Broker: Never, ever buy down rate

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He’s increasingly an anomaly, but a veteran broker who has never bought down rate is admonishing the growing number of mortgage professionals now relying on that retention strategy, suggesting it only delays the inevitable.

“If you’re a single, independent mortgage broker trying to buy down rate in order to keep a client from going over to a bank offering a better rate, you are competing with the bank, and you are not going to win that competition,” Ad Lakhanpal, with Mortgage Alliance in Oakville, Ont., told MortgageBrokerNews.ca. “I’ve had agents agree to do it, and then they’ve gone back to the lender to get a new commitment letter to present to the client. But the process doesn’t end there: the client then goes back to the bank again, and they better that new rate. So they’ve still lost the client. I’ve never bought down rate and I never advise it.”

Fewer and fewer brokers and agents across Canada are prepared to say the same, as competition with the bank heats up and originations slow down. Some mortgage professionals are, in fact, suggesting as many as 80 per cent to 90 per cent of brokers are now prepared to sacrifice a portion of their commission in order to shave even five basis points off of a client’s interest rate.

Once dismissed as a last-ditch effort to retain customers, a growing number of brokerages are using it as a first line of defence as they ramp up online lead generation efforts, dangling rock-bottom rates on the Web to attract shoppers.

“At the end of the day, I found that I got the lead if my rate on that product was the lowest on the (referral site) that day,” Paul Poirier, a top-20 broker with Dominion Lending Centres based in Toronto, told MortgageBrokerNews.ca. “People online are looking at rate, first and foremost. They’re not like referrals from clients. Here the rate has to be the lowest or very near the lowest to get the lead.”

He’s one of several broker using online referral agents – sites like RateHub.ca and RateSupermarket.ca – to buy down their rates, a compromise balanced by higher volume numbers and the benefit of winning another referral source. Other brokers are increasingly turning to no-frills lenders like Lendwise, taking 50 basis points on a deal in order to access even lower rates.

Lakhanpal isn’t convinced giving up commission works in either the long or short-term, pointing to the threat of client flight once they have broker-arranged commitment letters in hand.

Rather than buying down rate, he told MortgageBrokerNews.ca, brokers should concentrate on referral business, more interested in the value brokers bring to the table beyond rate. He has one other key bit of advice: “When a client comes to me, I always ask them if they’ve been to the bank yet. If they say ‘No,’ I send them there first.”

  • Jim from Durham Region- Broker on 2011-08-26 1:20:52 AM

    I agree that there is a lot of agents out there cutting and cutting till they win the client but are not properly compensated for their hard work. The issue here is that there is a surge of mortgage agents out there doing just that. They are thinking to get the business they must cut rate and it is even not against the retail bank's but fellow mortgage agents or brokers. They are not that well educated by their mortgage broker of record or firm they are working for. This is hurting a lot of long time mortgage brokers and agents. A thought here is that instead of cutting mortgage rates why not offer other services in conjunction that they should be doing with possibly other home related services that they should be doing to make the client want to close the deal with you. Just a thought as I truly offer complimentary services besides rate cutting and it has done nothing but add to my firms volume.

  • James Shinners on 2011-08-26 1:23:29 AM

    Brokers who focus on rate and buy down rates, and often reduced commissions, will likely soon be out of business. While we're in business to offer the client great service and mortgage options/advice, we also have to make enough money to stay in business to be able to continue offering that great service.

  • John on 2011-08-26 1:40:14 AM

    25 plus years and have never felt the need to buy down the rate. Just those who will be here a couple years will have that need. If they had more customers, they could afford to lose more customers....

  • Jeremy on 2011-08-26 2:42:38 AM

    Like Ad Lakhanpal, I too have never bought down a rate for a client, not even to save a deal. Once I show my value proposition, rate isn't really a concern. Of course there are some who are still worried about rate, but I can't help someone who isn't willing to help themselves. I have learned not to waste my time on those consumers and just let them know that I can't help them. My office is full service meaning we follow-up throughout the term and prior to renewal. If I chose to buy down the rate for them 5 years ago, who do you think they are going to grid at renewal? Why would I discount my services? By agreeing to buy their rate down is to acknowledge that my value proposition is very weak at best. There is a saying that goes, price is an issue in the absence of value.

    Those who are buying down rates are walking a tight rope. What are you going to do when the lenders come together and cut the commission they pay? How will your business model work now?

    For those of us who are professionals going beyond rate, I commend you! Keep up the great work!

  • Elfie Hayes on 2011-08-26 3:24:56 AM

    Serve up enough recognized value, stay top of mind through mail, email, website and social media and always give the best advice to the client and rate doesn't enter the equation. I grew my business from 2 to 9 agents in this past recession and we didn't discount even one commission. Get paid what you're worth, deliver more than clients expect. And one final point stay away from rate Supermarket and Ratehub, they are a slaughterhouse for Mortgage Agents!

  • Julia Krause on 2011-08-26 5:43:41 AM

    WHY do we assume that every customer who calls or walks thru our doors already knows and understands how we are compensated?? As far as they know, we are paid just like bank employees, and even if they end up going somewhere else, why should we care?? We still get a paycheque every 2 weeks... right?? WRONG! You have to explain how it works for mortgage brokers, and tell them that you will look into anything they might hear out there. You also have to tell them that if their bank suddenly gets all warm & fuzzy because now there's a broker involved, that's totally DISHONEST! Once your client understands this, they won't go shopping around. Of course, you have to make a good impression on them, and if you can't do that, you're pretty much sunk anyway. Call me naive, but this has always worked for me. I've been a licensed broker since 1996, and I've never once bought-down a rate. Selling a service means selling a relationship! You must create and build that relationship.

  • Angela Wong-Liao on 2011-08-26 6:04:55 AM

    As a veteran mortgage professional, I agree with Ad Lakhanpal of Mortgage of Mortgage Alliance, we are all independent business contractors and we have to know our profit margins. If we buy down 50% of our businesses, we probably have to do 200% of the businesses to make up the income level that we want to achieve. Yes, we are competing against the big banks, they have deep pockets and we don't. 70% of my businesses are from existing clientele base, these clients trusted and respected my professional knowledge and integrity, therefore, pricing is not their most important objective. I can see new mortgage professionals may be facing big challenges because they have not established their credibility and they need business to survive. I advise these new mortgage professionals to set up their marketing plan prior to joining this industry, they have to set marketing funds and contingency funds aside, which can at least keep their alive for at least one year. Our industry's success ratio is 10% doing 90% of the businesses in Canada.

  • BC Broker on 2011-08-27 3:07:02 AM

    I have been in this business also for over 15 years. As I have never bought down a rate I do recognize that many veteran brokers have status rates there fore have better rates than a lot of newer brokers to start. I have no problem with what other brokers do...if they buy down rates that is their perogative. I come on here and laugh at the conceited egotistical brokers who complain about new brokers and banks. It is a dog eat dog world...let the strong and smart survive. It's like the veteran brokers want a Broker union that protects their commission, pay and rates they can get. Instead of worrying about other brokers and what they are doing just worry about how you do your business. If you are doing such a great service to your clients do you really need to gloat on boards like this on how great you are...give me a break !!!!!!

  • AB Broker on 2011-08-27 4:08:10 AM

    Re: BC Broker

    Sounds like this has hit a nerve with you. I don't hear anyone gloating! I hear other industry members providing their opinions and experience and if that bothers you, sorry for you. Get over yourself!

    To the others, great comments! It just so happens that I agree with you guys. Keep up the good fight!

    On with the mortgage revolution!

  • Ron Butler on 2011-08-30 3:58:11 AM

    I respect the fact that every one is entitled to run there mortgage practise as they see fit.

    I also recognise that these opinions are not a function of egotism, they simply reflect the beliefs of the mortgage broker about how to run a practise.

    On the flip side I think it is silly to say brokers who buy down rates are "will soon be out of the business" or need to "have a marketing fund". It makes no sense to me that brokers who do not buy down rates attack those who do or suggest those who buy down rates are doing something wrong.

    I don't get it. buying down a rate IS A VALID MARKETING CONCEPT. It is not for everyone, it will never be universal but it has validity.

    Everyone has a right to express their opinion but I think to take the attitude that one is wrong and the other is right is faulty thinking.
    It is just a different way.

    One last thing, if a mortgage broker is working on their own mortgage, or their brother's mortgage, or their daughter's mortgage; low rates don't matter, just good advice and a grat marketing plan? I wonder.

  • wernotidiots on 2014-12-21 8:52:31 AM

    Wow, you are all talking about service. After I get my mortgage rate, who cares? If I get 1% less than the bank is offering, then I am happy and 5 years down the line I will again go for the lowest rate. Service will only come into it if you are offering equal rates. Service is a month out of my five years. Service is you have gotten me the best rate....don't really care how you got it.

  • Maximus from Toronto on 2011-09-01 1:34:03 AM

    Selling service, keeping contact, professionalism, blah, blah, blah, the problem is most brokers lack any real education to understand we are in the commodity business. The banks sure get that and and they use their size to control that commodity as much as possible. Get educated and act like any commodity broker, discount when needed( ie.buydown) and take more when you can. CRM's and referral based approaches are the bain of this industry.

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