Homebuyers Rely on Real Estate Agents for Nearly 30 Percent of All Purchases
Homebuyers rely on real estate agents to recommend specific lenders in about one-third of the mortgage-financed home purchases now taking place in the U.S. housing market. And despite the fact that many real estate brokerage firms have some sort of partnership with specific lenders, relatively little business appears to be generated by these partnerships. These are some of the major findings contained in a new study of the home purchase mortgage market and the role real estate agents play in generating mortgage business for lenders. The study, “Key Factors in the Referral of Homebuyers to Mortgage Originators,” was sponsored by Inside Mortgage Finance and is based on a survey of 1,800 real estate agents conducted by Campbell Surveys in January. Battered by a weak housing market and tough mortgage underwriting standards that boosted cash purchases to record highs, home purchase mortgage volume in the U.S. last year sunk to the lowest level seen in more than a decade, according to data compiled for the study. Nevertheless, many mortgage lenders are now looking to the home purchase market in 2012 as a way to profitably increase their overall lending volume and market share. The new study suggests that real estate agents play a particularly important referral role in a housing market where financing contingencies have become a way of life. According to the new research, agents reported recommending one or more specific mortgage providers for nearly 60 percent of the transactions where they represented the homebuyer. Importantly, more than three-quarters of the agents recommending lenders to their home buying customers recommended more than one firm. Agents reported that homebuyers accepted the agent’s lender recommendation 58 percent of the time. That resulted in an imputed finding that real estate agents control or influence 34 percent of mortgage-financed home purchases. The study also looked at the reasons homebuyers did not use a lender recommended by their agent. The top reasons cited were that the homebuyer had an “existing banker relationship” with another lender or a pre-approval letter from another mortgage provider. While a majority of the respondents in the new study reported their firm had some sort of preferred partnership with one or more lender, agents also indicated these relationships were not a significant factor in the recommendation of a lender. The study found that only 16 percent of home purchases relied on a mortgage provided by a lender partner of a real estate firm. This lack of enthusiasm for “mortgage partners” is partially explained by the perception that real estate agents get little out of referring business to these partnerships. “Our company has an in-house mortgage person. We do not use him because he generates no leads for us. The lender our team of agents uses sends many leads our way. We believe we should support those who help support us,” explained one respondent. The study also found that pre-approval letters play an outsized role in how mortgage lenders are perceived by agents. Out of 22 factors that respondents rated in recommending a mortgage provider, “reliable preapproval letters” ranked number one. But the study also found that out of 22 significant problems with mortgage financing, “pre-approval letters not reliable” ranked as the top problem. In fact, the possibility that even with a pre-approval letter a borrower could face a mortgage rejection helps explain why cash homebuyers generally pay about 10 percent less than homebuyers requiring a mortgage when purchasing a home, the study noted. While “reliable pre-approval letters” was the most important factor cited by agents in recommending a lender, respondents also rated “returns phone calls and emails” and “reliable in meeting a closing date” almost equally high. Significantly, “competitive rates” ranked number five in importance among agents when it came to recommending a lender. The new study asked real estate agents to rate specific national direct lenders, as well as a generic “local lender” on a range of factors. The results showed that local mortgage lenders with reliable pre-approvals and strong personal service tended to rate the highest among agents.