Three industry insiders give their views on this contentious issue.
Tony Piattelli (Mortgage specialist, Quantus Mortgage Solutions):
“I don’t charge cancellation fees, so my initial response was, we shouldn’t. But in certain cases – if you’re doing a build or working with someone to repair credit – I do think you should be able to charge a fee.
With those files, there’s nothing to tie clients to us. There’s no thanks for the work we’ve already done. For a standard deal taking 30 or 60 days to go through, however, you don’t need cancellation fees.
There’s a differentiating factor that should be considered, particularly for those situations where there’s greater time investment on the part of the broker. People shouldn’t be getting access to our time and knowledge without some compensation.”
Andy MacDonald (Mortgage broker, Domus Financial Corporation):
“Mortgage brokers have every right to be compensated for their services. By specifying an amount for liquidated damages – not a penalty or cancellation fee – in my closing documentation, I can be compensated for my services should the mortgage fail to close. I usually choose a nominal amount for the liquidated damages, demonstrating my goodwill toward the client.
I want the mortgage to close because I’ll be paid more if it closes than whatever I collect from liquidated damages. This simple clause solidifies the relationship with my client, and I almost never have to collect. When I provide a service, I expect to be compensated for it.”
Karen Boies (Mortgage planner, Dominion Lending Centres City Wide Mortgage Services ):
“In some situations, I wish I could have charged a cancellation fee – for instance, when I’ve done all the work and the client chooses not to commit.
The first time it happened to me, I was helping a first-time buyer for more than six months. I got her approved with the rate, terms and conditions … [that] were best for her long-term plans. She signed off on the commitment but didn’t complete the mortgage with me. She took the commitment to her own bank, and they matched the rate.
Cancellation fees won’t stop this situation, but will prompt a conversation that might have the client thinking about their commitment to us.”
Taking back your time
Mortgage brokers lose income when clients back out of deals at the 11th hour. Many want to do something about this. The Mortgage Brokers Association of British Columbia (MBABC) is lobbying the provincial government to amend Section 5 of the Business Practices and Consumer Protection Act. It prohibits advance fees, including cancellation charges. The MBABC argues brokers should be compensated for the time they invested in files prior to clients opting out. However, other industry players believe cancellation fees can leave a bad taste in clients’ mouths. They argue there’s more than enough business to go around – even when a deal falls through.