Is your Real Estate Agent pressuring you to your their lender?

Minneapolis, MN: When buying a home, unless you have cash, you are going to need financing! As a consumer, you have the right to pick whatever lender you decide is best for you. You will likely also receive all sorts of lender suggestions from those around you; friends, family, co-workers, and of course the Real Estate Agent.

Your Real Estate Agent suggesting someone is 100% OK. But it that goes from a simple suggestion, to high pressure to use a specific lender, you need to be very cautious and ask yourself why.

My decades of experience of why you are being pressured to use a specific mortgage lender follows one of three scenarios:

1) You have a competent Real Estate Agent who is legitimately concerned about the transaction closing. If the agent has never worked with the lender you plan on using, they may be concerned about that lender’s ability to perform.  More often than not, this 'concern' of the lender you picked screwing up your loan is completely unfounded in fact, but more of just simple comfort that the agent personally knowing the Loan Officer.

On the other hand, just like their are bad and incompetent Real Estate Agents, there are some bad and incompetent lenders and Loan Officers too. There are some well documented places to stay away from, like most big internet lenders.  See my article on LENDER SHOPPING TIPS for more information.

If both your agent and Loan Officer are competent professionals, they’ll recognize that in each other with a quick phone call. 'Problem' solved. 

2) Most Real Estate Agents today work at a company that has their own in-house lender. Your agent is generally under enormous pressure from management to refer all buyers to the in-house lender.  

Why is that? Because simply put, the real estate company makes more money providing the mortgage loan, and title company services than they do from the home sale!

You will almost always find that the rates offered by the in-house mortgage lender are not the most competitive in the market. The real estate company knows that there is statistical evidence that a huge portion of home buyers will use whoever the Real Estate Agent suggests for a mortgage loan without shopping around. No need to be the best if you just blindly accept them.

If the rates offered by the recommended lender are higher, it is pretty simple – you are not getting the best deal in the market. You are paying for someone’s additional profit. That “someone” could be the big bank name as their rates are higher to pay for all of their fixed overhead and advertising. It could be the real estate company that depends upon extra mortgage affiliate profit to pay the commission splits they are offering to real estate agents, or something else.

I've had many home buyers over the years they Real Estate Agent "doesn't know you" and “the agent wants me to use this specific lender and the rate is only 0.125% higher, so who cares”.   What you’re missing is the present economic value difference that an .125% or .25% higher rate means in dollars today.

What I mean by that – if the recommended lender is offering you a 5.50% rate and other qualified and competent lenders tell you they can off you a 5.25% rate. The payment difference on a $400,000 loan is $63.00 a month.  Each and every month.  Do you want to pay that so your Real Estate Agent has 'comfort', or their bosses have a higher profit on your home purchase?  I know I don't.

That is the dollar amount that could have been in your pocket, but if you give in to the pressure, you instead transfers it to someone else’s pocket. 

3) The agent is getting an under the table kick back from the lender or real estate company. This practice is illegal, and unfortunately, it happens all day everyday. The kickbacks come in various forms, from cash or gift cards, getting their advertising paid for, or 'winning' things like free vacations to hide what is really going on. 

"My experience is that most agents pressuring you to use a specific mortgage company or Loan officer are getting some sort of kickback! 

When you are getting a high level of pressure, someone has a vested monitory interest in who you obtain your mortgage through." - Joe Metzler

Kickbacks are banned under RESPA, the Real Estate Settlement and Procedures Act, for the simple reason that realistically, no one is cutting into their own profits to give a kickback. Generally they would increase fees or interest rates charged to YOU to make more to cover the cost of the kickback.

The Bottom line: A simple referral by your agent is is 100% OK. It is being pressured that isn't OK.  YOU CHOOSE who YOU WANT. DO NOT let the Real Estate Agent pressure you into a lender decision.