Take Ray White Group, for example. Its mortgage broker arm, Loan Market, recently recorded its second best month on record, settling just under $600 million in loans. Not a bad result in an apparently flat market, and one you could assume had a lot to do with Ray White’s real estate operations.
Other real estate groups that have their own mortgage broker arms include LJ Hooker (LJ Hooker Finance); McGrath Real Estate (Oxygen Home Loans); and Harcourts (Mortgage Express - MX). MX is a dedicated supplier to Harcourts but also seeks business from other avenues and operates as a fully independent entity.
Moreover, several real estate groups have formed alliances with mortgage brokerages, including LJ Hooker (with Australian Finance Group (AFG), Australia’s largest mortgage aggregator, and PLAN Australia), and First National Real Estate (also with AFG).
So, you might wonder why only half the respondents to a recent Real Estate Business straw poll said they had some type of referral partnership with a mortgage broker in place? That result suggests there is still plenty of opportunity for agents and principals who are yet to engage with their local mortgage broker.
In this article, Real Estate Business asks both mortgage brokers and real estate professionals to explain how and why a broker can be an agent’s best friend.
DOLLARS AND CENTS
The potential dollar value of a well established, referral-based partnership is a major source of motivation, even though at first the financial rewards might appear slim, according to Peter Bromley, head of LJ Hooker Financial Services.
“From the real estate agent’s and broker’s point of view, it’s often, ‘Hey Mr Agent, do you have any leads for me today? If so I’ll give you $150 and you might get some trail [commission]’,” he says.
The opportunity to earn an additional $150 upon loan settlement and $3.50 per month in trail hardly sounds appealing. But, says Mr Bromley, agents must keep in mind that this figure does not reflect the ‘true’ value of the relationship.
The real dollar value lies concealed in the mortgage broker’s ability to help an agent list and sell property.
“A broker can talk to the agent’s client and pre-qualify the buyer for a home loan and potentially cut off any issues they may have with getting finance approved,” he says.
“If the broker can save the agent one deal per month, with an average commission on a property transaction of $10,000, a broker can potentially add an extra $120,000 to an agent’s income and business every year.”
Moreover, the business benefits associated with a referral-based partnership are not limited to an agency’s sales department.
Like a real estate agent, a mortgage broker will have a database comprising current and previous clients – a potential gold mine for an agency’s property management department, Mr Bromley says.
“Most brokers will have a really good customer database, built up over the years, and they will receive phone calls from potential buyers and investors asking where they should go to list or buy a property,” he says.
When sitting down with an investor, a broker can potentially ask their client who their property manager is.
And while this may not always generate additional management business for the agency, there is still a lot of money to be made.
“If the broker only refers one of these enquiries back to the agent each quarter, there’s another $40,000,” Mr Bromley adds.
SERVICING THE CLIENT
Financial gain aside, a mortgage broker offers plenty of business opportunities to real estate professionals, including the opportunity to improve overall service offerings.
“The benefits are that you are providing your clients a holistic service offering which looks at all aspects of their financial situation,” says Diane Goncalves, general manager at Sydney based Mint360group.
“It also shows that you are being proactive and looking after all of their needs.
“After all, the majority of property owners have a loan attached to a property and will need to ensure that they have the right product for their portfolio,” she continues.
Achieving a timely and efficient sale for the vendor will often come down to the home buyer’s ability to secure finance.
Ric Mingramm, director of PRDnationwide Kippa-Ring and Kallangur in Brisbane, discovered this is where a mortgage broker can become particularly handy.
“From an agent’s point of view, having a referral-based partnership with a mortgage broker gives you the best opportunity to ensure your customer gets their finance approved,” Mr Mingramm says.
“For various reasons, a broker can often secure finance where a chosen bank is unable [to], and this allows the deal to be finalised much sooner.”
Unfortunately, a growing number of real estate agents have been reporting extensions to their settlement periods as more and more home buyers are finding it difficult to secure finance.
So much so that Positive Real Estate founder Jason Whitton believes this is now the main challenge for many agents.
“The biggest problem facing real estate agents at the moment is settling a property,” Mr Whitton says. “They [agents] need to extend their timeline of expectations for a client or home buyer to secure finance and settle a property.
“Back in the good old days, it was like five days’ cooling off and you [the buyer] were unconditional,” he says, “but the timelines to get finance approved and get those settlements done have pushed out significantly – probably tripled from three to five years ago.”
With the help of a mortgage broker, agents can pre-qualify potential buyers and ease the pressure on the vendor when their buyer is knocked back on finance.
“Agents waste too much time with ‘potential’ buyers who have no potential to buy,” says Otto Dargan, director of Home Loan Experts. “A good broker can be included in the sales process to help qualify potential buyers.
“When time is of the essence,” he adds, “then a good mortgage broker can choose a lender with fast turnaround times.”
THE MEET AND GREET
The first step in setting up a referral partnership with a mortgage broker is having a friendly chat, says Simon Orbell, director of Smartmove Professional Mortgage Advisors, based in Sydney’s Neutral Bay.
