Realtor-client incentives raise concerns

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Talk about one of the channel’s big banks is raising broker eyebrows in B.C., along with concerns the lender has sweetened its referral offer to Realtors with paid appraisals and legal for clients.

“In a presentation to a real estate office this morning, Realtors were offered that if they avoid going through the broker channel and refer directly to the branch, they will offer the clients free legals, free appraisals and pay 50 bps directly to the Realtor,” says one brokerage head in an email to colleagues Monday, and obtained by MortgageBrokerNews.ca. “Does anyone have any thoughts on this as it seems to be a somewhat better offer then what we as experienced status'd brokers have access to.”

Concern about a possible double-standard was first raised last year as news broke the lender was actively growing its use of Realtors as referral partners as well as its use of brokers.

But Realtor compensation of 50 bps, paid to the brokerage, is only one element of the offer now being presented to those real estate agents. Brokers may now have to compete with incentivized Realtors, but also clients rewarded for taking their business directly to the bank and not the broker.

Mortgage professionals will increasingly face the process of “disintermediation,” says industry leaders, as lenders look for ways to cut the cost of originations.

“Theys will always be looking for a shorter route to the client,” said industry trainer and broker Greg Williamson, of “180 DEGREES ACADEMY - Winning the Rate War.” “That means cutting out the intermediary. There is only one way to stop, or slow down, the process of disintermediation, and that’s through innovation.”

Other industry players have now floated the idea of lowering upfront broker commissions as a way of protecting broker lenders largely without the product lineup of the banks, which allows them to cross sell and effectively use mortgages as a loss-leaders.

Earlier this month, National Bank indicated that it would seek to adjust its use of mortgage brokers in favour of growing originations at the bank branch

“In Ontario, we’ve seen good volume growth,” President and CEO Louis Vachon told analysts during a conference call Thursday. “A lot of that is coming – 40, 45 per cent – from brokers.
“Clearly, for the next few quarters we are going to look at net margins in that business … and we’re going to look at hopefully increasing the branch and mobile sales force contribution in Ontario and (although) we’re not pulling out of the mortgage brokers market, on a relative basis we’d like to reduce it a little bit.”

The comments came with the release of second quarter results pointing to a 13 per cent rise in the funded volume of residential mortgages, compared to the year-ago period.

Brokers, outside of Quebec, have contributed a disproportionately large share of that business to the bank, at the same time National has focused on cross-selling to those broker clients, according to bank officials.
 

  • Bob on 2012-06-20 3:07:09 AM

    Are we talking about one of the 'channel’s big banks' ... as in National Bank?

  • A broker on 2012-06-20 3:10:54 AM

    "50 bps paid directly to the Realtor"? Does the real estate Regulator in BC not have something to say about this? In Ontario all fees/benefits should be paid to the brokerage. Nothing can be paid/given directly to the sales rep/ broker & because the fee/benefit is coming from a third party the RE brokerages client should acknowledge & consent to the realtor accepting the benefit.

  • Paul Mangion on 2012-06-20 3:12:54 AM

    The easiest way to combat this is to not support the lenders that are doing this. As a group we would have the ability to get the attention of some authority who's job may be on the line when targets are not hit. But I say this with sadness. That will never happen because it is next to impossible to organize a group where the majority of players are transactional agents and not long term career oriented players.

  • Greg Williamson on 2012-06-20 3:18:11 AM

    What a week! Two days in and we see two major threats to the wholesale broker channel. Yesterday was commission cutting from within our own ranks, and now we have a lender (I think it is National bank) who is ramping up cutting us out. I wonder how brokers who have supported National Bank in the past feel today? Anyway, I digress.

    I think the solution to Realtors taking kickbacks from lenders is NOT to match those kickbacks. I think the solution is two things, one is to end-run them. Get to the client before they choose a realtor, and then when I control the lead I determine which Realtors I give the business to. Number two is to get strategic and work with a smaller number of progressive Realtors that you will partner with and help grow.

    Now, of course I need to have something that the Realtor will see value in. I think you agree with me it isn't "I have the best rates, best service, and access to 1,000 lenders" crap that we have been living on for to long This is elusive I know, because I have been searching for it for many months. Beyond Leads, what else is there? I keep searching, I hope you are too.

