by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Q: What do mortgage originators and used-car salesmen have in common?
A: Their customers like to negotiate.
Wanna hear about how I screwed up this week?
I read Jeff Corbett and think highly about what he preaches; mortgage transparency. I read Pat Kitano and think he is on the right track with transparency in real estate. I have practiced and written about transparency since I started originating mortgages. I used to do it this way:
Mr. Customer, there are certain fixed costs associated with every loan. Appraisal, underwriting, etc.. Then there is our margin. We like to make $X,000 per loan. If I am able to retain that margin, and close 8-10 transactions each month, I can make a pretty good living for me, pay the light bill, the broker, the supplies, etc., and give you a pretty good deal. Now, I’m about to let you in on a secret…
We all do this in the mortgage business. I choose to do this upfront and give you access to my wholesale ratesheets. I’m going to “pull back the curtain” and give you “access to the great and powerful Oz” (The great and powerful Oz is Wall Street). Let’s get in the game together and make this happen. I think you’ll get a really good deal if we do this.
Some people love this transparency approach; many do not.
I ran this idea past Laurie Manny today. I’m helping one of her customers with an investment property purchase in Long Beach, CA. Her comment ?
“What-ever! I trust you to do my client right.”
Laurie further cautioned that not everyone practices transparency in the mortgage business and I could be eliminating myself from the transaction by my inability to flexibly negotiate terms. She brought up a great point; people LOVE to “get a deal”. She reminded me that the reason I “captured” her client was because of the way I confidently quoted terms and “closed” her.
I was in Phoenix earlier this week to meet with a would-be home buyer; I completely misread this customer. She was a late twenty-something in “the business”. I thought I’d start off with the transparency concept explanation, discuss the consultative approach, and comprehensively explain how I would get her a great loan. She was EXACTLY the type of customer the transparency gang profiles; tech-savvy and knowledgeable.
A near disaster broke out. She wondered why I couldn’t meet or beat her local bank’s “quote”. Why wasn’t I confident enough in my abilities to issue a quote based on the information she gave me? Why would she want a loan that has a higher rate? I did NOT sound knowledgeable and confident. In my quest to sound professional and transparent, I came off as arrogant and shady. Clearly, that was not my finest moment.
The good news is that I can recover, secure the loan engagement, and fund a loan for her with superb terms that will fit into the plan for her dream home. I was able to “revert” into the “deal-slinging” originator at the last moment.
What’s the moral of this story? Know your customer, know your customer, know your customer. Greg Swann wrote about the INTJ types; transparency works for them. Don’t try that stuff with a bottom-line, direct, businesswoman. She hasn’t the time nor the inclination to deal with rhetoric. She EXPECTS that you’ll give her a good deal…and to keep you honest…
…she’ll check with her bank.
Franz says:
And real estate brokerage is the same way. Most agents quote buyers a price that includes a (sometimes widely varying) amount of commission. Many times buyers are so focused on the bottom line (the house) that they don’t even care to ask how much their agent is getting paid. If they do broach the subject, agents typically prepetuate the myth that buyer representation is “free”.
March 8, 2007 — 10:13 pm
Brian Brady says:
>agents typically prepetuate (sic) the myth that buyer representation is “free”.
…and Franz, sometimes the consumer already knows that not to be the case and uses it as leverage (asks for help in closing costs) for the agents to figure out.
I’ve seen many a deal that was $2,000 apart and the agents proclaimed “My client ain’t budging!”. One agent starts the conversation with “Let’s split the difference, Susie”
Deal done. Consumers aren’t as dumb as we might think.
March 8, 2007 — 11:20 pm
Franz says:
True, true. Catagories include:
1. clueless buyers – don’t shop around, don’t even know what they are paying for
2. think they know but don’t – ask the wrong questions, end up with the lender that tells them the best lies
3. savvy buyers – shop reputable, recommended lenders and compare all costs side by side
March 9, 2007 — 7:42 am
Danilo Bogdanovic says:
I defintiely agree and am a proponent of transparency. It’s an ongoing topic and being fought by many agents, brokers and the real estate industry in general. But consumers want it..and need it and it will happen eventually.
I try to be as transparent as possible with my clients at all times when it comes to what goes on, how I get paid, etc. This also includes the phrase “I don’t know, but I’ll find out immediately”, which I do use at times. After all, I’m human and can’t know everything.
And great timing…we just started on a series of posts regarding transparency as well. Feel free to chime in any time.
March 9, 2007 — 11:13 am
Brian Brady says:
> But consumers want it..and need it and it will happen eventually.
I think it should be mentioned here that my post refutes that statement. Not ALL consumers want or need transparency. Most prefer to negotiate for the best price
March 9, 2007 — 11:38 am
Danilo Bogdanovic says:
Brian,
Perhaps my definition of transparency is different than yours and we’re not on the same page. I agree the most people prefer to negotiate for the best price, but that has to do being competitive and negotiating well, not transparency.
