Let me first say, I wrote this to be informative and eye-opening and not for the purpose of being judgmental or calling anything right or wrong. I believe that the consumer needs to be informed of all things relevant to the process of buying or selling their home and that they especially need to be made aware of anything with any type of financial implication related to their transaction. I’m certainly not writing this to bite the hand that feeds me!
So, who am I to tell you what you need to know?
Other than being a great, top-rated Los Angeles Real Estate Agent in Studio City, CA, here’s a little bit about me:
I began my career in local Los Angeles real estate in mid-2000, working alongside truly some of the best of the best agents of the industry at the time. So many shifts and changes in the market have taken place over these past two decades and, as a result, I’ve certainly been able to leverage everything I’ve learned throughout the years of my experience. Mark Twain once said that “History never repeats itself, but it does often rhyme.” This, I can say, does seem to hold truth. While nobody can predict the future, experience can be your guide.
I transitioned into mortgage origination following my first two years in the business of selling homes and then moved into a management role in the mortgage financing space later. After years of navigating through client scenarios as a top producing loan officer and advisor, I was promoted to a position of responsibility managing, on a regional level, a relationship team of mortgage loan officers that partnered, in-house, with Realtors®. The main purpose of the partnership was to deliver a seamless experience for clients buying a home and, as a joint venture (JV) company was formed, it was also a revenue stream to the real estate company (as well as the lender). This, as well, was all a huge part of my learning experience, indeed. A Large part of the very cornerstone on which I’ve built my career in service to people. On a management level, we would strategize about how to best serve clients, deal with the regulatory environment, and conduct business in ethical and efficient ways. I also witnessed, firsthand, the vast regulatory changes that occurred post financial crisis.
Through the years in mortgage lending (basically every moment of it), I wanted to return to selling real estate and helping clients buy and sell homes. Not just with the financing aspect. So, in 2017 I obtained my Broker License in the State of CA and did just that! The experience I gained over the years, though, is priceless. I wouldn’t change a thing about the path I took to get to where I am today.
The new way the real estate market works
So, what is it now that clients need to know about the current landscape? In most recent years, the industry has made a major shift toward a business to business (B2B) model and based on referral fees, it’s big business and big money. This model, given my past experience on the lending side of building relationships with Real Estate companies in a B2B fashion, as well, suited me quite perfectly when I transitioned back into realty. It was, quite frankly, like a simple gear shift.
So exactly how does this work?
Big and small internet real estate websites or mortgage financing companies spend millions per year (or even per month) in advertising to attract client with first-page search results, lots of content, articles and info, etc. You see the ad and visit their site and inquire about a property or apply for a mortgage or even, possibly, ask to be introduced to an agent. You’re introduced to a real estate agent and, boom, the referral is made!
You’ll find these companies very easily by searching online for things like “homes for sale”, or specific area searches like “studio city homes for sale”. You’ll also be certain to find these companies show up prominently when you search something like “best real estate agent in Sherman Oaks” or “Los Angeles best Realtors”.
None of the companies that are introducing you to a real estate agent are doing it out of the goodness of their hearts. Whether it’s a direct recommendation from a major real estate website, a mortgage lender, a popular financial advisor or some other company, they’re doing it to get paid. In some cases, there’s some other reasons as well, but the top reason is the referral fee. Which is how they get paid. When a transaction closes, and a referral fee is paid to them out of the total commissions payable. This referral fee usually equates to somewhere between 25% and 40% of the commissions earned by the introduced agent’s brokerage. In order for this to be legal, and not violate RESPA (Real Estate Settlement and Procedures Act), the referring party must also be a licensed real estate broker.
The company that makes the original introduction is updated by your real estate agent throughout the process and throughout your transaction and then receives their check after your closing occurs. They may or may not follow up with you to see how things are going. They may even try to sell you other services along the way like home warranty plans, moving services, alarm company referrals and other services. The thing that’s really mysterious about this whole thing, though, is none of this is disclosed. The referral fee itself doesn’t appear on the buyer or the seller closing statement. This is the one thing about this process that probably should be changed.
This is a Good Thing (for the most part)
I’m not going to name any specific names of these major companies, but you most certainly know them well. I’m also not asserting that this whole process or the way this works is a bad thing either. In my opinion, it’s actually a very good thing, in many ways. These companies do fully vet the agents that they allow to be part of their referral programs. There are, in most cases, minimum production, performance and customer satisfaction standards that are in place. It’s managed, as far as the process and the respective programs, and that is a very good thing. The particular referring company gets paid the referral fee for the introduction/referral fee when the transaction closes. The customer typically gets introduced to a great, well-trained, highly vetted experienced service provider and the agent gets a stream of introductions and business opportunities for doing a great job (and doesn’t have to pay large sums of money upfront for the opportunities). The one missing piece is the disclosure. It seems like it’s something that a customer should know about.
So, if you’re ever buying or selling a home and the website you're checking out, or the major mortgage lender you’re working with, or the financial services or advisory firm you trust recommends or asks you if you want to be introduced to one of their “preferred” agents, please understand that there’s likely a sizable referral fee that they will earn if your transaction closes with that agent. Whether they tell you about that or not, it’s certainly okay to ask! It’s not something that you’re going to see formally disclosed on any of your closing documents unless something changes regarding disclosure rules pertaining to real estate referral fees at some point. It would not surprise me to see that happen at some point. I think we all can agree that when it comes to financial topics, full disclosure is always the best policy when it comes to serving consumers and upholding the highest integrity when doing so.
Should you want to know any more about this topic or gain further insight, please feel free to contact me. I’m always happy to enlighten and serve!