Trend Watch: Broker Earnings

Compensation Payment Finance Incentive Economic ConceptThe average Canadian worker can expect a 2.5% raise next year, predicts HR company Morneau Shepell. That’s not far off the long-run annual average, unless you happen to be a mortgage broker in a major city.

While the typical Canadian may have seen their pay increase somewhere around 13% over the past five years, many brokers in major metro areas have enjoyed almost double that growth, or more.

That’s largely because home prices keep escalating. In Greater Vancouver, CREA’s benchmark home price is up 22.77% in the last five years. In greater Toronto, prices are up 40.57%. Even Calgary is still 19.35% higher. As home values jump, so does the typical mortgage size, a key variable in broker compensation.

Overall, home prices in major cities have risen more than 24% in the last five years and 70% in the last 10 years. If you assume the average buyers’ down payment is 1/3 of their purchase price (per CAAMP’s data), then new mortgage balances are up roughly $65,000 since 2010. This means higher renewal sizes as well. For a full-service broker earning standard compensation, the result is about $650 more income on a 5-year term, or a 24% pay hike.

Of course, the real estate rocket ship will eventually run out of fuel. There will come a time when prices correct and brokers trail the country on compensation gains. Competition (especially online competition, which prompts more rate buydowns) will also dent industry incomes, as may tighter credit policies. For now, however, big-city brokers will ride the wave of surging prices and broker market share while it lasts.

Sidebar: According to Workopolis, mortgage brokers nationwide earn a mean income of $48,796. That’s just below the $49,000 national average salary (and incidentally, a far stretch from the top 10 earning professions).

  1. The lesson here is that higher education does not equal higher income. Case in point: a mortgage broker funding 2 deals a week (taking 4 hours of work per week at most) makes as much as a surgeon. The broker needs 1 college level course while the surgeon spends 10 years of post secondary education. Don’t get me wrong – I’m a firm believer in higher education and have advised all my children to pursue such. It just does not guarantee financial success.

  2. Jim, you make a great point but only about 11% of individual brokers in this country fund 100 deals a year ($35 Million of Volume) so clearly it is not that easy, The 8 hours a week it is bit off, it excludes all marketing, accounting or educational time spent and implies there is never a failed deal. But you are definitely on the right track, if it is possible to gross $350K per year as a mortgage broker and only fund 100 deals a year. I think the average person would be shocked that 2 transactions a week would pay that much.

  3. Ron, I continue to say we are grossly overpaid for what we do. Case in point: client calls me today looking for a $1.2m mortgage. Simple AAA deal with sophisticated client who is happy with a 2.00% variable (no, he is not interested in a monoline). $14,000 in comp for literally 2 hours of work to get it file complete. We should enjoy while it lasts.

  4. The issue of brokers being “overpaid,” assuming it’s really an issue at all, is already taking care of itself.
    There are a slew of brokers online who would do that deal for 50 basis points.

  5. Well Jim, we advertise that $1.2 M deal at prime less 0.76% through a bank as a refinance and Prime less 0.80% as a purchase and pay for the appraisal and if it is a refinance we would pick up the legal fees so as ABroker points out just wait a while, eventually that level of revenue will cease to exist..

  6. Ron, agreed that the margins will be squeezed as time passes. For now, I will continue to earn 102bps weighted average for the business that I write.

  7. I was just wondering if these internet side of the business where the rate buydowns are so huge will still be viable if the total commission is dropped to 50 bps including bonuses (before buydown of course).

    It’s a rhetorical question by the way.

    Here is the math :
    If average mortgage (let’s be generous) is 300,000$
    BPS: 110
    Term 5 years (the most popular).
    Commission would be 3300$ if you make 100 mortgages in a year you earn 330,000$ – expenses (referral fees, legal appraisal, credit bureau , office rental if any, assistant salary etc..)
    at 50 BPS it’s 1500$ if you make 100 mortgages in a year you earn 150,000$ – expenses

    If you cut 10 basis points from that 50bps then commission is 208$ and over a 100 mortgages you would be making 20,800$- expenses. BTW that’s less than minimum wage salary before expenses.

    PS (for the smart guys out there): if lenders drop the 5 years to 50bps imagine what they will do to the 2-3 years term.

    The strategy of buying down huge rates on the 2 and 3 years will stop working completely and a contingency plan is definitely needed (buying down huge rates in the 5 years is not productive and most will attempt to lure the client towards 2-3 years term).

    Cheers and peace.

  8. Thanks Walid, it’s always helpful to just invent the expense side of the math out of whole cloth. PS (for the smart guys out there) those comments made zero sense. Maybe less than zero.

    Peace Out.

    1. Ron, it’s just math and it make complete sense.

      So according to you a broker doing 100 mortgages a year does not need an assistant and is able also to acquire clients without cost (buys no leads, does not advertise), with no credit bureau issued, no franchise fees no nothing.. he/she sits down at home and does some data entry and makes a lot of money. Come on..

      All I am saying is that some businesses in our industry are very dependant on rate buydowns and that we are very vulnerable to any sudden drop in finder’s fees. I understand that the walmart model works in real life but make no mistake the walmarts here are the lenders not the brokers they pull rank anytime.

      I am just trying to help by having a constructive criticism. But I have to agree with you about “for the smart guys out there” It was not necessary. My sincere apologies to anyone offended by that.

  9. Walid
    Feel free to contact me to find out how to make 102+ bps on average (even with some buy downs on some deals). I do this on over $350,000,000 a year in funding and do so myself with 2 assistants. On the short term side, this is by far the most profitable product if one knows how to use it. On costs, aside from my 2 assistants, not that much.
    Peace in and out!

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