Watch Out For The Asterisk

March 16th, 2011

Watch out for the asterisk in a sales contract! If you are negotiating with a builder to buy a new construction home and are being offered an incentive to use the builder’s preferred lender or title company, watch out for the asterisk! Or sometimes if you are being asked to consider using an “affiliated service provider” by a Realtor, remember you can always say “no thank you.”

Builder incentives

A builder may offer free upgrades or closing cost discounts if you will simply agree to use the builder’s affiliated mortgage lender. But many times they won’t give you those incentives if you get your loan elsewhere. If that is the case then those incentives may be built into the price of the house or the cost of the loan. Make sure you are not being misinformed and being offered imaginary discounts that you actually are paying for in other ways.

Many home buyers are excited and emotional, and roll over and take a Realtor or builder’s lead in referring service providers. After all you are a captive audience at that point. And when incentives are combined with emotion, often times hard analysis is not done. You need to see if the costs are built into the deal. Then see if there is a better offer, or better level of service, being provided elsewhere.

Incentives may come at a cost, and may not

Some incentives may be legitimate and a great deal. But always make sure to double check with another local, reliable, experienced mortgage professional. Then you can see how the deal with the “incentives” compares with other market deals.

I have worked for large lenders before, and sat down with real estate offices trying to woo their business via a joint venture of some sort. This is where the realtor and lender share revenue if the lender gets to sit in the realtor’s office and get steered business. In my opinion, the consumer always loses when this happens. If their is an incentive to the consumer, it might be built into the deal somehow.

And if there are no incentives, then the revenue the lender pays the realtor has to come from somewhere. With incentives, if it does not come from the realtor office, guess where it comes from? It comes from the level of service you get. What I mean is that any loan officer that works as a lender in a real estate office is on a greatly reduced commission scale. This helps pay the fees that the lender needs to pay the realtor to convince the realtor to buy into the joint venture. You can’t induce the best and brightest mortgage lenders to work for a big reduction in income. So you get some of the weakest of the available pool of loan officers. Hence, if the consumer does not pay for this arrangement in money, they pay for it in reduced service.

Conclusion

The bottom line is to ask a lot of questions, and compare, when being offered alleged inducements. Also ask if any service provider in your transaction is affiliated with any other service provider in the same transaction!

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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