50% hit thanks to buy downs, rate sites

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The success and popularity of rate sites are forcing brokers to buy down rates, squeezing bps until there is almost nothing left, says one broker, who estimates he has lost an estimated 50 per cent of his potential revenue.
 
“Rate sites are predisposing the client to look for the lowest rate,” says Christopher Molder, a broker with The Mortgage Centre – Tridac Corporation and blogger on his website sonofabroker.com. “It doesn’t matter what your volume is, because it eats into your revenue stream.”
 
The pressure to buy down rates has probably cost Molder about half of his potential revenue, he estimates, despite maintaining the same volume as in previous years.
 
“When you are left with only 50 bps after a buy down, that’s not money in your pocket,” he told MortgageBrokerNews.ca. “There are still a lot of other people looking to be paid after that.”
 
Molder – who doesn’t want to be painted as just another broker out to badmouth rate sites – only wants to draw attention to the need for the industry to focus more on engaging the client.
 
“The rate sites are good at what they do, and I get some great referrals from them,” he told MortgageBrokerNews.ca. “Studies show 40 per cent of people are self-educating themselves and starting their search online. That is why we as brokers need to leverage that same social media, provide value-added products and explain mortgage debt reduction to the client.
 
“The ground is shifting in the industry,” he adds, “and we have to embrace a new modus operandi.”
 
Still, there is danger of the brokering profession being reduced to just a commodity, he points out.
 
“We need to maintain that level of professionalism as brokers,” says Molder, suggesting that brokers need to draw a line in the sand on commission. “For those ‘A’ type clients, it really does come down to rate. They can walk into any bank and set their own terms. I’ve observed that we are in danger of becoming just a commodity.”
 
  • Easy Decision on 2013-06-26 6:24:07 AM

    So let me get this straight. Buying down rates leads to less commission. Got it...thank goodness I have Mortgage Broker News to break down such complicated concepts for me. Cutting edge stuff.

  • Ron Butler on 2013-06-26 6:59:47 AM

    I am biased but I think this is the new normal. It's not just rate sites. RBC, TD road reps, CIBC branches and retention centres are knocking rates down to rock bottom every day. Mortgage rates are a commoditizer's dream, huge ticket items and the rates themselves are super simple to understand and advertise. I did not say the mortgage was easy to understand, I said the rate was.

    Bottom line is, I think this business will look a lot different in 3 years, maybe just 2 years. There will always be a successful full service mortgage broker but things will never be exactly like they were again.

  • Blair Anderson on 2013-06-26 7:39:33 AM

    Christopher, the new modus operandi I am embracing, and I encourage everyone else to embrace is www.MortgageResource.ca. There is so much more to talk about than rate, no?

    It's about using social media (blogs, video, podcasts) to educate the consumer, and at the same time, promote yourself as the local expert. Collectively we can change the focus away from rate to much more important subjects. This is one way to help solidify our position as professionals.

    Lets work together to keep our industry headed in the right direction.

  • Christopher Molder on 2013-06-26 8:28:18 AM

    Good point Ron. This isn't about ratesites it's about a major shift in the industry across the board. The point here isn't that rate buydowns cut commission the point is that mortgage brokers are running the risk of being perceived that we are only as good as our rate.

    I've noticed a change in the way business is being done on all levels and I don't think 12 months ago we were having conversations like this?

  • Paul Meredith, CityCan Financial on 2013-06-26 8:46:07 AM

    It's a competitive market like any other industry and sometimes it will be tough to compete. Rate sites aren't going away, so complaining about them won't get anyone anywhere. Make the best out of the tools that you have and aim to astonish and impress your clients and make the experience enjoyable for them. Smile, be happy and enjoy all the benefits we get from this great profession.

  • James on 2013-06-26 8:46:35 AM

    Did anyone else notice that the big banks don't really particiapate in offering super discounted rates on these rate sites even though they have the ability to undercut everyone? The big banks obviously understand that giving up profitability is not a sustainable business model. Maybe us brokers should wake up and smell the coffee?

  • Business 101 on 2013-06-26 9:07:38 AM

    Yup - it's a commodity. If I'm an A client in Toronto, I can pick up the phone and get 'great advice & a great rate' from more than a handful of brokers, some of them who've posted here. I can then turn around and go to the bank, or go to the guy on Kijiji selling the 5 year fixed at some crazy rate from the same lender.

    In a Rate (Price) War, only the customer wins. Oh, and the Banks. They typically always win.

  • When will it end on 2013-06-26 9:39:27 AM

    Your right Chris this wasn't happening last year. There are a lot more online sites marketing the discounted rate than in the past, but that is all they do is sell rate and no service and rarely if ever do they meet with clients.
    We need tougher rules for all mortgage brokers. All brokers should have to meet every client to sign all documents ,not by fax or email but in person. When these rules are inforced by all the lenders that is when the discounting will stop.
    Time is Money
    Example one of my clients was given a approval from a online broker out west and she purchased in Ontario everything was done by email never once did she speak with someone not until she decided to deal with me and than that is when they called to try and save the deal.

