Who’s Your Agent Working For?

Realtor-referral-feeBanks are hungry for mortgage referrals from real estate agents. They’re so hungry that they’re willing to pay up to $500 per $100,000 of mortgage, just for a Realtor to send you the bank’s way.

But most lenders don’t pay that much. And many of the best lenders pay nothing. So, what do you think the odds are that you’ll be sent to the best lender if your Realtor is getting paid to make that recommendation?

In truth, one could ask the same thing about mortgage brokers (i.e., how do you know your broker is sending you to the right lender). The difference is, brokers typically have:

  • Considerably more mortgage experience, product knowledge and mortgage training than a typical Realtor,
  • Far more lender options (specifically lenders who pay brokers), and
  • A regulatory or implied obligation to recommend suitable mortgages for their clients (sample suitability factors).

Recommending suitable mortgages for payment is something most Realtors can’t do without a licence.

Suffice it to say, potential conflicts exist whenever adviser compensation and customer interests intersect. And disclosing this compensation (which most Realtors must do) doesn’t necessarily alleviate the issue. This week’s Globe column touches on this and more as it digs into the lender/Realtor referral relationship.

  1. This commission to realtors has to eventually be stopped or regulated. It makes no sense for a broker to have to pay 0,05% of the mortgage amount in order to be able to compete against banks, that’s a huge chunk of our revenues. If we decide to pay a realtor then they make more than us on a file, very frustating! something has to be done!

  2. in the scope of problem issues that the real estate brokerage industry is facing, this is a minor point. It affects a very small amount of consumers and yet the mortgage brokerage industry is always quick to react whenever part time realtors play mortgage brokers. Virtually all good realtors have “relationships” with their lender partners whether that is a mortgage broker, or God forbid, RBC. These relationships can be a conflict, but good realtors and good mortgage brokers do pay attention to fees and commissions, but not at the expense of their clients.
    Arguments in this discussion that relate to monies earned,or creating a level playing field or … as in Mark;s comments are irrelevant. How is the consumer impacted by these practices and the end answer is .. not at all.

  3. If I may put in my 2 cents here. I’ve been a broker for over 16 years in Québec, unfortunately over here, we do things differently. The banks pay a hefty 50 bps to real estate agents and another 10 bps to the franchisee just for referring a customer. That’s crazy, just for a name and phone number? It is something that we’ve had to contend with for a long time. Unfortunately, the real estate board would have much to lose if it spoke out openly against this practice and on top of that the banks do not care if it hurts the mortgage brokers. Most banks see us as competition and not as partners. This is not a practice that is going to be stopped in the near future…sad but true.

  4. The only thing I’d like to point out on your comment above ¨How is the consumer impacted…¨ I’d say that it has a great impact on the consumer here in Quebec. How is the Customer assured he’s getting the best deal out there (Term, rate, etc…) when he’s reffered by someone who has a disctinct interest (his Pocket) over the client’s best interest? I call that a conflict of interest. I’m sorry but I don’t believe that people always want what’s best for their clients when huge sums of money are involved. If a realtor is really looking out for his client, he’ll refer him to a mortgage broker who has the key to many lender options and not ONE Financial institution who will pay him…my opinion.

  5. ” the mortgage brokerage industry is always quick to react whenever part time realtors play mortgage brokers ”
    Ummm. Could that be because it’s illegal to broker without a license?

  6. re quebec- and PatMTL. I wasnt aware of these amounts of commissions being paid which is different than ontario where amounts are quite small, especially in contrast to the realtor’s commission- so comment taken. Would the number of realtors who participate be a large percentage?
    acknowledging quebec, i think assuming all realtors who refer their clients to a lender who pays a commission are somewhat evil, means that we have to assume that in our industry where we have lots of opportunities to get paid extra, that many in our industry are ripping off the consumer. I just dont see it ( in ontario) that the consumer is suffering from the few realtors who participate in this practice
    To Dave and licensing requirement- a realtor may (legally) receive a commission under his real estate license ( as approved under the mortgage broker’s act) when that commission is earned in the course of his real estate trade, ie his purchaser. He does need to be separately licensed to trade in mortgages, outside that specific purchaser

  7. Doesn’t this speak to the value (or lack there of) that lenders see in mortgage brokers today? They would rather pay 50bps for a name and number from a realtor, then 80bps for a live deal from a broker.

