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Should Realtors be Paid Broker Commissions?

If you’re a Realtor, you know that your job is about much more than just showing homes and helping secure a contract to purchase. Buyers ask Realtors about everything, from the schools in the neighbourhood to where the best mortgage in town is. When this latter issue comes up, it’s not uncommon for Realtors to refer their clients either to their favourite bank, or their favourite broker. Some banks, such as National Bank, offer these Realtors commissions for bringing business through their door (National offers 50 bps for any referrals brought to them.) This practice has brought up the issue of brokers doing the same thing – and it’s sparked some outrage in the broker business.

One Montreal Realtor, Stuart Barker, makes his case for broker commissions saying, “If I am going to give a client to someone, I think I should get a referral fee. If I’m going to help someone build their business, I think a referral fee is appropriate.”

Barker says that he doesn’t have a set number as to what those commissions should be; but he does say that with Realtors referring to brokers more and more instead of the banks, this is a practice he’d like to see become more commonplace.

The issue has been raised because of the lending tightening going on in most of the country’s banks. Because it’s now much harder to get financing for a home at a bank, Realtors are starting to refer more brokers than banks, knowing that there’s a better chance a broker will be able to secure them a mortgage.

That’s important to Realtors. If their client can’t obtain financing, they can’t buy a home. And then the Realtor loses out on their complete commissions altogether. But if they refer their clients to a broker instead of a bank, they know that the client will have many more options and will be much more likely to get that mortgage. And that means that the commissions from the purchase of the home will still be available for them.

That’s the problem Sean Chouman, president of Landmark Financial Group, sees; and it’s why he says that broker commissions to Realtors may become more common.

“As the deals get fewer, Realtors just aren’t willing to take the chance,” he says. “Especially if many brokers are willing to offer a small referral or to sometimes split the commission.”

But hold on. Not everyone feels this way – especially brokers who are now being asked to pay commissions to a sector of the market they never have before.

Ryan Kirwan, a mortgage broker in Ontario, says that brokers and Realtors work together to help each other build their business. He says that this is the way it’s always been and commissions going one way or the other were never part of the practice. He doesn’t believe they should be now, as brokers are still compensating Realtors they work with by finding them mortgages that their clients wouldn’t otherwise be able to obtain. He also thinks that it’s only those Realtors that are struggling that would bother to ask for commissions at all.

He says,

“I have maybe three or four Realtors I work with and that’s it. I don’t compensate any of them, as they see me as an extension of their arm. They know I will work hard for them. [Successful Realtors] don’t care about the points, because they know true success comes from a broker and Realtor working together. You only have five days for financing, and that’s not a lot of time for shopping around to find a lender. But we can find a lender with just a few clicks of a button. Most brokers work that way – we are judged by our efficiency in getting a deal done.”

He also points to the 80/20 rule – and suggests that it’s the 80 per cent of Realtors with very few deals that are pushing for broker commissions.

“The good Realtors,” he says “the successful Realtors, don’t care about the points. It is the 80/20 rule – you have 20 per cent of the Realtors doing 80 per cent of Realtors fighting for every dollar they can make. They are the ones pushing for referral fees.”

What do you think of brokers paying Realtors commissions? Is it a practice that should become more commonplace, as more Realtors start to refer more brokers than banks? And is it okay that some banks are already offering Realtor commissions? Or do you think that Realtors, who already make much more in commissions than brokers, should continue on with business as usual, and not be concerned about receiving commissions from their brokers? Do you think that the broker business will be hurt if they don’t offer commissions to their Realtors?

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