Williamson: Don't buy down rate

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If a growing number of industry leaders “concede” brokers must buy down rate in order to compete, at least one remains focused on steering them away from the practice, with more than 600 now prepared to hear him out..

On Tuesday, in the first of two free webinars, industry trainer and broker Greg Williamson – joined by Street Capital’s Paul Grewal – will attempt to dissuade the growing number of agents and brokers from using that strategy for several reasons, among them self-preservation.

“Ultimately, following a system of buying down in order to attract and retain clients leads the industry down the path of travel agents,” he told MortgageBrokerNews.ca. “That’s not in their best interest – it’s like telling lenders that we as brokers are prepared to get paid less.”

With "Threats to The Broker Channel - And What We Can Do About It," Williamson and Grewal will address all the key challenges facing brokers in a slowing market.

Make no mistake, there are several, but the problem of disintermediation – countering the move to cut out the middleman – will figure prominently in Tuesday’s discussion, starting at 1 p.m. EST. A conversation with DLC’s Gary Mauris, the second webinar in the series, will also take up the issue, Feb. 8.

Both discussions follow on the heels of a MortgageBrokerNews.ca article outlining why brokers are increasingly willing to sacrifice commission in order to close a deal with a client, most often a rate shopper from the Internet.

“The fact is that our products and services have been commoditized – that’s a reality,” said Jim Tourloukis, owner of Advent Mortgage Services in Unionville, Ont., and Ontario’s No. 1 broker on last year’s CMP Top 50. “We talk about value propositions and customer service, but at the end of the day everyone expects good customer service, so if you want to keep your deals, you’re going to have to also offer the lowest rates and that means buying down.”

He’s speaking from experience. While he did a whopping $212,927,433 in funded volume for 2010 with “almost zero” buy-downs, last year the high-volume broker opted to buy down as much as 15 per cent of his deals in order to hold onto increasingly price sensitive “retail” clients.

His total funded volume for 2011 actually grew by the same 15 per cent, although there wasn’t a dollar-to-dollar correlation, said Tourloukis. It's also worth noting that year-over-year income went up only modestly. "It requires more work to make the same amount," he said.

The analysis comes as banks drop variable rates – 2011’s weapon of choice – and pick up increasingly competitive fixed ones in order to fight this year’s battle of the rate wars.

In many cases, brokers just haven’t had access to those lowest of the low rates, many opting to buy down their rates.

But there is another option, said Williamson.

“It’s time to make a choice,” he said, in a blog posting Sunday. “Will I sell rate or will I innovate and find other ways to win customers?  Will I say out of one side of my mouth ‘I offer service and added value and never buy down rates’ and then out the other side of my mouth I advertise a bought down rate that essentially says ‘I am the cheapest, buy from me.’”

  • Sammy on 2012-01-31 5:15:20 AM

    Nobody wants to hear this but the new world order is that the client expects great service, top notch valued advise, AND THE LOWEST RATE POSSIBLE!! If you believe otherwise then you are fooling youself. However, if you don't belive rate is an issue then why are we even discussing this? If you truly believe that your service and advice is enough, then you should not care what others in the industry are doing. Let them buy down the rate and work for less money. If your clients don't care about rate then why do you care about rate? You shouldn't correct?? The reality of it is that clients expect everything (as they should)and if you can't provide it then time to look for another job as you will not make it in this competitive business. My last point will be a quetion: when you purchased your last car, did you hagle over price or did you poay the sticker price? Why should your clients not expect the same low price?

  • Ted on 2012-01-31 5:18:46 AM

    The reason 600 guys lined up to hear Williamson is because they had no deals to work on.

  • Liz on 2012-01-31 5:36:55 AM

    i agree completely. don't see yourselves short! We have SO much more to offer than simply rate! Keep THIS conversation going!

  • Jeremy Nagel on 2012-01-31 9:05:40 AM

    I couldn't agree more. If others are driving off a bridge, are you going to follow? Are you a follower or a leader?

    Looking forward to the webinars!

  • Ottawa Broker on 2012-01-31 10:43:30 AM

    As brokers we can't do business based on rate for the simple fact we will NEVER be able to beat the banks. Sell value, do your best to be an advisory partner with your client, not a salesman. if we just sell on rate we be beaten by the banks and online lenders that deal directly with clients.

  • Jim T on 2012-01-31 11:03:34 AM

    I buy down rates when I need to win deals. The result is I did 34 real deals last week- 7 new deals today alone. Am I driving off a bridge? I think not. So I don't make 110bps on a deal and I make a mere 70bps. Do the math ladies and gentlemen: 40 deals at 70 bps is more than 110bps at 0 deals. I'd come listen to the webinar but I don't have the time as I will be busy originating more deals during that hour. However, my rate buydowns shouldn't affect other brokers at all if in fact rate shouldn't matter. Hey, if you are proving great service and advice then my rates shouldn't affect you and your clients.

  • hamilton agent on 2012-02-01 3:05:48 AM

    totally agree with jim t...don't forget re-licensing, since you are so busy! i am curious about the numbers of agents in ontario after this course...and quiz!

