by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Loan originators are taught to develop REALTOR relationships. While development of those referral relationships is important, I’ve seen originators waste time and money on unprofitable “partnerships”. This initial article, in my new series about REALTOR marketing, will explore how to quantify the referral relationship to more efficiently understand how to focus your efforts.
Why prospect REALTORS?
Well, that’s where the money is, right? REALTORs deal with buyers who need financing for homes. Their clients have means, motive and opportunity to generate fee income within 60 days. What can be expected of such a relationship? If it’s a good relationship, the originator can expect three loans annually, from the average, full-time REALTOR.
Three loans each year. Did you hear that?
Move up REALTORS are perhaps the least productive for an originator to target. Most of their clients show up with a pre-approval letter (or lending relationship) in hand. The REALTOR who overzealously recommends you runs the risk of “steering” accusations. A successful real estate agent, who works this market, is probably closing 15-20 sides annually. Half of them will be listings so there are only 10 loans available to you. Half will have their own financing so you’ve got a shot at five. Throw in a couple of new home purchases and your number drops to three…IF…everything goes well. The expected value of the move-up REALTOR relationship is about $9,000 GCI annually. Assuming a 70% commission split, that number drops to $6,000. Remember that number when asked about “co-op advertising”, Padres tickets, or joint seminars.
Mega-agent teams can be a great source of loans for you until they get into the mortgage business. The deteriorating profitability, of a full-service brokerage, forces broker-owners and team leaders to explore ancillary services as an alternative income stream. I can’t say that I blame them, either. Control of the customer experience combined with the added revenue make affiliated business agreements attractive to REALTORS who consistently produce. While you may feel that you “hit the motherlode” when you connect with the mega-agent, keep in mind that you’re “security” can be short-lived.
Where then, can an originator target her referral marketing efforts?
1- First-Time Home Buyers can be lucrative but time-consuming. These borrowers need a lot of hand-holding and plenty of education. Margins are sometimes thin because the loan amounts are smaller and the client is limited on funds. This is the most rewarding customer group; nothing beats the smile of a kid in his new home. Establishing yourself as an expert in FTHB programs can attract REALTORS who view you not as a “vendor” but as the “source”. A successful, independent FTHB real estate agent can expose you to as many as ten loans annually. The lower margins reduce your per transaction income to $1,500 so the expected value of a FTHB agent is about $15,000.
2- Luxury Home Buyer Agents can be incredibly good referral sources. While their transaction numbers are generally fewer, their buyers often “relocate” to the area and rely upon the agent to refer them to credible financing sources. Expect two loans annually from these referral sources. Your GCI will be three times the move-up buyer so Luxury Agents have an expected value of $ 12,000.
3- Mortgage 9-1-1: Originators with a reputation for getting turned-down deals funded are in demand. The danger is that you’ll be “branded” as the Mortgage 9-1-1 originator; REALTORs won’t send you anything but the the difficult deals. That’s fine. Price your services to deal with the immediate nature and labor required to fund these loans. Your margins should be similar to the luxury buyer. You’ll probably receive one referral annually from an agent if you’re positioned as Mortgage 9-1-1 but they will go viral with your service offering. Expected value= $6,000 agent.
In this series, I’ll explore how originators can effectively deploy their marketing efforts to generate referral business from REALTORs. I want to reiterate that the relationships REALTORs and originators have are like peanut butter and jelly; they’re symbiotic. Quantifying that relationship and stratifying those referral relationships by profitability will help you properly focus your efforts.
Sue says:
Great post. A couple comments…sometimes its just a personality match. Also, referrals can go both ways. First time home buyers do require alot of hand holding, so a mortgage broker who is good in explaining all product options and details to put them at comfort is an asset. Luxury home buyers if relocating can be quick…if not it they can be alot of work and take very long.
April 25, 2008 — 11:15 am
Bawldguy Talking says:
Your biggest challenge Brian, is how much experience and knowledge you bring to the table. Before long the 9-1-1 folks tend to believe you can walk on water. 🙂
It’s kind of a double edged sword. Since I’ve witnessed you doing just that first hand, I’m wondering if it’s just that you always know where the rocks are.
April 25, 2008 — 11:40 am
Sean Purcell says:
Interesting post Brian.
You seem to be suggesting that not all agents are of equal value to an originator. One might even go so far as to infer that originators should stop suckling on the teat of the real estate agent altogether. I know it looks attractive from a marketing stand point because there are so many agent targets; but I am reminded of the sailor chant “Water, water everywhere but not a drop to drink”.
I know this is a series and it looks like you are going to give us some advice on how to properly market agents as a whole. Would you give us a sneak peak at the end and let us know whether targeting agents as part of a marketing plan is of primary importance, an afterthought or a waste of time?
