New Finance Broker Conditions

[Francesco]

I am just putting this up for resident finance brokers to comment. My usual mortgage broker has put up new conditions via a 'quote' seeking my signed acceptance.

It has two main obligations for the service of the broker:

1. pay fees even if application is not successful or choose not to proceed with application or broker recommends that you remain in your existing loan or lease upon receipt of broker's invoice

flat fee $770

2. commission clawback following termination of loan within 2 years following termination, upon receipt of broker's invoice

maximum $3790

The first condition seems a bit biased to toward payment to the broker regardless of any outcome. Is this the new norm to be expected from mortgage brokers? Can anyone do better?

 

[Peter_Tersteeg]

It's not exactly new, I know a lot of brokers include similar fees in their quotes for many years. The argument is simply that they want to be paid for their work

I agree that a fee on failure is a bit rich. If a broker doesn't think they can get the job done they should say so up front.

I don't charge these types of fees. Whilst I won't argue against anyone's entitlement to get paid for their efforts, I have given this a reasonable amount of thought and decided that it doesn't work for me at this point in time. I've also found that the number of times where I would feel justified to charge certain fees are very few and far between.

 

[Colin Rice]

Agree with PT Bear and have a similar take.

If you don't deliver then you don't get paid.

In the rare occasion that I have a loan declined it is due to the client failing to make me aware of something but many times it is because they didn't think it mattered, never mind that I asked the question in our pre app discussions

 

[Rolf Latham]

Hiya

We have both............

A no go fee and the clawback provision, and a few others

Since having introduced the no go fee, our "tyre kicker price based shopper" that wants to sniff out specific advice thence DIY only has almost gone, and used to be 1 in 5 phone calls/emails.

What is hilarious and so predictable about us humans is that

We have NEVER actually charged anyone the no go fee - the potential of same has done its job as a gatekeeper, and in the few circumstances where a loan does not proceed to settlement due to various issues we waive the no go fee.



With the clawback provision - there is argument in our industry about what is and isnt acceptable. Again we apply the CBP with some common sense. Where a client has completed a development and has made a reasonable profit, its only reasonable we be paid for our work...........

In the circumstances where a client has needed to sell for financial reasons or they do the next transaction with us, the clawback is waived.

Our business will give anyone an initial consult pro bono, but its "not real world" to expect 800 to 1500 worth of processing time + arguable Intellectual Property components, and not have to pay something for that advice if the lenders comm doesnt at least cover the cost of doing the transaction, AND the advice provided.


ta
rolf

 

[Spectre]

The fees for us are a standard part of our contract, and we have the ability to scale them depending on the risk profile of the client. If the bank pays us then we dont charge (generally). if the application is very heavy lifting then we will charge - it depends on the revenue we are getting in.

Sometimes we'll negotiate clawback down but it depends on the entire relationship.

But if its in the contractual agreement then you've agreed to the brokers terms. If you're not going to stuff him around then then there shouldnt be a drama. If you're not happy with it then query the agreement and see if there is room to work around.

People seem to have this belief that brokers are free. We're not. We've got expenses to pay and when a hole comes into your cashflow - if you're a smaller broker then this can be a big hole to fill. What the consumer needs to understand is that the clawbacks come out of our pocket/revenue stream - its not like we go to charge them for fun, and people are told about it upfront before we do a lick of work. If they say no then we look to resolve the issue or use a lender who doesnt clawback etc. if this isnt going to work then otherwise part ways (ie win win or no deal). But usually we can find a work around.

Our business view is you're better to put yourself into a position where you can be a secured creditor rather than an unsecured creditor if you need to be.

Its not an every day occurrence - I think the most recent was the first in about 5 years things got escalated where we had to legally enforce it.

Id suggest we run generally in line with what Rolf does practice wise and try to take a common sense approach to the transaction.

 

[Mick C]

Im with Pete,Rolf and Colin - If you don't deliver then you don't get paid- very simple....even the 2nd point about claw back, it's the cost of doing business ( for the broker).

Thats the risk of business, you make some and you lose some ( hopefully you win more than you lose )

 

[Francesco]

Thanks to all for comments and especially to Rolf for a reasonable way to go forward with my broker. There is no intention on my part to waste the broker's time on baseless investments.

I think from what I gathered, the way forward is to:


1. protect my intention for the pre-approval to be valid for a certain period (6 months?) to source a suitable investment property

2. waive flat fee if 'no go', or refused application by lender (a situation developing partly based on competency of broker)

3. waive flat fee if proposed lender conditions changed drastically from what has been accepted by borrower (apart from justifiable rate movement with RBA or slight movement in fixed rates)

4. clawback waived if refinancing with same broker, regardless of lender


Would this work in practice as a negotiated way forward? I will be grateful for any feedback.

 

[Peter_Tersteeg]

If I charged a fee for every pre-approval that doesn't go ahead, I'd be charging a lot of fees.

I think most brokers who do charge are fairly reasonable about the circumstances under which they would charge the fee. Whilst the provision to charge a fee is becoming more common, anecdotally I don't believe it's that common for people to actually be charged. A lot of brokers do complain very heavily about lenders clawback policies though, but the tendency is to blame the lenders for unfair policies rather than the borrowers.

I'd simply start by having a discussion with the broker to express your concerns. If you don't feel they're being reasonable about it, that's a pretty strong sign about how they treat your needs vs their own.

 

[Colin Rice]

I do have provisions to charge a fee if I spend 15+ hours helping some one in good faith they will proceed with the loan and then don't. It is a rare occasion this has been carried out and if I went in to detail any reasonable person would say "fair enough".

It is case by case and a simple protective mechanism for people who clearly don't respect what you do for them and place zero value on your time, that could have been spent with a profitable deal or more importantly my family.

I also have provisions to retrieve the claw back but is also rare and a case by case basis with very reasonable outcomes for all concerned.

Clawback where initially introduced by lenders to discourage brokers churning loans but is now a blanket rule regardless of the circumstances.

It is all outlined, explained and agreed to via initial/signature and openly discussed at the outset.

If your intentions for engaging the services of a broker are honorable and respectful then these terms should not be an issue what so ever.

Many of us spent the initial years of brokering earning very little money (and not being able to borrow money as a result ) building up a knowledge base that I personally don't want to just give away with out being rewarded. I do help a lot of people and never make a cent from it but this is part of the business and if I can help someone on their journey then more than happy to do so and occasionally these pro bono efforts do reap dividends, some in an amazing way that I never expected.

The way I put it to people is that if your employer gave you a task that took 15 hours which you diligently completed with excellence and then said "I'm not paying you because Ive changed my mind" then you would be outraged and rightly so.

@ Francesco, your proposal would get the green light by me.

 

[Francesco]

...

@ Francesco, your proposal would get the green light by me.

Thanks for the feedback.

The reality and reasonableness test is important to me. The flat fee of $770 asked by the broker in hindsight is not a big deal to me. I had once offered to unilaterally reimburse the broker $1k if I went to another broker because the deal put to me did not suit my situation. It was the broker's fault, by the way, as the broker ignored my requirement on the buying/borrowing structure, which was openly known to all parties involved including the RE selling agent.