  8. When real estate agents get paid for pushing someone to a bank, do they tell the customer about these payments up front? I doubt it. I bet most of them try to bury it in the disclosure paperwork. By the time people find out it’s too late because their house and mortgage are about to close.

  9. Hi Dr. Mortgage,
    Thanks for commenting…
    There are undoubtedly bigger problems in the real estate business but I think you’d agree, that’s not cause to ignore smaller ones. And I would submit that few know how big of an issue this actually is because few have attempted to quantify it.
    As to how many consumers it affects, there are 100,000+ realtors in Canada and 200,000 mortgages a year. Given your point that “a very small amount of consumers” are affected, it would be interesting to see your data source. Our (albeit anecdotal) data suggests that a sizable minority of realtors participate in paid mortgage referral arrangements.
    The point that “virtually all good realtors have “relationships” is true. And there is no issue when a realtor is referring mortgage clients solely with the client’s best interests in mind (i.e. no compensation). But, once they are compensated, they owe a different duty of care, and potentially have a different degree of liability.
    As noted, most realtors are great people and above board. The focus here is not on “good realtors and good mortgage brokers.” The focus of regulation is never on the good guys.
    But there is consumer risk here. Here’s how one bank is marketing to realtors in BC. You be the judge if this encourages realtors to direct consumers to the best lending option:
    ————————————————
    BEST KEPT SECRET!
    Welcome to our referral program for real estate agents.
    YOUR CURRENT COMMISSION RATES ARE UNDER PRESSURE! WE’LL PAY 0.50% COMMISSION ON EACH MORTGAGE WE CLOSE THAT YOU REFER!
    Your client does not have to shop multiple lenders.
    The chart below illustrates how your income can be supplemented with just a phone call!
    GROSS FEES
    1 mortgage per year — $2,500
    6 mortgages per year — $15,000
    12 mortgages per year — $30,000
    24 mortgages per year — $60,000
    36 mortgages per year — $90,000
    48 mortgages per year — $120,000
    ————————————————

  10. Hello dr Mortgage, glad to see the point is taken…Unfortunately, a vast majority participate in such activities, I’m probably in the ballpark when I say 80-90% of them take these rétributions. As I,ve stated before these are illegal Under the real estate board laws but they turn a blind eye to this situation because of the enormous sums that are in play, you would be floored to learn that it’s probably in the Millions…much to the point that Rob McLister made above, the numbers can add up fairly quickly…Mortgage brokers still rock in my opinion !!!

  11. Hi PatMTL, Are you referring to QC stats? The numbers on a national basis are lower than in Quebec. My guesstimate–which is all that was (I’d love to see hard data)–also reflects that some real estate agents do very little volume to begin with–hence have little opportunity for referral. Cheers….

  12. One of the real estate agents I work with showed me an email she received from RBC through her brokerage’s front desk.
    It offered, for a limited time, $1,000 for every mortgage referral to the specialist working inside the office, which is odd because bank reps get paid less on a deal than a broker. So in essence, the real estate agent stands to make more from the mortgage just by referring it than the actual mortgage rep who does all the work!
    This practice is not going away any time soon because the real estate brokerages get a cut of the action. The banks pay the real estate office crazy money to rent a desk and have the bank reps sit in the office. Unfortunately for the banks, if they happen to get an office where the manager is pushing listings instead purchases, they are not going to see a lot of business coming their way. The real estate brokerage doesn’t care because they get paid either way.

  13. Another point to talk about that will81 brings up is that we as mortgage brokers have to (by law) have our clients sign a retribution paper if we happen to pay one and the banks do not state any information about their paid rétributions. Oh well, it never hurt anyone to talk about the issues at hand but lets just make sure that we dont solve these issues from the same place that they were created !

  14. I humbly bow to the largess of numbers being quoted and the sample ad posted as an example of lender marketing
    My anecdotal numbers about GTA could also be off, although i (personally) dont see or hear of the large percentage of realtors guiding their clients to fee paying banks as their criteria for doing so. ( a few to fee paying brokers!)
    Any referral, with or without a fee can lead to a conflict of interest, but certainly adding large referral fees to a transaction without full disclosure can be damaging to the public.

  15. @Dr. Mortgage, I don’t think you are way off in the GTA, NBC’s offer to realtors picks up some deals in Ontario but knowing what I know there is a ton of Realtor business delivered to NBC (more correctly BNC) in Quebec. It all comes with the territory, every bank lender thinks about ways to generate mortgages that does not always include mortgage brokers. Some of the ideas are never acted on but some are.