April 25, 2008 — 12:21 pm
Matthew Rathbun says:
Brian,
I agree with most of this. As a practitioner, I was very loyal to a “get it done” lender who was honest and accessable. There were countless who wanted to take me to lunch, do a show at my staff meetings etc… action was what I wanted. If they could close a difficult client without ticking them off; than that’s who we went to.
I can buy my own lunches, sports tickets and get rate sheets from anyone. I needed a worker…
My question for LO who had such excessive “marketing” time was how did they do that and work with a good client load? Referral business and client satisfaction was more important that how much they wanted to spend with me fishing.
April 25, 2008 — 3:15 pm
Brian Brady says:
“My question for LO who had such excessive “marketing” time was how did they do that and work with a good client load?
Good question, Matthew. In reality, a loan originator should spend the lion’s share of his time marketing for loans that fit into his system. Loan originators are the sales arm of the brokerage or bank. While our jobs requite a whole lot more knowledge that a firm handshake and shiny shoes, we are salespeople.
There are two schools of thought in lending: high gross and high volume. Done properly, both objectives can be achieved.
I’m hoping to help originators avoid some of the black holes that exist in the business today. It’s not just some REALTORS originators need to avoid; it’s many lenders as well. the objective of this series is to promulgate a discussion, among originators, about how to find very profitable referral sources so that we can work less and earn more.
April 25, 2008 — 4:02 pm
Craig Tone says:
Great post Brian. The one thing about this market that I’ve noticed is that everyone is open to teamwork these days. The REALTOR field is wide open for the LO, as many are exiting this industry.
April 25, 2008 — 5:05 pm
Sue says:
My experience is that the excessive marketing time is really not necessary. Obviously, you need to make the connection. Beyond that, it will be the LO with knowledge…that being equal, then its the right personality for the clients. I like a LO that works with me also in giving me insight when I am unsure.
April 25, 2008 — 8:17 pm
Brian Brady says:
“My experience is that the excessive marketing time is really not necessary”
I think I’m not being clear, Sue. There is only so much time I can sell you without it becoming overkill. All I can do is demonstrate my expertise, reveal my personality, and remind you that I exist. You’ll call when you feel the fit is correct.
My next few parts will discuss things like how to identify good prospective agents, how many to have in your funnel, and how to effectively communicate with them. Obviously, your source experience will augment my thoughts; I am openly soliciting ( and will appreciate) your input for those posts.
“I like a LO that works with me also in giving me insight when I am unsure.”
Explain, please. How can I (a LO) help you (an agent) become more “sure”? Again, thanks for the valuable feedback.
April 25, 2008 — 8:25 pm
Brian Brady says:
“You seem to be suggesting that not all agents are of equal value to an originator.”
Not suggesting, proving that statement.
“Would you give us a sneak peak at the end and let us know whether targeting agents as part of a marketing plan is of primary importance, an afterthought or a waste of time?”
Absolute importance. Originators should target agents as one pillar of their marketing plan. Picking the right agents to target is the challenge.
HINT: It ain’t always about how much business they do
April 25, 2008 — 8:29 pm
Dave Barnes says:
Brian,
How embarrassing. You wrote “Realtor” without the obligatory ®
I hope you prepared for the nasty letter from the NAR (National Association of Retards).
,dave
April 25, 2008 — 8:51 pm
Genuine Chris Johnson says:
I wrote a post on AR about how a lender can make an agent more sure: relevant and quick communication.
And the ‘one pillar idea,’ that’s a good one, no? Post is queued for monday morning regarding just that idea.
April 25, 2008 — 9:24 pm
Brian Brady says:
“And the ‘one pillar idea,’ that’s a good one, no?”
The idea of many channels is commonplace; the word “pillar” is Genuine…ly…Chris Johnson’s- I got that word from the “LO Thrival Guide” (my name for Chris’ back-to-basics book called LO Survival Guide)
April 25, 2008 — 10:11 pm
Rhonda Porter says:
Great post, Brian. It’s interesting in these times, a lot of the agents I work with thought of me as a “miracle worker” partly due to all of the available products and having (and knowing) FHA. Now with less products and tighter guidelines, some agents are still surprised to hear “no, this fella isn’t ready to buy yet…”
My business model has shifted from being dependent on Realtor(r) referrals to receiving clients in search of me from my blogging efforts. Of course I still work with agents and my past clients and their referrals. 🙂
April 26, 2008 — 10:49 am
Sue says:
@Explain, please. How can I (a LO) help you (an agent) become more “sure”? Again, thanks for the valuable feedback.
I was unclear with this one. Let me try to explain. Sometimes clients drift, I don’t hear from them, they get nervous. If I am working closely with a LO, it helps me greatly in measuring my next steps with the client.
