(if you haven’t read Part I to the The Art of Retaining Your Client: A Mortgage Broker’s Ongoing Challenge click here)
Is there real value in a Brokerage Fee Agreement?
In an ideal world, you should have clients with such loyalty that you don’t need a contract to collect a fee. However, in the real world, you need a fee agreement to perfect your interest in the brokerage relationship and get paid for the transaction.
When you have a strong relationship with a client, have done numerous deals with them, and rely on the client’s verbal commitment, you don’t necessarily need a fee agreement other than getting paid through escrow. However, this is the exception to the rule.
The written fee agreement is a psychological tool to enforce a client’s verbal commitment to pay a mortgage brokerage fee. If a client wants to go around you, they will. If you’ve executed a fee agreement with a client for a small loan, the reality of you enforcing the contract upon default is rare due to the cost involved. On the other hand, if your transaction is significant in size, it may be worth pursuing a client upon default; however, it usually ends up costing you more in the long run than it was worth.
It would be best if you relied on the strength of your client’s relationship rather than a binding written agreement to ensure compensation from your transaction. We live in a litigious society, and contracts are necessary. However, the timing in executing a fee agreement is important to retain the client and close the loan. When you’ve gained the creditability, respect, and confidence you deserve from your client, you are ready to execute the fee agreement.
When do I request a fee agreement be executed?
Be sensitive to the timing when requesting your client execute a fee agreement. Certain times are better than others to ask the client to sign the fee agreement. First, here are just a few suggestions when not to request a fee agreement:
- In the first meeting with a client, when you have a long-term client relationship built on repeat business,
- When it appears like manipulation on your part by withholding information unless they comply with signing your fee agreement.
At some point, you have to stop and evaluate the strength of the relationship you’ve established, the value-added so far and interpret your client’s perception of your ability to perform. This takes experience and the ability to sense the opportune time to request executing the fee agreement without risking the transaction.
Suggestions on when are the best time to execute a fee agreement:
- When you have provided a loan quote that the client is willing to accept
- When you need to disclose the lender to the client
- When you believe the client is shopping you
- When you are arranging financing for a specialized project requiring considerable skill and effort to put together.
- When you have a small deal where the effort involved is much more than potential compensation.
Conclusion
Retaining your clients from the initial request through the close of escrow is the ultimate goal of every mortgage broker. The fundamental course of action for the broker should be first to develop a strong relationship with your clients, then second to execute the proper documentation. By the broker taking a long-term perspective from the start of every client relationship will not only improve your closing ratio and reputation but make your job more satisfying and profitable.