  16. Whine…whine …whine….this conversation is like the one about dual licensing. This is competition. If you don’t like it, pay the money, fulfil the educational requirements & pass the exams to be a Realtor! You will certainly learn more about real estate, and likely more about mortgages, than what is offered in any mortgage agents course offered anywhere in Canada.
    Realtors are referring the borrowing client, not forcing the client, to an FI. The client is free to look at any or all other options.
    In Ontario, Realtors disclose that they may get a finder’s fee/benefit from a third party (FI)on:
    the listing agreement, signed by the Seller;
    on the buyer agreement, signed by the Buyer; and
    on form 610, disclosing the nature, source & amount of the benefit (not just money) & this is signed by the Realtor’s client (seller, buyer or both).
    Any Realtor not disclosing to their client, the full benefits they receive from a third party could be in violation of their agency agreement with their client & thereby put their whole real estate commission at risk. Why would any rational Realtor put a $10K -$25K real estate commission at risk, by not disclosing a thousand dollars worth of “Club Z” toaster points?
    The fact that Realtors are seen to have more credibility with the borrowing public is likely a reflection of the quality of people running the streets (with 5 days education in Ontario) as mortgage agents. Way too many under-educated mortgage agents being cranked out by CAAMP & IMBA in Ontario & let loose on the consuming borrowing public AND on the FIs.
    Like it or not, Realtor’s are the gatekeepers in a real estate transaction. (If they aren’t, why are so many mortgage brokers & bank reps renting space in real estate offices, or otherwise soliciting business from Realtors?) Realtors have earned the client’s trust, so when they suggest an FI or a mortgage broker to a client, its a strong referral.
    FIs are also recognizing a cost/benefit of paying finder’s fees to Realtors. They get to deal directly with the consumer, so that they are building a direct relationship with borrower sooner, and are able to cross sell to the consumer earlier. It cuts out the cost of paying D&H, cuts out FI employee time wasted digging through a sea of mis-information/no information provided by some mortgage agents/brokers, no volume bonuses/travel vouchers to pay (how many mortgage brokerages/brokers/agents disclose these?) & a reduced finder’s fee relative to the mortgage brokerage finders fee.
    If I was an FI I would be cutting benefits to mortgage brokers & soliciting the hell out of Realtors….or as a mortgage broker I would be working cooperatively, showing Realtors the real value added I can provide to their business & the ongoing benefits to their clients. Stop whining & learn to compete.

  17. Having spoken to many Realtors, I believe the referral fee that some banks are paying Realtors for direct referrals makes up a tiny fraction of origination.
    At the end of the day it is all about sales. I, too, get solicited on a daily basis from Mortgage Agents (who also happen to be private lenders), debt counselors (or whatever they call themselves), insurance brokers (pushing the new mortgage insurance products), all of whom literally spam my inbox and LinkedIn with their offerings. The splits they offered me to send a client or deal to them is huge, far more than 50 bps.
    From my point of view it only makes them look desperate because none of them will pick up the phone to call me, invite me for a cup of coffee, and learn more about my business and clients as oppose to just sending me an email with “send me a lead, here’s what I’ll pay you!” I never send them anything despite the promising pay and I doubt most Realtors utilize that approach with the banks unless they know someone that they trust and can vouch for.
    Most professional real estate agents align themselves with people they trust because it takes years to build a profitable book of business and they realize the cost to their business of doing business with someone they can’t vouch for.

  18. Realtor disclosures are useless. Consumers gloss over disclosure forms all the time. If realtors want to get paid on mortgages, they should be licensed as brokers. Otherwise it’s way too easy for them to exploit people’ trust and steer them to the lender paying the biggest referral fee.

  19. Lior,
    Just to clarify, RBC was paying realtors $1,000 towards their licensing and insurance fees, provided they funded a minimum of 5 mortgages prior to October 31, through an RBC mortgage specialist.

  20. I do know of some brokers that pay real estate agents a finder fee. The real estate agents are making more than mortgage agents, maybe they are smarter than us!!!!!

  21. I have been a real estate agent for 18 years, and I have never received a referral fee from a bank or a mortgage broker!! ! nor to any of my colleagues… I think its the exception not the norm for agents to be paid a referral fee.

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