Commentary by Paul W. Wylie
RISMEDIA, April 18, 2008-Real estate and mortgage. They are a natural pair, so they should connect as beautifully as a Magic Johnson no-look pass to Kareem Abdul -Jabbar did during the Los Angeles Lakers Championship Showtime Era. But far too often, real estate and mortgage companies fail to fully click with the one-stop shop business model consumers strongly desire. We fly in the face of industry studies, such as -Consumers Perspectives on Realty-Based One-Stop Shopping conducted by RESPRO, Murray Consulting, and the Realty Alliance, which confirm that consumers prefer essential property transaction services found under one roof. When company cultures and industry traditions conflict, when we fail to nurture the real estate/mortgage experience, we do our valuable clients a disservice and leave precious money behind unnecessarily.
Here are simple gauges for the health of an existing in-house mortgage relationship:
- If your conversion rate is 25% or less-meaning, at best, one quarter of all buy sides get their loans from the in-house lender-then you have a relationship that is underperforming by a substantial margin.
- If your capture rate is 25% to 35%, then you have a good relationship, but as Jim Collins has taught us in his landmark book, Good to Great, -good is the enemy of -great.
These may sound like harsh diagnoses, but per the time-honored phrase: numbers don’t lie. In 15 years of in-house lending specialization, I have identified conversion rates of 25% and 35% as the benchmarks for effectiveness, along with telltale actions within the relationship that cause subpar results.
The word-relationship-is key, indicating an intensive, well-executed business decision. In the 25% and below conversion rate zone, I have consistently found agents treating the in-house lender like a vendor, not a fully embraced and utilized partner. They have a weak relationship with the mortgage company and/or its loan officers. The in-house lender is just another hanger-on, like an outside company that brings muffins, bagels or magnets to the sales meeting.
This -lender vendor mindset stems from one behavior: fear by the real estate management of doing something that might disrupt the company, shake up the status-quo, and endanger recruitment and retention. This however is a classic -tail wagging the dog scenario as real estate management believes it is doing -what’s right for their agents, only to end up putting their company at a disadvantage by abdicating the leadership role on the issue of in-house lenders and thereby not fulfilling what clients consistently want.
Another useful analogy is that of negotiating with teenagers. I write this with total respect and affection for both real estate agents as well as teenagers. I have raised two teenage boys and I have many real estate professionals in my life that I consider to be friends.
Raising an in-house lender above the 25% conversion mark is a movement that originates at the top. Real estate management must not make decisions out of fear. Fully embracing an in-house lending relationship is a powerful commitment to benefit the resources and prosperity of every agent. Management must take the active lead by requiring the agents to prove that the in-house lender is second-rate for those agents not taking advantage of the accountability of in-house lending relationships. This campaign should be consistent, firm, and friendly. Management may then address the valid objective issues with their in-house lending resources. The essential cultural difference here is an opt-out versus an opt-in position. Setting these expectations has profound and profitable results.
The real estate management is best served by actively promoting frequent reports of in-house lending achievements including total transactions closed, difficult transactions solved, and testaments of customer satisfaction. It is crucial for real estate management to set expectations of at bats for the in-house lender, namely opportunities each agent gives the lender to compete for a client’s business. Notice I indicate compete for the business as in the lender must approach the relationship with gratitude and accountability. A conversion rate exceeding 25% is a good sign that some agents are referring buyers to the in-house lender. However, anything less than 35% is still a shortfall with the burden of responsibility shifting too much to the loan officer.
The lender must fulfill their obligations when they are being provided the very valuable at bats. It’s easy for mortgage professionals to get lost in their deals, focusing on figures, loan guidelines, damage control and deadlines. For an in-house lender relationship to rise from good to great, the loan officer has to come out from behind the desk and join agents in business development, namely converting contacts into solds. Additionally, the lender must provide written service level guarantees to deliver consistent reliability.
The loan officer must move to the front of the real estate agent’s sales cycle, helping attract and win future clients. This is when the power of the in-house lender relationship becomes most apparent. A fence-sitting buyer or prospective buyer may not be aware of government-backed loans with low down payments and flexible credit history criteria-until an agent hands him an instructive flyer provided by the in-house lender and schedules a free mortgage consultation. A hesitant homeowner may not be ready to list in an uncertain market-until an agent tells her about the seller buydown, a program from the in-house lender which can lower a buyer’s monthly payment (and close a deal) without resorting to more costly price reductions. The loan officer must be a recurring speaker at sales meetings, discussing trends and products with the agents and presenting scenarios for motivating buyers and sellers. New agents are a particularly important audience as the loan officer takes a mentoring position early in their careers.
Loan officers must also assume a new proactive role in contact conversion. Agents typically throw away valuable contacts by focusing on hot buyers, which is understandable (and unfortunate) given limited time and resources. By sharing databases of contacts obtained from marketing sources including ads, flyers, websites and yard signs, agents bring loan officers into the process. The two professionals join forces to incubate contacts who would have been lost in the past. Note that this is a consciously breaking a tradition. Within a strong in-house lender relationship, a loan officer no longer quietly waits for an agent to bring in deals. He or she is a partner from the start. An in-house lender relationship conversion rate exceeding 35% illustrates this mutual success.
A real estate company has to protect its reputation, which is readily accomplished through a strong relationship with an in-house lender that creates accountability and improves the client experience.
Over 60 years ago, President Franklin D. Roosevelt told the nation that all we had to fear was fear itself. As we face today’s down market, FDR’s immortal advice still holds. Mediocrity is unacceptable in these uncertain times; it is the slippery slope to business failure. A healthy in-house mortgage relationship with a high conversion rate is a Good to Great vehicle. As Jim Collins found in his landmark research: Confront the brutal facts (yet never lose faith). Profits, productivity, and pleasure levels all rise when real estate companies and lenders actively and consistently work together in an environment of directness and void of blame to give consumers the experience they deserve.
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