Consolidation isn’t just coming by way of large networks subsuming independent brokerages.
“Mortgage brokerages—offices owned by brokers—are consolidating because the margins are shrinking,” said Centum Group’s President and CEO Chris Turcotte.
In towns and cities large and small, and in offices large and small, there’s been a reckoning with leads disappearing on January 1, 2018. Brokerage carry high overhead costs and aren’t always as profitable as they seem.
“You’re seeing it across the board, even the big guys with 100 agents,” said Turcotte. “Imagine the lease and mortgage payments and infrastructure overhead on those buildings. If they have multiple assistants, multiple underwriters, their Xerox bills—all those little things add up, and when margins compress, both sides feel it, it’s not a matter of big or small.”
The squeeze also manifests in broker commissions.
“If Royal Bank is offering you a 2.64% interest rate and the broker has a 2.69% interest rate, the only way to get that rate down is to use their commission, so brokers will make less to land the deal,” said Turcotte. “There are people in both camps, of course—some firmly believe you articulate value and don’t buy the rate down, and I was very much like that when I was a broker, but the reality is that bills don’t go away and food always has to be on the table. You can’t feed your family on your pride.”
However, Dominion Lending Centres’ internal data shows broker commissions have been increasing per deal. Still, expenses are another story.
“I think brokers are looking for more revenue and savings on expenses, and they’re looking for ways to do that,” said DLC President Eddy Cocciollo. “By teaming up, operationally they can consolidate costs and hit more bonuses with more lenders. It makes sense because everyone wins.”
There is a caveat, though.
“The only challenge is control,” added Cocciollo, “which some brokers are not willing to relinquish.”
Regulation breeds attrition in the broker channel, and that in turn spurs consolidation.
“People should be more open to conversations with any brand, now more than ever, to understand there’s a better option out there,” said Turcotte. “There are ways to put that margin back in your pocket.”