Poll question: Would you charge a cancellation fee?

by |
Have your say: Would you consider charging a cancellation fee for rate site clients?

Rate sites and cancellation fees are nothing new but one leading broker has merged the two with his new website that allows clients to self-direct the mortgage process but may also charge them a fee for fleeing.  

“On the DIY model, a $295 cancellation fee may apply where folks request an approval, we obtain that approval as instructed, and then the individual cancels the mortgage application,” Rob McLister said of his IntelliMortgage website.  "In practice, cancellation fees are rarely charged … but they serve an important function in offsetting processing costs and maintaining lender efficiency ratios, both of which help us deliver the best possible rates to consumers."

It drums up an interesting debate and it begs the question: If you use rate sites do you believe cancellation fees are a good way to recuperate for lost time in the wake of a fleeing client?

Click here to have your say.
 
  • Cheryl on 2014-03-25 11:48:19 AM

    Absolutely. Mortgage brokers should charge cancellation fees only after the client has signed a commitment. If we did this as an industry practice it would be a great idea. Nothing is more frustrating than a client cancelling for an extra tenth of a point after all the work has been done by the broker. Most clients value the work we have done however you do get the odd few that do not value what signing a commitment means. We are professionals and should be respected as such. If you cancelled a deal with a lawyer's office you would still get charged for the time the office has spent working on your file.

  • Christopher on 2014-03-25 12:31:18 PM

    In the 'old' days we had the client sign what was essentially a contract that laid out the deal with an interest range and disclosure of all fees. If the deal was obtained as disclosed, the client was responsible for the broker and finders fees, whether or not they signed the lender commitment.

  • Mike Maguire on 2014-03-25 2:40:28 PM

    Totally against it. If you are a decent broker you should not even have to do it. Times I have run into seeing these contracts the broker was not looking after the clients interest. For example taking client to another lender when porting the existing made more sense. Turning an A deal into a B deal. Going to the lender who pays them the most rather the then the best lender for the client. I think these fees are just a money grab from greedy brokers. Brokers who just deal on line and create no relationship as they never meet the client and listen to them. Then they are shocked when another broker walks away with the deal. See it all the time here, great rate from some broker in Toronto, but they missed porting the CMHC premium. $5000 error and they think that they should get compensated when the client leaves them. Why do these brokers think they are that special? Other problem is disclosure. Website says service is free, no fees then surprise after they sign some form that it takes a lawyer is understand. Personally I think CAAMP should take a stand and make fees like this unethical unless it is spelled out on all advertising in as no where do they say their services are free. Our brokerage will never participate in what I consider an unethical money grab.

  • Paul Hudson on 2014-03-25 3:00:22 PM

    90% of the time I find clients appreciated the hard work I do and remain loyal. For those 10% who feel its perfectly acceptable to take their business elsewhere after I've spent hours working on their approval, I think a fee should be charge if a commitment letter has been signed. The work involved not only takes up our time as broker's but also the underwriters & insurance company's. A lawyers, appraisers & inspectors send out bills for work completed whether a deal flies of not. Realtors sign listing and exclusivity agreements to keep their clients on track. Why would we not have a similar standard for our industry? Our time and expertise has equal value to our industry colleagues.

  • Mike Maguire on 2014-03-25 3:22:01 PM

    Paul: Then if you charge a fee do you send part of it to the lender and the insurer? Seems only fair. Seems like we could be opening a pandora's box here. Maybe the lenders should be charging a fee to us if they commit and we don't fund. Could clean up the industry pretty quick. As a broker who sees alot of deals already touched by banks and other brokers who don't have the service levels or the knowledge we have the fee idea might be the way to go. Might push the industry to start training new brokers instead of taking any one who can breath.

  • Paul Hudson on 2014-03-25 3:32:42 PM

    Hi Mike. You raise a good point. I think splitting the fee between broker, lender & insurer is fair. Most importantly disclosing the fee to the client serves as a big disincentive for them to break the contract and it confirms with us the client is 100% committed (especially when the client is required to visit their bank to obtain statements etc to meet approval conditions prior to closing). Such a move will certainly clean up the industry and give more validity to the broker profession.

  • Gary Siegle on 2014-03-25 4:21:04 PM

    If you charge any fees, just be sure you meet all of the compliance rules in the Province where you are doing business. The rules are not the same across the country.

  • Ron Butler on 2014-03-25 4:30:50 PM

    Mr. Maguire as one of those brokers "in Toronto" with low discounted mortgage rates I am here to tell you it is true that we do not meet face to face with clients. That part is true but it is not true that we don't care whether the client is better off with a port and increase; we do them every week.

    We give more borderline "B" clients "A" rates than some folks I know and although we could (doubt we ever did) miss the port on a CMHC premium (it's possible, nobody is perfect) we do each and every day offer home buyers 2.94% 5 - year fixed from a Big Five Bank while your best 5 - year fixed offer is 3.09% on your website. So while we don't claim to be perfect, that we have never missed any tiny detail of a mortgage transaction (I really doubt any mortgage broker claims perfection) clearly given the choice most purchasers would take 2.94% versus 3.09% for the identical product.

