Imagine this …
You are buying a home and you’re just about to close. The boxes are packed, the movers hired, and there’s a crew coming to clean the home you sold from top to bottom. Every detail imaginable, you’ve handled it.
And then you get a phone call.
‘You’ve got to be kidding me! Why on earth is my loan still in underwriting?!?!’
‘You’ve got to be kidding me! I don’t even know what it means to have an unreleased deed of trust?!?’
‘You’ve got to be kidding me! Why the hell would the closing statement be off by 32 grand?!?’
You freak. You call your agent. She tells you that the internet lender you chose can’t be reached. That old friend who’s a general practice attorney? He doesn’t have a contact at the courthouse and can’t get there until next Tuesday.
You are up the proverbial creek.
Are Agents in Cahoots with the People They Recommend?
So why would a client not use lenders and attorneys that the agent recommends? Well, there are plenty of reasons …
Some make total sense. Corporate relocation packages might mandate the use of a specific lender or attorney. Other reasons aren’t so easily understood but still legitimate, especially those linked to office politics or family relationships.
But the biggest reason of all is that clients ignore the Realtor recommendation is simply a lack of trust. ‘What is the agent getting for making this referral?’ is the prevailing thought. The public quite often feels that the relationship between agent and lender (or attorney or inspector) is designed to benefit the agent at the expense of the client.
This is unfortunate because in most cases the exact opposite is true as kickbacks are highly illegal in our industry.
RESPA is Your Friend
Most people don’t realize that the practice of Realtors receiving direct compensation for a referral to a lender (or other service provider) is illegal. It’s what the authorities like to call a kickback.
Realtors, lenders, attorneys, title companies and home inspectors are all strictly prohibited by law from receiving direct compensation for referring business to another service provider. Put another way, as an agent, I could get in serious trouble for refering business to a lender and receiving compensation for that referral. The Real Estate Settlement Protection Act (RESPA) spells this out in great detail and no agent, lender or attorney wants to be caught in the net of a RESPA violation.
The practice just rarely takes place, despite the fact that many in the market still feel it does.
So What is Allowed?
Real estate service providers are allowed to enter into formal business relationships with other real estate service providers as long as they are legitimate business arrangements.
It’s not uncommon for a lender (or title company) to lease space from a brokerage or an attorney in order to facilitate work flow. This makes a lot of sense logistically, putting an array of services that can facilitate a transaction in the same building. The communication is better, and it’s easier for clients. Additionally, service providers can share expenses relating to marketing or technology in order to create business opportunities and reduce costs.
This is legal as long as there are legitimate business reasons for the arrangement AND any service referrals aren’t done on a deal-by-deal basis AND the client is not being injured by the relationship. At that point, you’re in compliance with REPSA.
So Why Use Our Team?
When we recommend a particular set of lenders or give you the names of a couple attorneys, we do so confident that the recommendation will improve the transaction.
Here’s why:
- Timing has never been more critical and missing a date can be extremely expensive.
- Clients spend money before the transaction closes. No closing = money gone.
Because I work on commission, it’s in my best interest to do everything I can to make the transaction SUCCESSFUL. If we don’t close—for any reason at all—I’m not getting paid. I’m not going to risk a deal and the commission that comes with it over a kickback.
And the client is in a similar position. She’s spent money before the deal closes. Deposits, inspections and appraisals (and sometimes rate locks and title searches) all happen before the final docs are signed. If the deal doesn’t happen, then the some (or all) of the money spent by the client is lost. Clients need to know that they too face potential loss if they use a lender who over-promise and under-delivers.
These Are Not Commodity Services
‘There are horses for courses’ goes the old saying. Banks have their strengths and weaknesses. A Realtor should have a number of different banks in mind, with recommendations based on the asset type, credit profile or income level.
It’s true that each mortgage company typically offers the same Fannie Mae, Freddie Mac and/or FHA products (and rates). However, they often will underwrite to different standards (‘straight agency’ or ‘credit overlay’ are the terms used to describe this practice.) And then there are the specialty niche products (construction/perm, non-warrantable condo, jumbo and/or grant programs). Certain banks are willing to do some of those things but perhaps not all of them. Sending a new builder to an institution that does mostly resale purchases is not a smart move, no matter how much the lender guarantees their ability to satisfy. It is the agent’s job to know exactly what bank will handle a client’s situation best.
So How Can You Tell?
20+ years of experience, mostly.
There’s no easy way to identify the best lenders, appraisers, and other service providers … other than trial, error, experience, vetting, familiarity. Since we started out in this business back in the early 90s, we’ve been mostly working with the same lender, regardless of the mergers, splits, acquisitions and all the other stops and starts of the mortgage banking world.
Why have we not switched? We have hung with them because they’re good. They don’t miss dates. They don’t snow a client by making promises they can’t keep. There’s no bait and switch happening. Work in this industry for 20 plus years—as we have—and you’ll distinguish between the players and the pretenders.
When we recommend a service provider, we are not only recommending the individual, but the organization. We’re going to be familiar with more than the front line person we’re dealing with. We can tell you about the owners, the managers, the administrators and the processors. When a transaction hits a bump—and it’s going to happen no matter what service providers you use—we know exactly who to go to to get things moving in the right direction.
Consumers everywhere need to know that the price you pay for a little more certainty of execution and quality vastly exceeds the costs when your transaction implodes because of any number of possible deficiencies. This is a crucial lesson for people to understand: the potential loss of money, time and sanity for a missed deadline is far greater than any savings you could ever create. And you know what? Things are about to get worse.
Reliable Service is the Ultimate Kickback
Remember those scenarios we discussed at the top of this post? Think about this—when something goes sideways on two closings on the same day, you know that the lender or attorney is going to prioritize the file of an agent who has consistently sent them business. That’s pretty obvious, but it rarely fits into a borrower’s calculus in making a choice early on. The volume we generate for our preferred partners creates an implied concierge service for our clients.
Now don’t worry. You’re free to use whoever you like. If you’ve got family lending money or working as attorney—and as long as their experienced real estate pros—then certainly use them. But beware of that second cousin who might have helped out one buddy on a real estate deal.
When we make a recommendation, the only kickback we receive is great service for you. If a client has a good experience from beginning to end, they become repeat customers. So when we recommend a service provider to a client, we do so with the goal of making their experience entirely satisfying to create loyalty.
Without a doubt, the most troublesome deals are the ones where the buyer selected an online lender (or other inexperienced or incompetent service provider) and the deal went sideways at the worst possible time—which is always when it goes bad. I cannot even count the number of times I’ve had a client in a pinch say, ‘I guess I should have used your guy.’
Seriously consider taking our recommendations … we are looking out for you more than you realize.