Lenders can play an important role in protecting consumers and themselves. For example, one of our most important negotiating tactics is for buyers to reduce the cost of home ownership by actively negotiating the buyer brokerage fees. Since buyer brokerage fees are typically paid by sellers, the only way for a buyer to negotiate this fee is in the form of broker rebate (learn more about rebates here: Broker Rebates). Many do it yourself home buyers unwittingly forfeit the buyer brokerage fee and lose a chance to increase the equity in their house. We encourage buyers to find buyer brokers who will rebate part of their brokerage fee (often up to 50%). We also encourage sellers to offer the buyer brokerage fee directly to buyers and let the buyers decide how much they want to pay their brokers. However, we need lenders to understand that this should not be viewed as a seller's contribution but instead be viewed as a discounted commission. We want to develop a list of lenders who will approve these discounts being paid to buyers. Whether these discounts be directed towards the principle amount of the loan or used to reduce the purchase price of the home, they will result in buyers having a greater stake in their real estate. Buyers who have more equity in their homes (and this will accomplish that) are far less likely to walk away from their mortgages.
The consumer tips listed in CAARE’s website are very beneficial for lenders in that they reduce risk and improve the decision making and equity position of borrowers. Consider just the following three routine real estate broker practices with an eye how they could influence a lender’s risk.
1. Dual or Designated Agency. In dual agency, buyers are likely to overpay for properties and negotiate poor transactions. Dual agency is really no agency at all. In dual agency, brokers are prohibited from assisting buyers in negotiating price or terms (two of the top reasons buyers hire a Realtor) or doing anything to the detriment or benefit of either party. Dual agency usually arises without warning and leaves buyers abandoned from their real estate professional at a time when buyers are most vulnerable. However, dual agency is extremely profitable for brokers because they collect double commissions in dual agency transactions. Brokers have a financial incentive to manipulate consumers into dual agency situations. Click here to learn more about dual agency. Click here to learn about how buyers can negotiate a discount on buyer brokers and have a rebate applied to equity in the house.
2. Bonuses. In transactions where bonuses are paid by the listing broker to buyer brokers, buyers are more likely to make a bad purchase decision and overpay for the house. Listing brokers and builders routinely offer secret bonuses to buyer brokers in expectation of influencing the advice given to borrowers. In any other profession, that bonus is statutorily defined as commercial bribery. Click here to learn more about bonuses.
3. One Stop Shopping. In controlled business arrangements, borrowers are likely to receive compromised safeguard services and overpay for them. If a builder or brokerage firm has a large contingent fee riding on a transaction, owning a title company is the best insurance against having a transaction fail. One Stop Shopping is most likely to occur in dual agency transactions. This practice is so profitable that the industry has gone to great lenghts to cover up the problems and has created an enormous lobbying consortium called RESPRO to promote this anti-consumer practice. Click here to learn more about One Stop Shopping.
Lenders are in a key position to severely decrease risk by requiring that their borrowers not be subjected to the above three practices. If you want to learn more about how to avoid these conflicts of interest or are interested in being placed on a list of lenders who will approve buyer broker rebates, please contact us.