Exclusivity agreements: It’s a controversial idea, but one whose time may have come, with IMBA President Albert Collu kicking off an industry dialogue on contracts that would penalize clients for using brokers to get better rates at the banks.
“This topic is certainly a hot potato and with good reason,” the veteran broker and president of Argentum Mortgage and Finance told MortgageBrokerNews.ca “Having said that, mortgage brokers across Canada invest much time and effort into providing sound advice and pricing for clients and are left uncompensated for those efforts when clients take all that work to their branch. I’ve often found it odd that Realtors have implemented exclusivity agreements with clients and we, mortgage brokers, have not. With proper discussion I would be supportive of implementing such a process for mortgage brokers, but I would also like to see most mortgage brokers moving their sales focus off rates and more towards sound consultation and advice for consumers.”
Collu is the first to publicly address the growing concern of brokers from across the country, increasingly finding themselves left at the alter by clients spirited away by the banks at the eleventh hour. But that's only after those customers have won preapprovals or, even, lender commitments through a mortgage professional. In fact, the defection is only made possible by the work of the broker, allowing the client to present a competitive rate to the banks, which then revise their earlier rates to undercut the broker's rate.
The phenomenon has eaten up what some peg as tens of thousands of broker hours in the last eight months alone, time spent interviewing clients and preparing applications that ultimately end in frustration. It’s also re-ignited debate about “research” or “consultation” fees for A deals, something most brokers oppose as a threat to their credibility and industry market share. Exclusivity agreements, while still a polarizing concept, are garnering broker support as the rate wars continue.
“It’s a good idea, and we’ve debated putting something like that in our agreements,” said high-volume broker Chris Bisson, with Complementary Real Estate Services – The Mortgage Centre, in Guelph. “But transparency is absolutely key here and the client would have to be fully appraised of what they are signing.”
A Toronto brokerage head has already introduced an exclusivity clause as part of his broker-client agreement, a way of protecting his agents’ time against “rate hunters” prepared to use it as a bargaining tool in pursuit of better bank rates.
“We don’t apply it to all A deals, but generally where we get a strong sense that the client is really not serious about using us and is really only looking to get a commitment to present to the bank,”Ranjit Dhillon, principal broker at CENTUM Mortgage Smart in Etobicoke told MortgageBrokerNews.ca. “The exclusivity agreement works both ways and, if the industry did introduce it as part of (best practices), we should promote it that way. Sure, it works to the benefit of the brokers, but also for the client in that the agreement is guaranteeing the client that the broker will work sincerely and assiduously to get the client the best deal, including, but not exclusively, rate. It’s also a tangible pledge of the broker’s professionalism.”
Collu is prepared to lead a discussion on regularizing exclusivity agreements similar to those that bind home sellers to their real estate agents for a contracted period of time. The penalty for breaching that contract is generally 2.5 per cent of the sales price. For mortgage broker agreements, that amount could be set as high as 1 per cent, said Dhillon, arguing that in most cases the threat of a penalty would be sufficient to protect the broker’s time.
Still, even well-intentioned clients may balk at having to sign exclusivity agreements, said industry trainer Greg Williamson, initially sceptical about the efficacy of nationwide or even provincial adoption.
“I think what might happen is that the more-experience brokers and agents will be able to sell the concept to clients, but more inexperienced mortgage professionals may scare them off,” he told MortgageBrokerNews.ca
That notwithstanding, brokers continue to grapple to retain clients even as the banks show renewed willingness to use mortgages as a loss leader.
“We are managing the largest liability of most Canadian consumers and I think we should be entitled to protect the relationship and most importantly our time and income during these transactions,” said Collu.