  • Ken on 2012-06-20 4:02:04 AM

    You are right Greg - it is National. They offering the same in Ontario (cross Canada) as what Desjardin (Caisse Pop) is doing in Quebec. And yes - this must be disclosed in the offer on the "Schedule" and it must show exacactly what they earn. This will piss a lot of clients off knowing they just lost 5% on their house deal, yet the selling agent is making more by soliciting NB's services. These are simply greedy individuals, who can't cut it in their own enviroment so they want to be in ours. I'm sure they would crap their pants if we were allowed to sell real estate. I have an office in a small town of 80k and in my modest 300 ends a year I bet I get 50 of those looking for a realtor !! Hmmm - lets do the math ! Back to the beginning, we don't support those who do not support us !

  • Dave on 2012-06-20 4:02:50 AM

    I think that the various Mortgage Associations should lobby government to have all lender Mortgage Specialists or whatever term they use, licensed under the various Acts so that they have to play from the same level playing field including the payment of incentives and also to curtail their constant mortgage fraud activities albeit mostly "soft" fraud.

  • Anthony on 2012-06-20 4:06:27 AM

    Can somebody explain the logic on how they determine better cost effectiveness by going direct to the referral source and pay for legals, appraisals and offer 50 bps, yet still view brokerage fees (which amounts to no more than .80% to 1.30% of the gross) as excessive expenses...is it a matter of eliminating the entire underwriting and administrative process required to support the brokerage channel or otherwise...?

    At the expense of sounding defeated, we are getting squeezed out slowly but surely by the banks...and all our banter about offering value and service beyond rate is just hopeless chatter...the banks offer service with a smile and have branding we cannot possibly compete with...me thinks its time to focus exclusively on Alt A, B business and privates...

    What to do...?

  • Dave on 2012-06-20 4:08:42 AM

    I think that the various mortgage Associations should be pushing Government to have anyone including bankers who are involved in mortgages to be licensed and level the playing field including the payment of incentives. This would also curtail the banks mortgage fraud activities that are constantly being encountered albeit "soft" fraud.

  • Quebec broker on 2012-06-20 4:10:25 AM

    Realtors here in Quebec have been given incentives for years to refer clients direct to branches which also have broker channels (who we do NOT support) Not a level playing field for sure! You wont't see CAAMP involved in this one but will the BC broker association get the BC regulator involved? Like Greg Williamsons says you need to have other tools to work with to entice realtors and consumers to work with you beyond rate or free legal fees and appraisals.

  • Eric Gall on 2012-06-20 4:10:27 AM

    How does the client benefit from this? From my point of view they do not. What if said lender is paying the realtor but said lender is not offering the best product or rate. How will the client feel when they find out they could have gotten a better deal elsewhere but their realtor was getting paid to send them to a particular lender. I stress this to all my referral sources and that one deal could cost them more business. We live on referrals so I for one will do the best for my client and if that means going to a lender that pays a little less so be it. My client will be happy and refer me more business. We need to find value ads for our realtors. This means showing and helping them secure more listings and buyers. I offer them ways to do this but I do not pay them. The majority of my business is sent to lenders who want to work and help the broker channel but alas I still need the banks for some products. I agree with both Paul and Greg's comments. As an industry we dictate where to send our business but as we know clients as a whole are stuck on the lowest rate. We need to continue to educate our clients daily.

  • Bill on 2012-06-20 4:38:21 AM

    hhmmm might get my realtors license, sell a couple of houses while Im at it! That will show the realtors. Who uses National anyways? Have to be one of the worst lenders we deal with.

  • Mario on 2012-06-20 5:00:20 AM

    Many Banks either directly or through their MMS sales force are offering some form of incentives to Realtors; Be it Travel Points or a flat finder's fee.
    National Bank (NBC) has been, for a while now, a lot more aggressive and much more public with their incentive program(s) to the Realtors and sadly to say, they have the right to do so; it is their right to market their product in the way they want. However, we as a community of Mortgage Brokers also have a right to choose who we use and products we sell to our clients. I agree with Greg Williamson who says; that the answer is NOT to match what NBC is offering but rather create something that the Realtors will see value in .
    I don’t profess to have the answer. but from my perspective as a Mortgage Broker, the first thing we need to do is create a Unified Thinking environment through Educating our Channel by making it known which lenders are committed to growing our channel and then selecting to work with the lenders that support our channel. Does this mean that NBC gets cut off completely? No, I don’t believe that would be a realistic achievement. But, diverting some of our business from them is realistic. There are other players on the market offering similar programs that our clients would be equally served.
    In addition, as a broker channel we need to have an organization that promotes our value to consumers and referral sources( Realtors, Lawyers etc…) for the continual growth of our channel.