    One thing this site has taught me is that the members of the public who read these posts are quite wise and discerning and they quickly recognise a mortgage broker who is trying to justify higher rates and higher income for themselves with specious questioning of the on-line low rate offers and veiled accusations of incompetence. It never works because the public is too smart.

    Just to make it clear, our company uses service agreements but we have NEVER enforced a single agreement in our history. We did not have to.

  • Mike Maguire on 2014-03-26 9:15:11 AM

    Ron: Interesting how the conversation turns to rate with you. Is that all you guys know and sell. I never mentioned rate once in my comments. I guess we run 2 completely different operations. We are more a boutique providing high knowledge and service levels. Being in London we are lucky as our clients love to stop in, have a coffee with us and discuss their plans. We are there for them during the buying process and for years later, handling renewals, refinances, new purchases and even send their kids in for their first mortgages. These are certainly people I would not hold hostage with a threat of a fee and I certainly don't think the industry should go that way.

  • Ron Butler on 2014-03-26 9:46:06 AM

    Mr. Maguire, I guess you have a very short memory, just scroll up this same article you said: "great rate from some broker in Toronto".

    Looks like there is more than coffee being served in that office if you cannot remember what you wrote yesterday.

  • walid@hypotheca.ca on 2014-03-27 11:08:27 AM

    The hard truth is our commission and our business depends on certain efficiency ratios with lenders. Once you make your partner work for nothing he is probably not going to be happy about it and degrade you by not having access to the best rate and the highest bonus.

    Remember guys that when send an application through Filogix the lender is charged 10bps and then there is the ressources allocated to the deal to make it happen (Analyst, compliance, IT, legal department etc..) that's about at least 500$. There is also the evaluation that the lender pays. So in total for a 300k mortgage the lender spends about 1000$ at least. They will make sure to make you pay for this down the line.
    We dedicate ourselves a 100% to our clients to get the approval. I personally provide them with a notary, an inspector, a house insurance broker and a real estate agent (I am asking to be paid by those guys).
    If they don't commit back then we are in master slave relationship.
    So yes charging a fee is a good thing to do and will probably filter some clients for the agent.
    When clients ask me about the fee, I always tell them it's the respect clause.

    In order for the fee to be accepted, you need to prepare the client for it. Make them first of all understand what a mortgage broker is and what services he provides, have them understand the added value, compare with other industries and then let them decide if it is ok to make someone work hard for them and not to be paid. Just have them visualise if their boss asks them to work and then decide if needs to pay them or not.
    Some long term clients with repeat business of course you don't need to include that clause with them.

  • Carli on 2014-03-27 5:44:30 PM

    If a broker charges a cancellation fee shouldn't the lender charge the broker a cancellation fee as well?? Lenders also put in a lot of work on deals only to have the broker (client) cancel them or take them elsewhere... where would you draw the line? No cancellation fees should be charged... this is the line of business you are in and if you can't accept a few don't go through maybe you should rethink your line of work.

  • Paul Hudson on 2014-03-27 6:03:15 PM

    Hi Carli,

    I've been in this profession for over 16 years and certainly do well by it. However, as a business person I am always looking for opportunities to improve how business is conducted. I'm surprised to hear anybody not wanting the same for their own business. Best of luck to you.

  • Patrick Smith on 2014-03-27 10:51:59 PM

    I find the idea of a cancellation fee interesting and I like Walid's terminology: the respect clause.

    As for it being legal or compliant, I know that many brokerages have a client sign up form that includes a cancellation fee. From this, I would presume that it is perfectly permissible to employ one.

    There is one troubling aspect though. Our efficiency ratios are typically based upon funded deals vs approvals. Having a client acknowledge or agree to a cancellation fee upon signing a commitment only gets you halfway there. A savvy client would be well advised to ask how long the commitment is good for and then sit on it as long as possible.

    Perhaps a more appropriate trigger would be to have the cancellation fee become active once an approval is issued, provided we can obtain an approval that fits within the previously agreed upon range of client requirements. This is a nod to Christopher's comment about the 'old' days.

    Enforcement is also a sticky area. I know that while many do use cancellation clauses, they also are quick to point out that they rarely or never enforce them. In most cases I am sure that they were not needed but no doubt the odd time the brokerage waives it instead of pursuing recourse. If you are intent on enforcing it, I suppose you would issue an invoice and, if unpaid, eventually send it to collections. Now that would leave a sour taste in everyone's mouths.

    It is partly a question of human nature and buyer's remorse. Every time you buy a consumer good, be it a car or smartphone, you know that it is only a matter of time before something better comes along. Retailers help address this with price match guarantees and return periods. Because it's an simple transaction, once you've bought it you can't go back if indeed a better option appears 10 days or so later.

    With a mortgage, there is that lengthy gap between commitment and funding but, once funded, there is no return period for store credit. Therein lies the risk. Who should bear it?

    There really is no satisfying answer here.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions