Residential Magazine

Take Stock of Your Relationships

Changing business models are disrupting traditional mortgage-referral networks

By Troy Huerta

For decades, there were clearly drawn lines in the relationships between real estate agents and mortgage originators. Twenty-five years ago, a real estate agent would receive a book of listings on a weekly basis from their local multiple listing service (MLS) and have their buyers preapproved by a lender they trusted.

The MLS was the only place to find homes for sale since the internet was still in its infancy. If potential homebuyers wanted to learn about a neighborhood, they walked into a real estate office and asked an agent, which forced real estate companies to fight for prime locations that would attract buyers and foot traffic. Lenders and originators worked hard to become trusted advisers with their real estate partners and this relationship was beneficial to both parties. Many people in the mortgage and real estate businesses had the same experiences for 20 years or more.

Over the last five years, however, real estate companies have been moving into the lending space through the purchase or creation of mortgage banks. Redfin, for example, has a mortgage company that now operates in 12 states and the District of Columbia. Keller Williams co-founder Gary Keller helped facilitate his company’s expansion with Keller Mortgage and, earlier this year, the addition of an iBuyer platform to buy and sell homes. Re/Max has Motto Mortgage, which sold 100 franchise locations within two years of launching. And it’s imperative to address the elephant in the room that is Zillow’s acquisition of Mortgage Lenders of America in 2018.

Protect your relationships

Although the traditional chain between real estate agents, mortgage brokers and lenders isn’t likely to be broken anytime soon, it’s worth asking the question, “Is this relationship still working?” Leaders of real estate companies want to defend the long- held structure of agent commissions, which are typically between 5% and 6% of a home’s sales price and are split between the seller’s agent and the buyer’s agent.

The fact that these companies are now owning mortgage banks, however, indicates their leaders’ beliefs that real estate commissions are in danger. Big platforms appear to be the future of homebuying and these companies are smart enough to know they need to control the mortgage process to stay relevant. For originators, this means your real estate partnerships are potentially in jeopardy. Becoming an independent mortgage broker is a good start but it might not be enough. You’ll need to increase your value by offering more to your clients.

Based on what’s happening in the real estate industry and how these effects may filter into the financing side, you must protect your client relationships. You may have been working for years to be a great loan originator, so you should not let your borrowers go to new real estate platform without you. Zillow has a button on its website for borrowers to request a preapproval, and we all know borrowers are using these types of tools. Your client relationships are one click away from going into an ecosystem they will never leave.

Commissions and fees

Quicken Loans began partnering several years ago with a sister company, In-House Realty, which rebranded last year as Rocket Homes. Quicken was rapidly preapproving buyers, only to lose them to local Realtors with established lending relationships, so it decided it should refer these leads to the agents in exchange for a fee.

Similarly, loanDepot last year launched its own referral division, mellohome, which is headed by former Keller Williams CEO Chris Heller. Some Realtors seem excited by this development as they’ll be able to receive preapproved homebuyer leads, but it’s also puzzling why a smart and successful Realtor would essentially go to work for a lender. The fees for these kinds of referrals typically range from 20% to 35% of the post-closing sales commission.

The answers, in part, lie with two class-action lawsuits filed earlier this year against the National Association of Realtors (NAR) and four of the nation’s largest real estate brokerages, including Keller Williams and Re/Max. The lawsuits allege that these companies and NAR violated antitrust laws by requiring home sellers to pay the commissions of buyers’ agents. And the law firms backing the plaintiffs are well-funded and play to win.

The real estate industry has seen similar lawsuits in the past, but this one is different and is gaining momentum. The U.S. Department of Justice also has requested documents from CoreLogic, the data and technology provider for multiple listing services, so it can investigate possible antitrust violations.

Real estate agents and licensed Realtors are rightfully concerned as the commissions they receive are in jeopardy. Nine out of 10 homebuyers use the internet as a primary research source and about half use it as their first resource, according to a study by NAR and Google. Redfin has launched a program that allows buyers to make an offer without agent representation. It’s conceivable that buyers of the future will not require the services of a real estate agent and that sellers will not pay the traditional commission of 2.5% to 3%.

Blurring the lines

In recent years, the lines between the real estate agent and mortgage originator have blurred. Today’s smart originators should consider acquiring their real estate license.

Mortgage professionals who’ve spent enough time in the business have likely experienced one of these situations: a preapproved client whose deal fell through because the real estate agent dropped the ball; a deal you saved because you had more knowledge than the agent; or, in a worst-case scenario, your client wasn’t satisfied with the agent and found someone else, who sent them to a different mortgage company. There’s an argument that originators should handle the real estate tasks themselves.

This is not about putting clients in your car, then spending your evenings and weekends showing properties. Today’s smart homebuyer uses technology and a significant chunk of them find the perfect home without the help of a real estate agent, but they believe they need to use an agent to write an offer. What buyers need is an expert who can help them write an offer and secure the financing to purchase a home.

Picture this: A buyer goes to open houses and searches for homes online. He or she finds a home they’re interested in and contacts you, and you quickly preapprove them and write an offer. You pay their closing costs from a portion of the commission you receive as the real estate agent, keep the rest and receive your usual compensation from the origination fee. This creates a win-win situation in which the borrower’s costs are lowered while you make more money and control the entire transaction. Happy clients will tell their friends and family, and you’ll increase your potential for more referrals.

• • •

Venture capitalists and technology are after the real estate commission, and they already have disrupted multiple industries, including travel agencies, stock brokers and hotels. The way we shop has changed and so have the expectations of homebuyers.

Buying a house today is not as simple as a swipe and a click. Technology takes buyers far, but they still want an expert to walk them through the complicated process of purchasing a home. In a way, you can become the financial adviser for their home.


  • Troy Huerta

    Troy Huerta is president of SRE Mortgage Solutions in El Segundo, California. With more than 25 years of extensive entrepreneurial experience, he has always adjusted his business for the benefit of his clients. Prior to joining SRE, Huerta started his own mortgage company in 2000, where he recruited, managed and trained a successful team of mortgage originators and real estate professionals. Huerta is a licensed mortgage originator and holds a California real estate broker’s license.

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