  • Jennifer - Ottawa on 2012-06-20 5:33:08 AM

    National Bank has been doing this for years here in Ottawa thus I will not support them on the broker side in principal alone. Paying realtors is just a plain wrong message for our industry yet realtors think that they deserve this, but try giving them a lead and asking for a portion of the commission and watch their reaction. Plus National Bank's rates aren't even competitive so the customer does not receive any benefit in this strategy which makes the realtor richer. I think mortgage agents and brokers should avoid sending business to National Bank to let them know that their practice of paying realtors is not acceptable.

  • Jim T.. Advent Mortgage on 2012-06-20 5:58:39 AM

    Blah blah blah blah…….stop your crying. The last time I checked we live in a capitalist society where capital chases the highest return possible and businesses are able to run their shops as they see fit. Does anyone tell you how to run your business???? I think not.
    If you don’t like it, do something about it – don’t send your deals to National. However, I suspect the majority of you don’t send National any business anyways. Your beef should not be with National as they are trying to find another way to get business in the door. Good for them!!! I hope they succeed. What? Do you think that brokers are the only distribution channel for banks? We are but a small part, becoming even smaller.
    The reality is that this will only impact the brokers who rely on realtors for business. From my perspective, it doesn’t bother me in the least bit. I never have and never will deal with realtors. The world is changing and many will be left behind………..

  • Financial advisor-former broker on 2012-06-20 6:49:20 AM

    FYI at least two banks -national bank and manulife bank-pay referrals fees to us as financial advisors who refer consumers to them. I choose to work in tandem with a good local mortgage broker who delivers value to my clients way beyond the $ I would earn in referral fees.

  • R Smith on 2012-06-20 7:01:32 AM

    We all know that the goal is for National to charge the client a higher rate as there will not be any competition for the rate. I too am happy to pay a Realtor 50 bps if I can get the Realtor to agree to disclose to the client that we are going to be sending their deal to select lenders that pay us enough so we can afford to do this and the client may be charged more for it in terms of rate. Totally justifies why we have focused on customer referrals for our source of business and aimed our business to lenders that have not engaged in those type of products. National is off my Christmas list and any other lenders that chase this down.

  • KED on 2012-06-20 7:41:05 AM

    BC Mortgage Broker’s Act Definition: "mortgage broker" means a person who does any of the following:...(d) in any one year, receives an amount of $1 000 or more in fees or other consideration, excluding legal fees for arranging mortgages for other persons.
    The way I see it is that if a Realtor or anyone else receives referral fees over $1,000 a year for arranging mortgages then they would have to be licensed as a mortgage (sub)broker in BC. As far as I’m concerned if a person who is not the borrower “arranges” a meeting with a lender for a mortgage and receives fees over the $1,000 threshold during the year for doing so then they are partied to the funded deal and should be required to be licensed.
    I would really like to hear FICOM’s opinion on this as “arranging mortgages for other persons” as stated in the Act is quite a broad definition.

  • National Bank Client...that got some suprises and on 2012-06-20 12:31:03 PM

    I hope everyone knows that these 50 basis points that are being paid to the realtor are 100% at the expense of the client. The realtors that specifically deal with National Bank in order to receive these referral fees have to be okay with the following:

    1) Their client got an inflated interest rate in order for the agent to receive their referral fee

    2) National Bank did a collateral mortgage...further hurting the large majority of their clients

    3)Their home warranty that is "free" is also built in to the interest rates.

    AND I would bet a dozen donuts that none of the above mentioned items are disclosed to the clients 9 times out of 10...I sure wasn't aware of any of this till after the fact.

  • truth on 2012-06-20 1:37:45 PM

    I find it amazing that some of you folks continue to wine about organizations that are trying to increase market share. Loyalty has not been in many of your vocabulary for many years. Let's face it..... you have been moving clients from lender to lender for years, not because it is in the best interest of your clients, but because you will receive another payday.. It is eveident that there is little loyalty to the client or the lenders. These are the consequences. live with it, or get another career.

  • truth on 2012-06-20 1:42:11 PM

    I am amazed at the comments. Many of you folks have been moving clients from lender to lender in order to earn a paycheck. Let's be honest, loyalty to the client or lender is secondary to your income. This is the reality.... Live with it.

  • Barb on 2012-06-20 9:58:53 PM

    The real issue here is a realtor, who is NOT a licensed mortgage agent, discussing mortgage rates and products with a client. If they want to be paid for mortgage business, they should be forced to be licensed in this area also.

  • MP on 2012-06-21 6:04:58 AM

    The Realtor would have to be crazy to refer their clients to National Bank for this deal. The client won't get the best rate and the Realtor is supposed to disclose the incentive from the bank.

    I think that most customers are smart enough to know that this isn't a good deal and will say "no thanks" I'll find my own financing.

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