Question #1 (Multiple Choice):
Select one of the following career’s:
A. Real Estate Agent
B. Mortgage Broker
C. A. and B., above
Kind of a trick question. The correct answer (please!) is anything but “C”. Why? Okay, since you asked (Rant ensues now)…
A loooong time ago I was involved in a company that specialized in the development of business parks. At one point, we were presented with an opportunity to develop a retail center. After considerable evaluation and debate of this opportunity, the managing partner, a wise man said, ” It’s difficult enough to be really great at what you specialize in. It’s almost impossible to be great at what you don’t (specialize in)”. The message was clear…
In the context of this Rant, it means to be the best real estate agent you can be OR be the best mortgage broker you can be, but DO NOT try to do both. First off, it is an inherent conflict of interest. I think it should be illegal (and it soon may be), but current California law allows anyone with a “Real Estate Brokers” license to sell real estate and arrange for mortgages, even to the same client.
In the current market where agents are scrambling and competing to represent a limited number of buyers, too frequently we are seeing buyers represented by “agents” who are also handling their mortgage. It’s a form of the old “bait and switch”.
Here’s the typical scenario –
Realtor/Mortgage Broker “Sam” (not his/her real name) finds a buyer and says: “Let me represent you in the purchase of your home and I will rebate, credit (whatever) a portion of my sales commission to you and get you a “SMOKIN’ DEAL” on the mortgage, too. Sounds great, right? Money back and one-stop shopping.
The sad reality is that most so-called “agent/mortgage brokers” practicing this incestuous relationship are great at neither. Usually, it ends up wasting valuable market time for the seller and, in many cases, the buyer ends up with nothing or, in fact, paying more for a home and/or the mortgage than they should have.
Here is just a limited list of examples of the typical problems and results:
1. Buyer agent/mortgage broker submits an offer that is incomplete, incomprehensible and/or missing the most basic items necessary to protect his client. Result: Either the transaction ultimately is terminated by the buyer (when reality sets in) or the transaction becomes a lawsuit waiting to happen!
2. Buyer agent/mortgage broker sends listing agent a pre-qualification letter for his client/buyer. During escrow buyer finds out that he/she cannot really qualify for the type of loan necessary to buy the property. Result: Transaction/escrow terminated. Everyones time is wasted.
3. Buyer agent/mortgage broker does not know the market and therefore, does not properly advise his client with regard to price, due diligence, etc. Result: you guessed it – transaction/escrow ultimately terminates and/or lawsuit is waiting to happen.
4. Loan arranged by buyer agent/mortgage broker contains exorbitant loan origination fees, points/discount points and/or an interest rate that is well above “market”, thus costing the buyer far more than the credit he/she receives from the sales commission. Result: Buyer just got screwed by his/her own agent/mortgage broker.
Caveat and disclaimer: Statistically speaking, there is probably someone out there somewhere who may actually be doing a decent job for their client(s) as a buyer agent/mortgage broker. We just have not come across one yet.
Virtually every transaction that Kris and I have been involved in where the agent representing the buyer is also arranging the mortgage for the buyer, has either been terminated by the buyer or, at a minimum, has been the escrow from hell.
It is important to note that (and here is the tough part), when we are acting as the listing agent, we have a fiduciary responsibility to present every offer to our clients. Yes, we always qualify it by cautioning our client that the buyer’s agent is also acting as the mortgage broker. We do every thing we can to ensure a successful transaction, even to the point of requesting actual bank account data from the buyer. But, ultimately, it is the sellers decision whether to proceed into an escrow knowing the risks associated with this type of arrangement between the buyer and their agent.
The sad thing is that buyers who get hooked into this “bait (commission rebate) and switch (dumb, stupid loan terms)” arrangement usually end up getting screwed. They could have used one of the many fabulous mortgage brokers willing to bust their ass for a buyer (one of whom is gearing up right now to be one of our BLOG contributors). And none of them try to practice real estate.
So, if you are a buyer, carefully select who is going to represent you in your purchase and the mortgage and please make certain that it’s not the same person.