What I mean by transparency is that you’re honest and upfront with people from the beginning however much (or little) that they want or need. Some don’t care about how I earn my commission, just how well I negotiate for them. Some ask me a thousand questions as to what I do, how I do it and want to know how I will benefit them – in every regard. I have to give the consumer what they want and shut up when they don’t care.
Am I still off and not understanding what you mean?
March 9, 2007 — 12:27 pm
Brian Brady says:
>What I mean by transparency is that you’re honest and upfront with people from the beginning however much (or little) that they want or need.
That’s just honesty in my book; we’re on the same page, Danilo. I have found that the overeducation associated with the transparency gang is working against me.
Honesty in an explanation of compensation, no problem. Most consumers assume that, though (as I’m finding out)
March 9, 2007 — 2:15 pm
Danilo Bogdanovic says:
I gotcha now. Thanks.
March 9, 2007 — 4:41 pm
Russ says:
Great topic Brian. I have mixed feelings about transparency. Personally, I prefer the upfront mortgage broker approach, but I find the majority of borrowers don’t necessarily want to be educated, so I have to revert back to the lowest rate game more often than not. Also, many borrowers will then want to start negotiating your commission too. The whole goal of the American consumer is to feel like they got a good deal.
I think lenders brought this on themselves by trying to convince consumers that it is all about rate. Given all the noise in the market place from boiler room mortgage hack shops, brainless consumer advocates convincing people to shop, shop, and shop for mortgages, I think true transparency will be tough. However, my best clients are the ones that “get it” and allow me to operate in a transparent fashion. You can tell within five minutes whether to be the UMB or simply give it your best rate quote. You can’t win them all though.
March 9, 2007 — 4:51 pm
Brian Brady says:
>You can tell within five minutes whether to be the UMB or simply give it your best rate quote
True, Russ; and then sometimes you blow it (like I did)
Danilo: You guys are practicing some good business over there.
March 9, 2007 — 5:18 pm
NYCJoe says:
I don’t think you screwed up at all, Brian. Being honest and transparent from the get-go is (in my opinion) the right way to start off. If the client doesn’t appreciate it, then fine, but I still you’re right to start off that way.
March 9, 2007 — 9:17 pm
Laurie Manny says:
My client had a very transparent mortgage broker when she arrived in my office. He clearly told her 11%, over $15k in fees and $10k under the table for a loan of about $280. Her FICO Score? 738, go figure. I handed her the phone and said “Fire him right now or I will not represent you”. Thats pretty transparent, lol. One call to Brian, a short discussion and 15 minutes later my client had the loan that she needed to procure the property which was in multiple offers. I applaud you Brian.
Now where is my fee schedule? lol
March 10, 2007 — 1:33 am
JeffX says:
Sling it this way Brian:
1) This is the basic info I need:
Middle FICO…
They must very confidently tell me that their middle fico is at least 680 (its still a judgment call on my part to determine if they know what their talking about.). If they can’t, I make them order their own credit from a few select repositories. This way you don’t get into the SS#/privacy issues, keeping the sale ‘anonymous’ (unless of course they’re comfy forkin over the #’s and they also understand your quote is 100% predicated on the contents of the bureau). This reduces trust barriers substantially.
Most people know if their bureaus ‘could’ have some issues, especially BK, FC, and judgments.
Property Type
Property Use
Loan Type
Loan Purpose
Highest and best income and asset documentation Level
Loan Amount
Purchase price/ Appraised Value
ZIP Code
2) Heres my wholesale rate sheet
3) Here are your rate/pricing choices (do the math in front of them…people think you are smart if you can work a calculator). Par rates, YSP, true discount points..etc.
4) My fee is $X, which can be paid in part or whole by the lender and/or yourself. Ill find you the best 3rd party services, unless you have good people you prefer…
Price your fee below market (not dimes on the dollar, a good ‘deal’), draw attention to the APR to keep the Bankers on the up and up, and your closing ratio will go through the roof.
I’ve found when you engage a client practicing ‘Transparency’, without necessarily selling it, it comes off much smoother. The less superfluous words the better…simply discuss the open system instead of rates, terms, or fees…also avoid ‘pitching’.
Give them the knowledge to shop other brokers and bankers, then insist they do it! Tell them to keep their new-found insider knowledge close to vest and listen to others make their pitch.
Now who do you trust?
That was a long comment…
I admire your efforts Brian, tweak your approach slightly and you’ll see a big upside 😉
Take care…
March 10, 2007 — 11:02 am
Brian Brady says:
This is great stuff, Jeff. This is what I was hoping for…
Any more ideas, originators?
March 10, 2007 — 11:43 am
RogerV says:
Brian – I see you around the net all over! 🙂
I have been really into neurolinguistics and client profiling. By using little things like where their eyes go when asked a question they have to think about, it’ll tell you whether they’re auditory, visual, lying (i.e visual “construction” vs visual “memory”), etc. I think this borrower was probably a 730+ detailed person and may have been more “process oriented” vs goal/objective. It’s very powerful information because you can better speak in a channel of someone’s listening.
Check out my new baby! http://www.MortgageMovies.com! 🙂
March 16, 2007 — 3:03 pm