/8%, that can result in another $250 to $300 in their pockets, depending on the loan amount.  And I also know this when I compete against such companies as Mortgage Access, that is part of Weichert Real Estate. And don't get me wrong, when the client is shopping, anyone can have the BEST rate. This is also a fact. Not everyone pleays by the same rules. Meaning..... they get a rate, find a house, and then the lender raises the rate by 1/8% to 1/4%, blame it on the market, even if their rates didn't move. This is also a fact and I have witnessed it first hand. Basically a slight 'bait and switch'.

And Tim.,....  you aren't truly comparing apples to apples. You can't compare a real estate transaction to a mortgage transaction.... and the commissions that are related. You just can't.  You price is more fixed....  if they sell it for $200,000 and you have 3% written in the contract, the only thing that can possibly happen is that you would give some back. BUT, you can't raise this during the process. In regards to mortgages, sorry people, even if approved and locked in, I have seen and heard lenders changing rates on a client. Again, a FACT. 

Tim...in regards to your humble opinion. You are correct.....  this should take place. Absolutely do I try to send the people that give me business. It's part of my referral network. Absolutely would I take my referral partner out to dinner...  or a nice lunch.... send a Christmas basket.... or in all honesty, maybe a trip if I received a lot of business. It's my thanks to them and should never be considered a kickback....because it's something that I like to do....   but with all said, yes, looking out for your clients best interests.  

hey Suzanne..... how about a red bag?  ;o)   Just teasing it.

Eric... On a quick note.  I see that it can work. WHY?   Because if I know I am getting volume out of the whole relationship, I can actually discount my prices and keep a minimal profit margin...knowing that it's constant. And also legally set up such an affiliation that I could pay the realtor on the side as en employee. This can be done....but for the most part, it doesn't work as many think that it can. It's called GREED. and what happens then is lack of service. 

Example... I received a phone call from a gentleman last night that is a middle person with about 25 brokers who can't do deals. I could set him up as an employee of mine and pay him part of what I make... knowing that I will get volume. Now, he told me that he just gave one person in NJ over 6 million in business. To me, that seems high, in one month. But his biggest complaint is the lack of service after a month of dealing with this guy that seemed to be on top of his first several deals. My opinion...this lender felt complacent because he figured the middle man would keep sending him business. Hence the reason why he is seeking a new lender who understands service also. 

Conclusion:  it can work.... but it goes back to pricing and service.... honesty and integrity.  

Jeff,

Well said.

And that would be a good title for a group; Pricing and Service - Honesty and Integrity.

 

Cool, Cantaloupe - I love Cantaloupe

I just don't see why full disclosure of any referral fees wouldn't solve the problems.  We have to fill out a disclosure now that states that if the buyer uses one of our in house lenders or title companies or home warranty companies our company will get some benefit.  This benefit to the company indirectly benefits the individual agent by keeping their office fees down. So why would it be so terrible if it was disclosed that an individual agent would receive the direct monetary benefit of a referral?  Is it OK for a collection of individuals to benefit but not the individual by himself?  I just don't see the logic.

Tim... unless you are disclosing actual cost, in my opinion, it doesn't really matter. Think about it.  Besides.... example, if I am a lender built into a builders contract, the client knows this and still doesn't have to use my services. AGain...it's disclosed, but not the monetary reasons....because you can lie and say that there is none. And yes, you can do this, lie.

So..it goes back to the whole thing of.....  do you disclose and if so, what purpose does it create?  Did you read my example of Weichert Realtors and their services?  Just as you mentioned... they disclosed it, but the monetary issue is not mentioned.

You are missing a key ingredient....  SERVICE.... INTEGRITY.....  HONESTY.......   and sure.....Pricing,... but doesn't everyone want the cheapest and best price?  But what usually happens to this?  You get what you pay for at times.  A known fact.

Jeff

You left out it's also how you sleep at night? 

 I know I can sleep at night because I do offer SERVICE.... INTEGRITY.....  HONESTY.

 

Kiwis are good

Frank.... anyone can sleep at night if you don't know the unknown.  Meaning, is the price set by your company?  Even if you can offer a rate and change it yourself, usually higher....  was it at a low price to begin with? I know of some companies that add to their house price before passing it to their loan officers. Besides... you mentioned 3 out of 4 that I mentioned. Which means you left price out.  Is this why you can sleep?  lol  I am not busting stones. I am actually observing what is being said. Anyone that knows me, I am a stickler when it comes to particulars and such.

Frank

 no offense but your last comment about sleeping at night because you offer SERVICE at a company that doesn't offer FHA or VA financing reminded me of a great classic movie line from The Matrix

"Ignorance is Bliss"

Ken Stampe

yuck - lemons

Jeff

Seems your trying to hard to find fault.

 

Ken

Thats a great line in the Matrix, but I prefer when Neo is speaking to Spoonguy

Spoon boy: Do not try and bend the spoon. That's impossible. Instead... only try to realize the truth.
Neo: What truth?
Spoon boy: There is no spoon.
Neo: There is no spoon?
Spoon boy: Then you'll see, that it is not the spoon that bends, it is only yourself.

Frank.... nope, just your perception. Are you trying to make others look at it this way to lead them away then?   So I reversed it....  hey, if you read all of what I have said, I said I would do this.... but in a different manner... that's all.  me?  not missing a beat or the big picture. I know what to look for and I ask all....  sorry, but I don't know all from you. In regards to pricing. Anyone can say they have great rates. Let's see the final product then, that's all.

Jeff

 Eric brought up a good blog, I am just stating my own OP on the matter.

Some agree others don't, its all good in the end.

 

Eric,

Thanks for the post. I actually touch upon this subject, with a twist  in Singularly Phenomenal. How about the Real Estate Agent who is also the Loan Officer for the same client? I'll give you a loan and find the property, how great is that?

The easiest way to 'sell' your service is to eliminate or circumvent the competition.  I do believe this shall fall to wayside, at least I hope.  I have heard of certain companies that require an in-house pre-approval from an in-house lender before the consumer can take a gander at house hunting through their agents.  So, they get first dibs huh?  I'll compete all day long but the bottom line remains that if the consumer isn't being advised of 'Options' in the services they are looking for, the consumer gets the raw end of the deal.

 

It is actually a sad thing that people can't get paid for legitimate referrals.  What if they made it an industry standard that real estate professionals could work together.  The problem is you always get people working for their own best interest.  Maybe it needs to be disclosed if you get a fee for referrals.  It would be a non-issue if everyone had the integrity to do their best for their clients.  It would be a better world.  Ultimately as consumers get better educated, through discussions on this website for example, they will be better able to protect themselves from bad deals and bad people.  It is my hope that those who do shady deals find fewer and fewer clients to rip off and go out of business.  The fair and decent service providers will grow and prosper...but I'm an optimist...lol