Realtor Compensation for Mortgage Referrals

Realtor-Referral-Fees-for-MortgagesLast 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

  1. Paying for mortgage referrals is not in the best interest of the borrower, nor the financial institution that is helping the borrower.
    As a mortgage agent in Ontario, the Financial Services Commission of Ontario (FSCO) requires the we disclose if there has been a referral fee paid to any party. I do not believe that this is disclosure is a requirement if the borrower goes to a bank.
    I work with several great realtors in the Guelph and surrounding area and we have a referral relationship set up, because it helps the customer get the best mortgage and that the real estate transaction goes smoothly.

  2. Sandra brings up an important point regarding the fact that brokers and agents in Ontario must disclose any conflict of interest. It makes sense for certain financial institutions to deal directly with Realtors. Regardless of what they say, it’s all about saving money. I mean, why a pay a broker 1% when with TD’s service plus rewards program a referral may only cost the bank a nice looking chair. In the end it’s the homeowner that misses out on independent advice and fiduciary duty of care.
    While some observers may see this strategy as diversifying the origination process, I see it as just one more strategy that banks use to under-cut independent brokers and agents. And that’s fine because everybody has to look after their own bottom line. But at least don’t come to me asking for business and pretend that you’re my best friend.

  3. Thanks for picking up on this Rob.
    While National Bank has struggled to originate mortgage business outside of Quebec for years, they have seen big volume increases recently and I expect that is mostly the result of increased support from brokers, rather than this gimmicky realtor referral program.
    Instead of acknowledging independent brokers for their partnership and support (giving credit where it is so obviously due), Mr. Vachon thought it better to advertise the fact that NB was paying realtors for referrals. As a big supporter of NB to-date, I take this as a slap in the face.
    When Mr. Vachon said he wanted to do “more business with real estate agents because it’s less costly” I wonder if his analysis factored in a resulting decrease in broker business?
    Or maybe he thinks we’ll just roll over while he cuts our grass.

  4. I wonder if the realtor has to disclose that information to the client?
    I do not like paid referrals simple because clients feel like your doing it only to make money. There should be a fiduciary responsibility to Realtors to ensure that the referral they are making is based on how well the client is going to be take care of.

  5. Hello from MTL Quebec, Unfortunately for us here in Qc it is a reality that we are all too familiar with. The National bank has a lot of exposure here in Qc. It is common knowledge from the powers that be (OACIQ) that they know it is common practice. They close their eyes and there are never any questions raised because the OACIQ wouldn’t be able to take on any bank because it has no leverage. On top of that, a complaint has to be filed by the party implicated in the transaction. So if a mortgage broker were to file a complaint, he would basically be biting the hand that feeds him. The buyers aren’t aware of this practice so most of the time they don’t know they aren’t getting a fair shake. In the end, a real estate agent who considers himself a true professional will relegate his buyer to the best possible solution and service…a MORTGAGE BROKER !!!

  6. I like getting paid as much as the next REALTOR®, but here in Alberta referral fees like that aren’t allowed. On balance, I agree with the rule as I think it leads to agents working with better qualified brokers and lenders.

  7. Good morning,
    Technically, as realtors (BC) we are suppose to disclose any form of compensation received for a referral. Don’t know if that always happens. Personally, if a client asks for a referral, I give them at least 3 names from 3 different agencies and they can make a choice. Demonstrating a preference can sometimes not be in anyone’s best interest.

  8. The best way to avoid issues like this (and having to disclose compensation like in BC) is to simply have a referral system where you as a broker reward realtors who send you business. I reward referrals with referrals so there is never a conflict of interest. Obviously ties must be cut with realtors who can’t do their job but those who send me business get rewarded.

  9. Good stuff Rob, another informative piece. This is exactly the sort of thing we feel consumers should be aware of and it is our job as professionals to inform them; and to ensure we work in the best interests of our clients at all times – regardless of what may be in our financial best interests.
    In response to Gary Jones and his question about Realtors and the disclosure of referrals – in Ontario we are governed by RECO and the specific Act that outlines our code of ethics and obligations; this is known as REBBA 2002, or, the Real Estate and Business Brokers Act.
    The Real Estate Council of Ontario (RECO), in the ‘Registrar’s Bulletin’ on March 31 2006 stated:
    “If, at any time a real estate registrant is going to, or likely to, receive compensation for “directing” prospective borrowers to a lender, FULL DISCLOSURE must be made to either one, or both of the parties to the real estate transaction. Disclosure to clients must be in writing and clearly set out, not only that compensation may, or will be paid, to the real estate registrant, but the amount, and any other relevant details.”
    This is in addition to Subsection 18 (4) of RECO’s Code of Ethics.
    All registrants in Ontario also owe a Common Law duty to clients to make “full and forthright disclosure” and further “to make no secret profit”.
    My team’s standard corporate practice is to not accept monetary or other direct remuneration for referrals, there are just too many potential conflicts of interest involved. Instead, we feel referrals should be based on mutually beneficial quality of service offered to clients.
    For more information professional services pertaining to the real estate transaction, the keys to saving time & money, protecting yourself and ultimately securing a successful purchase, please check out our Professional Services Guide.
    http://www.agentsforlifegroup.com/savvy-buyer-home/professional-services

  10. Bank of Montreal pays referral fees to Insurance advisors and World Financial Group for all loan products including Unsecured loans. Which is good but customers loose the right advice in the end.

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