  • Kathryn on 2012-02-01 10:13:25 AM

    Buy down is not wrong...the stronger the applicant the better (lower) the rate should be...the problem is that the regular discounted rates are the same for 600 score applicants and 750 score applicants...that is why the higher score applicants want to feel rewarded for their good behavior and "shop around" because they feel they deserve better then these discounted rates offered everybody. Would lender/banks use matrix in A landing we would not have to buy down rates as often.

  • Paul Therien on 2012-02-02 4:34:07 AM

    The broker community needs to stop focusing only on rate. It is a misnomer in the Canadian market place that rate is the be all to end all when it comes to a mortgage. Brokers need to demonstrate concrete value to the consumer, because the fact is that when it comes down to it the banks will compete with us on rates - always. Some will win and some will lose, but in the end the banks can sustain that competition for rate longer than the broker community can, they are after all the primary source of funds in this country for all mortgage lending (including many of the monolines). As with many other industries, brokers need to evolve and expand their value proposition to the consumer - if it does not happen... the broker community will be in for a tough road ahead.

  • AB Broker on 2012-02-04 7:15:46 AM

    Those who buy down rates are feeding the consumers own ignorance! If we all shopped based on price, we'd all be driving a Ford Feista. I don't drive a Feista, Jim, do you? How about you hamilton agent, do you drive a Feista? I'd being willing to bet you don't. The path of least resistance is to buy down rate. If you buy the rate down for the consumer today, isn't it logical to think they will expect the same come renewal?

    Any monkey can build a business based on rate buy downs, it's not rocket science! A true planner takes the time to educate the consumer and provide working strategies. Take pride in your work! But if you don't have the time to educate, I'd suggest you are transactional. Get them in and out, next.

    Oh, I find it funny that some commenting talk about how busy they are and if that was true, why are you spending your time here commenting. Comical...

    To all the planners out there, keep up the great work!

  • Paul in Toronto on 2012-02-04 8:56:49 AM

    Yes AB Broker, but if you were in the market for a Fiesta, would you just pay the sticker price? It isn't a good analogy, as in the end, the client is getting the exact same product at one broker as he is at another. You can tell them about your great customer service all you want, but in the end, it is really rate that counts. If anyone is successfully selling their clients on the added value so well, then I would love to hear how. Honestly, from what I see, for most people it is the lowest rate they are after.

  • AB Broker on 2012-02-04 10:38:57 AM

    Paul, you are right, for most it is all about rate because they don't know any better. You are talking about the same generation that is responsible for racking up debt to it's highest level EVER. Help the financial inept, don't enable them!

    See you on Greg's webinar.


  • toronto broker on 2012-02-04 10:51:23 AM

    Everyone is saying that we should sell added value rather than rate...But all the advice, education and good service is already a standard expected by the consumers. After our nice education conversation with the customers, they will still want the best rate because it is something "TANGIBLE". I am curious if anyone has really come up with some TANGIBLE and measureable added value ideas that can combat this rate war?

  • Greg Williamson on 2012-02-04 3:34:39 PM

    I love this spirited conversation. This is what is needed, kudos to all of you for caring and havi g the passion we need. Let me be clear, I respect everyone's right to work a business model that serves them well. Where it is different for me is when I see many people working a model that does not serve them and then resort to buying down as a last resort.
    It is simply not true that all customers want is lowest rate, just like it is not true that all people buy cars on lowest price.ast I looked there was a big difference in price between a BMW 7 series and a Ford Fiesta.
    I encourage everyone to let this gel in your mind, the game is not always won by competing head to head on a particular product. The game is won when I compete strategy to no strategy.
    If my client wants a five year fixed at 3.10 because they saw it on a website, and I only have 3.19% then of course I see the dilemma there. Why not show them the wisdom of buying a 10 year at 3.89% ? This is moving them from a Fiesta to a BMW. They are clearing. Paying more and I am not cutting my commission to win. Stay connected.

    Shift Small, Live Big

  • mtge broker on 2012-02-06 12:40:20 AM

    You are missing the point- don't compare the price of a Fiesta to that of a BMW. The argument is to compare the price of 2 BMW's. If you compare 2 similar products and one can be had for less money, would you pay more Greg? That's the point. The major flaw in your argument is that you assume that if someone is buying down the rate then they are not providing value added service. How do you know that they are not providing both? The truth of the matter is rate not only matters to clients but it has an even bigger impact on brokers as in your hearts you reluctant brokers know that this rate war IS impacting you and you are losing deals to these buydown brokers. If this were not the case why would you be so up in arms about it. You are losing the battle to these guys and so you should. Get more efficient or get out!

  • fred on 2012-02-06 12:47:46 AM

    What you are all forgetting is that the client decides what they deem as "Value". You don't decide that Greg. If the client values a low rate then that's what they value. How arrogant are you that you think you know better that the client as to what he wants? Stick to blogging my friend and let others succeed in this business.

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