  • Faye Drope on 2013-06-26 10:13:13 AM

    There is a realtor in Nanaimo he is very successful he does not do discounts of any sort. He sells real estate. At first I thought he was pompous but later realized that he is a good solid realtor.
    I don't expect the grocery clerk to dip into his pocket so that I can afford to shop at his shop nor do I feel that I need to buy down a rate to keep the client. I never bonus the rate to keep more but I will not take the 40 - 60 bps to give the client the best deal. I am worth the 80 bps plus volume. What are you worth?

  • Ron Butler on 2013-06-26 10:23:51 AM

    I understand that this is always an emotional subject when we talk about how we actually make a living.

    There will always be people who make a fine living doing full commission business.

    But when we talk about whole national marketplaces we need to realize no matter how much we think our services are "worth" the public will be the ones who actually decide our "worth".

  • Jeff Reisner on 2013-06-26 10:29:34 AM

    Well...let's face it people...people shop for the best rate...not what other services brokers have to offer...people get on and say things like..."there is so much more to talk than rate"...really? In todays world...the information age...people get what they need on-line...once they understand the basics about getting a mortgage they then shop for the best rate...that is today's world...the one who offers the best rate usually wins...when you shop for a new vehicle...are you buying based on how much the salesman can educate you about the car or how nice the salesperson was or are you buying on cost to you...my guess is price and payment!

  • Bernie on 2013-06-26 10:45:24 AM

    Here in Alberta the banks appear to the ones that are the biggest rate discounters, BMO at 3.09, Manulife at 3.09 and First Calgary at 2.94. on the Rate Supermarket site. It is interesting to see how quickly the banks could dominate this rate game and have the brokers on the outside looking in if the bank focus on using these rate sites to attract clients. The rate discount sites could be the most profitable channel for banks to originate mortgages though....no broker commission costs or road reps commission costs and a steady flow of clients.

  • John on 2013-06-26 10:45:49 AM

    So is what I'm hearing that consumers will drive our business to the point where we are earning half of our current 110 basis points by using rate sites more and more and these same rate sites turning our business into a commodity.
    I'm sure many will be able to adjust to that. It will however reduce the service level we are able to provide and cause many marginal players out of the business. Not the end of the world. Good solid brokers who do not buydown rates on a whim will no doubt still have a place. Not all clients will jump for 0.10% off their rate. Maybe most will but there will be market share for these brokers it will just be smaller. Survival of the fittest is the theme in any industry looking at a dramatic evolution.

  • Jeff Laberge on 2013-06-26 11:26:47 AM

    I agreed with the article up until the point where Mr. Molder mentions that he conducts business with the rate sites. Buying down rates to compete may be a necessity at times (we have bought rates down to match rates offered through these sites), but why would you do business with these sites? Would it not be better to become part of a solution rather than add fuel to the fire?

    Another major issue with the sites is that the they show the company name and logo in a large format, with the brokerage name in fine print below. To my knowledge, the specific agent offering the rate is not even stated. One site only shows the company logo, and nothing else. I am getting tired of clients saying that one of these site shows that we have a rate lower than what I offered them. I hope the companies we all work for realize this problem and do something about it so that we do not all look bad to our clients.

  • Christopher Molder on 2013-06-26 11:42:36 AM

    Jeff that's an excellent point you bring up and seems completely counter intuitive. The reality is that I wasn't on a ratesite until recently. I had a very similar experience to yours. Long time existing clients where googling rates and would find these well optimized sites and demand the same rates. Despite my best efforts (I'm a by referral only guy, and know how to provide value) I've recognized that change and competition is coming and decided that it was necessary to embrace it and understand how to survive in the changing landscape. The results have been less than stellar.

    It's very interesting to me to read about other broker's experiences and observations being shared here. This is certainly a healthy polarized issue within our industry.

  • Don C on 2013-06-26 5:31:57 PM

    Have to agree with Blair A. The landscape has NOT changed. Stuff being done today is the same as it was 20 years ago when a client's only option was to hit all four corners to see what Bank was doing what.
    The best agents, earning the best living all have an intangible that agents who opt for selling rate do not have. They are perceived to be the ultimate pros and trusted mortgage advisors.
    I feel badly that the bulk of the industry has resigned itself to chasing realtors and buying clients rather than gaining true consumer recognition as professionals.

  • Blair Anderson on 2013-06-26 7:44:22 PM

    Thanks Don. Well said. I believe the majority are on the right path.

  • Leigh Graham on 2013-06-26 9:56:06 PM

    This is the second time in a week I have chosen to comment on an article written on this site...something I have heretofore avoided.

