Cut Out The Middleman

In addition to “I Can Get For You Wholesale,” and “Buy Factory Direct,” American shoppers love to hear about ways to “Cut Out The Middleman.”   Smart consumers have heard these pitches before and know it is usually just a marketing gimmick.   However, the myth persists. A recent article in a leading publication led readers to believe that they could get a better deal if their real estate agent arranged their mortgage instead of using a traditional mortgage broker.   Not true. Real estate agents who assume the role of mortgage broker are merely substituting an incompetent middleman for a competent one.

Our country’s most recent experience with this concept, cutting out the stockbrokers and trading on line for $19.95 per trade, demonstrated to most consumers that they need professional help when investing their hard earned money.   There are certainly many sophisticated investors who spend hours every day doing research, and they may not need a stockbroker, but the amateurs who tried to do it themselves are still licking their wounds.

Suggesting that a real estate agent can get a mortgage by a few clicks of the mouse greatly understates both the complexity of the process and the importance of competence.   The overwhelming majority of homebuyers do nothing to educate themselves about mortgages and they walk around with the baggage of incorrect assumptions.   This leads them to make poor choices. Frankly, the most valuable contributions of a good mortgage professional are helping explain how the mortgage market really works, showing the clients the many options available, and helping them make intelligent choices.

Real estate agents are simply not equipped by training or experience to do this.   I have written two books about the mortgage process and I have done more than 3,000 transactions in my career, over 1,000 of which involved real estate agents. Although most were competent at their craft, selling homes, in 22 years I have yet to meet a single one that knew enough about the mortgage business to function even as a junior loan officer. If they try to, it just means they are short-changing their client for the purpose of dipping into his wallet while it’s open.

As to pricing, my research shows that the limited number of lenders who pander to the real estate agents by cutting them in on the deal are even not offering the best pricing.   The real estate agent may be getting a smaller commission than a full-time mortgage broker, but the lender is keeping the difference rather than passing it on to the homebuyer. That means it’s a good deal for the lender, a good deal for the agent, and a poor deal for the homebuyer.

Any competent mortgage broker works with many other lenders, and even if they get a larger commission, the net cost to the consumer is less. More important, the career mortgage professional will give the full service that the homebuyer deserves, giving them good advice that will save them thousands of dollars.

There are many real estate professionals, me among them, who believe that a homebuyer ought to build a relationship with a lender first, establish goals, and get pre-approved for a loan before starting to look for a home.   That will actually make the relationship with the real estate agent work more smoothly, because both client and agent will know the buyer’s limits, but be able to move forward confidently in finding and buying the right home.

Good luck!