Lenders Should not be agents…Nor agents be lenders

(Riverside, California)…Somewhere in the far reaches of my dulling gray matter, there is the semblance of a memory about our own American history…a provision of the founding fathers that called for the separation of church and state.  It’s too bad that same wisdom displayed over 200 years ago does not reach into todays real estate market…for in my humble opinion, few things cause as many problems for a real estate professional and a buyer as when an agent in a transaction is also acting as a lender.  However, motiviated by generally nothing more than greed and the quest for additional income, some lenders and real estate agents are merging these two very separate occupations.

Let me be clear here that I am speaking only of the situations where a singular individual is wearing (unprofessionally, I might add) two hats.  Some real estate companies have a separate lending division, where the loan is handled by a lending professional under the same corporate umbrella, or visa versa…and that situation is not the subject of today’s message.  Here, in this writing, I am addressing those real estate transactions where the buyer’s individual agent is also the individual loan represenative….in which case, heaven help us all.

First, let us talk about the real estate agent acting as a lender.  This would be an individual who is basically an agent first, but then also has the ability to be the lender for the buyer as well.  In this case, while the “agent” will talk of all the wonderful benefits to his/her client by being able to handle both assignments (no second person, one-stop shopping, ease of transaction, etc.) , the simple truth is that all of the above is generally a smoke screen for the agents greed at wanting to collect both a commission due the real estate agent, and the commission payed on the loan.  In reality, a Realtor representing a seller usually knows they are in for a nightmare when the buyers agent is also the lender.  In fact, if there are multiple offers, the listing agent, all things being equal, will take the offer of the buyer who has a separate lender and agent…and avoid the combined agent/lender if they can.

Why?  The main reason is that the lending business is very complicated, and we in the real estate business know that it is close to impossible to do both well.  The agent/lender is usually simply a small mortgage broker who will only do the initial paperwork, and then ship the loan to a larger bank for ultimate approval and funding…which is added middlemen, not less.  Also, our experience is that since the agent/lender is a small blip on the ultimate lenders radar (as opposed to a large mortgage broker who is in the business of making many loans per month), we have found the communication in these transactions to be poor, bordering on awful.

Also, on a personal note, since the “lender” in these transactions is so small, the loan and pricing the buyer generally pays can be far greater than if the buyer had a lender affiliated with a larger bank or mortgage broker who could really shop the loan.  Almost all real estate agents learn early on in their career that they need 2-3 lenders for their buyers to call for loan pricing.  Why 2-3?  Because money is a commodity just like bread, milk, and gas….and as you know from your own personal shopping, some stores have sales, and some do not.  Some may have milk on sale this week, and bread the next…and no store carries everything you want.  That’s why we have everything from Costco, Trader Joe’s, Vons, etc.  Each store serves a different purpose, depending on what you want.  Lending is the same way.

Some lenders may have lower rates or fees at the time a buyer is ready for a loan, and if you are only using the agent/lender, then you will not be able to take advantage of some significant savings.  You will only get what they offer.  Also, the smaller the lender, the greater potential for higher fees for the buyer.  It is hard for a small lender to compete with the Countrywides, Bank of Americas, Provident Savings, etc, of the world.

But in the end, the real reason we simply feel this is a bad mix is communication.  As a listing agent, we are only as good as the lender in the transaction….and when the lender is also the agent for the buyer, we never know if what we are hearing about how well the loan is progressing is really the truth.  There is an enormous potential for conflict of interest here, and we hate it.  That is why Westcoe Realtors has never had an “in-house” lending arm, branch, or division.  We simply do not feel it is in the best interest of our clients.  Let lenders lend, and real estate agents handle the real estate.

OK, how about lenders who are real estate agents?  This would be when an individual is primarily a lender, but will also act as an agent…and in our opinion, this is the worst case of professional greed we have in our industry.  That is a huge statement to make, and not one made lightly.  And here is why I make it.

For a professional real estate agent to properly represent a buyer, that agent has to preview countless homes to truely understand what the buyer wants.  They search data bases, call other agents, and then physically get in their car and drive and visit every home for sale that meets the buyers criteria for price, size, location, etc.  Once that is done, then they meet with the buyer, and show the best of the best to the buyer…only to perhaps repeat this process a few more times as they both work together to narrow the field of available houses for that buyer….and once the buyer has found his/her new dream home, then the real work begins. 

Now enters the “lender/agent.”…who will offer to represent the buyer in spite of the fact that the “lender/agent” has not seen the home, has not seen the other homes to justify any pricing, and simply wants to walk in on the agent’s time and efforts in order to make additional money.  Worse yet, this “lender/agent” generally has no clue about the paperwork involved…paperwork that is designed to protect the buyer provided the buyer as an agent who understands it’s importance.  Disclosures, inspections, contracts…all things a professional agent does daily…things the “lender/agent” cannot simply do from the comfort of his or her lenders chair.  Heck…most of the time, these “lender/agents” do not even have a lockbox key to get the buyer back in the home for a second look.  Why should they?  They got some Realtor to do all the work.  What a mess.

“Greed is Good”…a great line by Michael Douglas from the movie Wall Street…but what works in the movies, does not always translate to real life.  Westcoe has been in business for over 23 years in Riverside…and we have had offers from almost every lender possible to form some type of lending alliance, and each time we have said a resounding NO.  Why?  For all the reasons outlined above.  It is better for all our clients that we have the freedom to shop for the best loan, and we honestly believe that a good lender cannot be a real estate agent, and a good real estate agent cannot be a lender…because in our view of the real estate world…GREED IS NOT GOOD.   Separation of lender and real estate agent may not be best for the double-dipping lender/agent, but guess what…it’s not about them….it is about the buyer or the seller…and that is whom Westcoe is in business to represent.