    The most valid comment on here remains that of Don C - those that will continue to succeed (without loss of revenue AND without complaining) have an intangible element of some kind - they will continue to generate business because of who they are, what they do, and how they do it. I tried to remain patient with my last comment (on an article relating to a potential need for exclusivity agreements), but this is much harder for me to do so.

    The second you have to enter into a pricing war with a competitor OR a client, you must accept the following:

    1) you've likely lost this deal already
    2) to retain this deal you must accept less commission (this is a whole different discussion - I could write a novel on the ridiculous amount of money a mortgage broker or agent makes for the actual amount of work required)
    3) if you're negotiating price for a client, that client has no concept of what you're actually about, which means you also didn't do the best job on the client who referred them either, which is really too bad.

    If the majority is on the right path, as suggested by Blair Anderson, why is it the minority are the only ones that comment??

    I'm not interested in starting yet another new training academy for mortgage professionals, but it appears that there might be a market for it.

  • Leigh Graham on 2013-06-26 9:56:11 PM

    This is the second time in a week I have chosen to comment on an article written on this site...something I have heretofore avoided.

    The most valid comment on here remains that of Don C - those that will continue to succeed (without loss of revenue AND without complaining) have an intangible element of some kind - they will continue to generate business because of who they are, what they do, and how they do it. I tried to remain patient with my last comment (on an article relating to a potential need for exclusivity agreements), but this is much harder for me to do so.

    The second you have to enter into a pricing war with a competitor OR a client, you must accept the following:

    1) you've likely lost this deal already
    2) to retain this deal you must accept less commission (this is a whole different discussion - I could write a novel on the ridiculous amount of money a mortgage broker or agent makes for the actual amount of work required)
    3) if you're negotiating price for a client, that client has no concept of what you're actually about, which means you also didn't do the best job on the client who referred them either, which is really too bad.

    If the majority is on the right path, as suggested by Blair Anderson, why is it the minority are the only ones that comment??

    I'm not interested in starting yet another new training academy for mortgage professionals, but it appears that there might be a market for it.

  • Observer on 2013-06-26 10:52:45 PM

    Some interesting things have jumped out at me when this topic is brought up.

    1.) Our industry, as brokers and agents, has spent a lot of time saying to clients "We can get a better rate than the bank can offer..." But now, when there is the exact same competition within the broker world, people have a problem with it. Seems a little out of whack, doesn't it? Our industry has been the ones responsible for commoditizing mortgages and bringing rate into the main discussion. Now many want to put the genie back in the bottle, except, the bottle is no where to be found, and neither is the genie.

    2.) Has anyone here used Expedia, Travelocity, Amazon, or any other online retailer because a better price was offered? A great example someone else here posted was about purchasing a car, are you willing to pay thousands of dollars more for the same car because of the salesman's service?

    3.) I agree with Lee about the amount paid vs amount of work put into each file...let's not even start that discussion...

    4.) If you have been working with a client, gave them a quote on a rate, then they went home and did some research on a rate site, then that is a comment on what they thought of their experience with you.

    Yes I support the rate sites, as just another way to provide the public what they want. Remember, it is the public that decides what they want, we don't do it for them. If price wins out, then so be it. There is lots of business for all, but in this digital age, this is just another layer of competition.

    Gotta run, my smart phone is ringing with a Group On offer in my email...lol.

  • Observer on 2013-06-26 10:52:51 PM

    Some interesting things have jumped out at me when this topic is brought up.

    1.) Our industry, as brokers and agents, has spent a lot of time saying to clients "We can get a better rate than the bank can offer..." But now, when there is the exact same competition within the broker world, people have a problem with it. Seems a little out of whack, doesn't it? Our industry has been the ones responsible for commoditizing mortgages and bringing rate into the main discussion. Now many want to put the genie back in the bottle, except, the bottle is no where to be found, and neither is the genie.

    2.) Has anyone here used Expedia, Travelocity, Amazon, or any other online retailer because a better price was offered? A great example someone else here posted was about purchasing a car, are you willing to pay thousands of dollars more for the same car because of the salesman's service?

    3.) I agree with Lee about the amount paid vs amount of work put into each file...let's not even start that discussion...

    4.) If you have been working with a client, gave them a quote on a rate, then they went home and did some research on a rate site, then that is a comment on what they thought of their experience with you.

    Yes I support the rate sites, as just another way to provide the public what they want. Remember, it is the public that decides what they want, we don't do it for them. If price wins out, then so be it. There is lots of business for all, but in this digital age, this is just another layer of competition.

    Gotta run, my smart phone is ringing with a Group On offer in my email...lol.

  • Gordon McCallum on 2013-06-27 10:30:42 AM

    Having a great discussion about this on #cmhTV today - www.canadianmortgagehangout.tv

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