April 26, 2008 — 5:15 pm
Brian Brady says:
“If I am working closely with a LO, it helps me greatly in measuring my next steps with the client”
Oh, sure. Good point, Sue. Let me take this further. I know you weren’t going here but I’m curios:
Would an automated, co-branded e-mail/postcard campaign help you?
April 26, 2008 — 5:29 pm
Sue says:
You’re right, I wasn’t going there, and haven’t participated in co-op advertising, so I couldn’t really say for sure. Sometimes I like to match up clients with LO based on personalities and varying needs.
April 26, 2008 — 9:16 pm
Brian Brady says:
Let me take you there a different way, Sue. I’m clear about the personality interface. I’m trying to determine which tools we (originators) have that would help you (agents) in your business.
“Sometimes clients drift, I don’t hear from them, they get nervous”
Am I to understand that a follow-up campaign, with weekly reports to you, would be a useful service for an originator to provide?
April 26, 2008 — 9:25 pm
Brian Brady says:
That didn’t come out right, Sue. I want to rephrase my question; I think it sounded confrontational which isn’t my intent.
Do you think a follow-up campaign, with weekly reports to you, would be a useful service for an originator to provide?
April 26, 2008 — 9:33 pm
Sue says:
Let me take you there a different way, Sue. I’m clear about the personality interface.
Sorry about beating that point to death, its just that I’ve seen this be a big problem 😉
Am I to understand that a follow-up campaign, with weekly reports to you, would be a useful service for an originator to provide?
Yes, definitely!
April 26, 2008 — 10:07 pm
Sue says:
Brian, not to worry, I didn’t take it as confrontational.
April 26, 2008 — 10:10 pm
Brian Brady says:
“Sorry about beating that point to death, its just that I’ve seen this be a big problem”
Good input on this. I have one agent who has me “earmarked” for a certain type of buyer. I didn’t realize that most of you do this. Invaluable intel.
I’m wondering if the Myers-Briggs (typology) profiling would help referral partners understand each other better.
http://www.humanmetrics.com/cgi-win/jungtype.htm
April 26, 2008 — 11:15 pm
Genuine Chris Johnson says:
Weekly follow up isn’t enough…daily follow up is the standard I keep. Lightweight, and it keeps my ‘where’s my deal, ‘ calls to a minmum, and it keeps trust when things do go sideways.
April 27, 2008 — 6:14 pm
Brian Brady says:
Chris,
Are you following up with every prospective homeowner, for every agent, daily?
April 27, 2008 — 10:34 pm
Genuine Chris Johnson says:
Brian-
You mean like the scouting report? No, not really. I have no philisophical objection, it just may be impractical to do so once business volume is at a good level. What I’m doing though, is that every deal in process gets an e-mail daily.
http://activerain.com/blogsview/484330/HOW-I-CUT-MY
I don’t chose to work with people that don’t sign my privacy policy including the listing agent.
April 28, 2008 — 5:21 am
Rhonda Porter says:
Chris, how many transactions do you average in your pipeline?
April 28, 2008 — 6:52 am
Brian Brady says:
That makes sense, Chris. I’d have 100 phone calls to make, daily. We have so many people who call our agents, discuss pre-approval, then back off when it comes time for the credit pull. Our buyers are very skittish now.
April 28, 2008 — 7:00 am
Cyndee Haydon says:
Brian – never stopped to think of it that way – but you’re right and ironically we’re seeing the most action in this market in First Time /FHA Home Buyers and Luxury Home buyers – the middle ain’t moving.
April 28, 2008 — 10:31 am
Sue says:
The LO in my office is doing a “Buyer’s Seminar” on Saturday. I have emailed all my clients inviting them. I am told the last time they did this, it helped to get alot of buyers “off the fence”
April 29, 2008 — 6:10 am
Genuine Chris Johnson says:
Rhonda-
Depends–full time more–but it works with up to 20 transactions. It’s cut and paste…so it’s pretty easy.
~Chris
April 29, 2008 — 6:42 am
Brian Brady says:
Sue,
The weather is getting beautiful in New Jersey (I grew up in Cherry Hill). Think about it. If one of your prospects gives up a beautiful Saturday morning to come in and hear a presentation from a mortgage originator, they’re getting off the fence.
Follow this e-mail up with phone calls; you have GCI waiting for you.
April 29, 2008 — 7:20 am
Sue says:
Brian, Cherry Hill…yes, thats south of me. Everyone seems to end up in CA! NJ weather is getting nice now..not today though. The scenery..cherry blossoms, etc. in general is nothing short of stunning right now.
You’re right, if I can get them in the office to listen, learn and ask a few questions I’m in. This is a “no pressure session” with other agent’s buyers there as well.
April 29, 2008 — 7:53 am