Does your Real Estate Agent refer your mortgage directly to a bank or bank Mortgage Specialist? Chances are, if they do then they are getting paid to refer your business. Are you aware of that? If not, then you should be.
As per RECO, the Real Estate Commission of Ontario states:
If, at any time a real estate registrant is going to, or likely to, receive compensation for “directing” prospective borrowers to a lender, FULL DISCLOSURE must be made to either one, or both of the parties to the real estate transaction. Disclosure to clients must be in writing and clearly set out, not only that compensation may, or will be paid, to the real estate registrant, but the amount, and any other relevant details.
Under Subsection 18 (4) of RECO’s Code of Ethics, registrants must disclose to clients in writing “any direct or indirect financial benefit that the registrant or a person related to the registrant may receive from another person in connection with services provided by the registrant to the client”. This clause would capture any fees a registrant may receive for referring clients to lenders or other service providers. In addition to Code of Ethics disclosure requirements, registrants owe a Common Law duty to clients to make “full and forthright disclosure” and further “to make no secret profit”.
As a matter of fact it can get very lucrative for real estate agents – but here’s the thing, if they are not fully disclosing to you that they are getting these kickbacks either in the form of cash, reward points or gifts then this is a conflict of interest.
How could a bank mortgage referral that is paid to your real estate agent harm you? You are being given the choice of one, trusting in your real estate agent to have your best interest at heart and thinking it may be the best option without knowing the pros and cons of that one lender. Or a real estate agent may offer you 3 choices but prefer one particular bank over the others. For example, I know a real estate agent that sends all her business to TDCT, all of it. She gets paid for her referrals. Whether she discloses this to her clients I do not know but I also deal with TDCT. TDCT although a great lender is not for every client, just as many lenders may not be the most suitable for a clients particular situation. If TDCT is not for every client then wouldn’t it be of a concern to a consumer that a real estate agent refers all business to this one bank? TDCT also has only collateral mortgages. They are not for everyone and I’ve had clients complain to me that they were directed to TDCT or another bank that may have restrictive features that don’t suit them. Unless a real estate agent knows all the restrictions associated with all mortgage products for any lender then they should be very careful with referring your business to any one bank with the promise of compensation to them. In addition, for a real estate agent to send all of their business to one lender is very negligent in my opinion.
Many clients out of loyalty will go with what their real estate agent suggests. You may not get the best mortgage for you whether it be rate, features and terms due to this loyalty to your real estate agent. Bad advice may cost you in the end.
Don’t get me wrong, some Mortgage Brokers also pay referral fees for business but it is not as rampant as with banks. Personally I don’t pay referral fees, nor do I accept anything in return for any referrals I may give to Real Estate Agents, Lawyers, Accountants, Financial Planners and other referrals sources except for referrals from clients. There is a reciprocal relationship with the professionals I work with as they know their clients will be well taken care of and I have the same trust with them. I know that when I refer clients (for no fee) that they will get the best advice and service possible. That is putting the client first! Referring for the simple fact of great service, care and advice and not for payment in one form or another.
So next time your real estate agent refers you directly to a bank or mortgage specialist at a bank ask them the question if they haven’t already disclosed it – whether or not they are getting paid to refer your business either in cash, gift or reward point form. If yes, this is by law required to be disclosed.
At the end of the day it is buyer beware so make sure you get an unbiased opinion outside of you real estate agent for your mortgage needs.
Call us today should you have any questions or concerns. We are here to help!
Kim Gibbons, Mortgage Superhero ®
FSCO lic. M08001363
Your Toronto Mortgage Broker!