“The best way to establish a relationship with a mortgage broker is to meet over a cup of coffee,” Mr Orbell says.
This initial meeting gives both parties the opportunity to discuss what they wish to achieve from the relationship.
“It is important to identify where each party is at in terms of experience – what they want to achieve out of the relationship,” Mr Orbell says.
“The agent needs to ensure that the mortgage broker makes them feel comfortable, that they will honour the privilege to speak to their clients about financing arrangements, whether they are vendors or purchasers.”
With the goals and objectives on the table, the next step is to ensure both parties and their respective companies have similar values and ethics, says Ms Goncalves.
“If you intend to set up a partnership with a mortgage broker who you can refer your clients to, you need to be sure that they are a representation of your business when meeting with your clients,” she says.
Ms Goncalves says that on many occasions she has seen partnerships put in place, in which clients have high expectations of the quality of service they receive from their agent but are disappointed when this level of service is not sustained.
“It’s a great thing to know what the vision is for the mortgage broker and that they are not just ‘pushing’ products for the sake of fees they may receive from the banks on placing a loan, but rather that the broker is considering the holistic situation of the client and the right product for them.”
For agents, curbing client mistreatment or poor service quality is not a difficult task, says Otto Darngan.
This is because of recent changes to the regulatory requirements that brokers must meet, he says. New provisions of the National Consumer Credit Protection Act, including new licensing requirements that see brokers now regulated by the Australian Securities and Investments Commission, have made the industry more transparent.
“The first thing you should check is that they hold an Australian Credit Licence or are a Credit Representative under someone else’s licence,” Mr Dargan says.
“Secondly, you should see how hard they are to contact and how quickly they will return your calls. From what we hear, many agents send through referrals only to find that the broker never calls [the client].”
Braden Walters, principal of Sydney-based True Property, says agents looking to establish a partnership should take some time to get to know the broker and understand how they operate with their own clients.
“You need to see how they perform and watch how they deal with a few clients to know whether they are worthy of a referral relationship,” Mr Walters says.
“As they [the broker] are extensions of your business, you expect that certain levels of service be given to your clients. By seeing how they operate and perform with a few clients, you will have peace of mind and feel more confident referring your business.”
A common mistake made during the initial stages of the relationship, however, is that both parties take too little time explaining how their own business operates, says Peter Bromley.
“Brokers often make that mistake because they don’t actually spend the time establishing the credibility piece within their own business,” Mr Bromley says.
Both mortgage broker and agent should explain how they operate, he believes, as this will allow the relationship to be based on realistic goals and mutual understanding.
“A broker needs to sit down with an agent to say: Tell me how your business runs, tell me how you renumerate your real estate agents and/or sales people, tell me what are the key things from your business that are important to you,” he says.
“They need to say, ‘Mr [agent], do you understand that when I sit down with my client I do a full needs analysis and find out what my client actually wants so I can find the best product for them?”
SUSTAINING THE RELATIONSHIP
Providing up-to-date and accurate communication on a regular basis is the cornerstone of a long and prosperous partnership.
Simply giving your partner a courtesy call and asking how business is going is a simple yet effective way to maintain contact. But you will also need to meet face-to-face on a regular basis, Ms Goncalves says.
“For a relationship to be a highly successful one, you need to be meeting at least once every fortnight,” she explains.
“You need to keep up-to-date reporting and the mortgage broker needs to keep the other party abreast of all loans that have settled for the month.
“This will assist the other party to communicate with their clients and it shows that everyone is on the same page and is clear about the clients’ situation.”
Depending on the relationship, the number of times you meet each month may vary.
Mr Dargan, who has various partnerships established across the country, says it can be difficult to meet face-to-face each month. But there are still some ways to ensure both parties remain actively involved.
“We don’t meet regularly with our referrers as they are all over Australia; however, if they are close by then the brokers should be attending the open homes and catching up socially around once a month,” he says.
Allowing a mortgage broker to attend an open home may sound odd, but if you are looking to sustain a successful partnership you may need to allow the broker to become involved in some aspects of your business.
Consistently meeting the targets established by both parties will play a significant part in the longevity of the relationship.
However, Mr Orbell says agents should expect to see anywhere from one referral every month in the initial stages to four enquiries a week for the more developed and established relationships.
“Starting small and growing the relationship carefully is key to long-term success,” he says.
Unless the referrals are converting into additional listings or loans, there is little point in continuing the relationship. This is why Ms Goncalves says agents should anticipate two to five referrals per week, with an 80 per cent conversion rate.
“If you are delivering on your communication and always keeping the client abreast of all the products for them, it should be easy to start the second tier of referrals which comes from the clients themselves,” Ms Goncalves adds.
But keep in mind that not every home buyer will need finance.
“If the agent sees six people each week on average, well, some of those people may not be interested in finance because they have a large sum of money,” says Peter Bromley.
“Approximately four of those six people will need assistance with their finance.
“So the agent will agree to pass four of those clients on to the mortgage broker each week.”