To all the agents in the house,
Brokerage/mortgage joint ventures seem like a good business idea from a 30,000-foot high perspective. But how do they work on the ground?
Compass announced this week that it reached a "definitive agreement" with the mortgage lender Guaranteed Rate to form a joint venture, OriginPoint, that, as the name would suggest, will originate mortgages.
This comes four years after Realogy announced a similar mortgage-focused partnership with Guaranteed Rate. The Compass-Guaranteed Rate marriage also arrives four years after HomeServices of America acquired Long & Foster and in the process purchased Prosperity Mortgage.
In other words, the top three brokerages in the country by sales volume, according to RealTrends numbers, either own a mortgage company or have an official partnership with one. So do other high-powered brokerages. For example, Chicago-based @properties, which is the 8th largest brokerage by volume in the country, per RealTrends, has its own Guaranteed Rate joint venture.
Now for the brokerage, the mortgage tie-in makes sense because a brokerage relying entirely on real estate revenue may not be a great business model (Yes, I just said "A real estate brokerage relying on real estate revenue may not be a good business model."). Compass, for instance, has posted consistent quarterly losses amid a white hot real estate market with revenue almost entirely from commission splits.
Conversely, HomeServices CEO Gino Blefari has all but credited his brokerage's mortgage arm for keeping it in the black. Reached this week, Blefari called the Compass-Guaranteed Rate move an eminently common-sense business decision.
But for the agent, how does the mortgage partnership work? I could see it being good, as you have a ready answer if the homebuyer asks for suggestions about where to get their home financing.
It could also be really bad. Namely: Is your brokerage pressuring you to use their mortgage partner? Under the 1974 Real Estate Settlement and Procedures Act, there is a required firewall between the purchase of a home and the financing of that purchase. I suspect brokerages are not advising agents to violate federal law. But I could also envision soft pressure being applied.
Agents, please let me know. Does your brokerage have a mortgage partner? And, if so, how does it affect your job? Email me anonymously at mblake@housingwire.com.
Sincerely,
Matthew Blake
Senior Real Estate Reporter
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