Last Thursday the Financial Post ran an article about how National Bank of Canada (NBC) was turning to realtors as a mortgage referral source.
It was based on an earnings call where NBC CEO Louis Vachon said he’s trying to do “more business with real estate agents because it’s less costly.”
NBC has had a realtor referral program for years, as have other lenders. But NBC is one of few banks that we’ve heard pay cash to real estate agents (via the realtor’s broker of record) for referring mortgage customers.
Apart from the lenders that pay cash, there are other lenders who offer realtors incentives like points programs. Here’s RBC’s program. Here’s TD’s program.
In any event, some brokers got concerned by Vachon’s comments because they felt National Bank was showing preference to realtors.
We wanted to understand that better so we asked NBC how it pays realtors. A spokeswoman said “no one was available to comment” so we searched the web and called some National Bank Mortgage Development Managers (MDMs).
We found some NBC reps advertising for realtor referrals online. Their ads stated that realtors receive 50 basis points (of the mortgage amount) for sending homeowners to National Bank. We called these reps to confirm that. National Bank also pays them (the MDM) for processing the Realtor referrals.
All told, it seems to be costing National Bank roughly the same (compensation-wise) for realtor referrals and broker originations.
Based on that, brokers don’t have to worry as much about NBC favouring realtors over brokers. In addition, brokers are a primary reason why NBC’s mortgage volume has exploded in recent years. National Bank now sources approximately 40% of its mortgage volume through brokers and there is no doubt that NBC is deeply dedicated to the broker channel.
That said, NBC’s interest margin may be better with realtor referrals. One former MDM we spoke with said NBC’s rates (for realtor referrals specifically) were sometimes notably higher than those available to top NBC-approved brokers.
The concern we’d then have, as a consumer, is: Am I getting the best rate and advice if my realtor gets paid for referring me to a lender?
Apart from potentially higher rates, it’s a virtual given that customers referred to banks by incentivized real estate agents will get more limited advice than if they dealt with a broker. You won’t see these bank reps comparing competitor’s superior mortgages to their own, for example.
For these reasons, if you’re a home owner and your realtor refers you to a bank (or a broker for that matter), always ask one very reasonable question: “Do you get compensated for referring me to this person?”
If the answer is yes, then it’s up to you to judge if that realtor is objectively working in your best interests. There are countless professional realtors who refuse to take money from lenders or brokers. They do that to avoid these sorts of perceived conflicts of interest.
Rob McLister, CMT
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