Let me paint you a picture of the perfect world. A world
in which you'd have all the clients you could ever want.
You'd be able to pick and choose the clients you'd work
with. You don't have to work on every loan deal that comes
along just to make a buck. In this world, every loan
closes, your client is happy, and you take home 100% of the
commission. Did I mention they give you a referral the
very next week! Don't we wish it worked this way?
In reality, you work hard for every loan deal, and they are
far from perfect. Then there's the issue of who gets paid
what out of your commission. Usually you lose money every
day because of commission split, so you must charge your
clients more to make up the difference. The higher fees
offset the experience and knowledge a broker brings to the
deal and that makes it less beneficial for a borrower to
use a broker.
While there is no true "industry standard" for how
commissions are split, what we know is that it is industry
standard to split commission. The split may be 25%, 30%,
50%, or more. Maybe it's a point here or a point there.
The split may be with the lender, a referral agent, a
brokerage house, or a number of others. When it comes
right down to it, the split costs you money and therefore
costs your client money. There must be a way to provide
the best service with the best loan product and charge the
client a reasonable fee.
What does it look like when someone takes a percentage of
your commission? Most brokers know it all too well, but
take a look at the table below for a look at the hard
dollars lost from a potential commission split. In this
example, the loan value is $1,000,000, the commission is
3%, and the split is 50%.
LOAN VALUE- $1,000,000.00
ORIGINATION POINTS (3%)-$30,000.00
SPLIT (50%)-$15,000.00
BROKER COMMISSION-$15,000.00
HARD DOLLARS LOST-$15,000.00
If you didn't have to split your commission you would have
the opportunity to charge a little less commission and
still make more money. That would result in a happy client
and happy clients give referrals and I don't have to tell
you that referrals mean more money. On top of that, if we
make it cost effective, that client may just come back to
you for the refinancing and for the loan on their next
property. Sounds like a win-win for everyone.
The question is why do we split commissions? You remember
the guy in high school who didn't participate in group
projects and still got the A? How did it make you feel for
someone to do none of the work and still get the credit?
Commission split is the same thing. Trust me the people
you are splitting commissions with make a lot more money
from other sources. Your commission may be your only
source of income. It's how you feed your family and put
gas in your car. If you do the work, you should get the
reward. I remember my years waiting tables and bartending.
I would split my tips with the bus boy, but at least he
cleaned the tables. What are you paying for when you split
commission: referrals, overhead expenses, marketing? I
don't know about you, but I already split my paycheck with
someone and they take a big enough piece of the pie. That
is good ole Uncle Sam. The difference is that he provides
a service called freedom and the American Way of Life.
Examine your business and determine how much of your
earnings you're sharing with others. What can you do this
year retain more of your commissions? If we can minimize or
eliminate the need to split commissions we can better serve
our clients without being forced to charge a high
commission. The next time you have to give away your hard
earned dollars to a commission split, ask yourself what you
are getting for the money and how much more you have to
charge your client just to make an honest dollar. Being a
broker is about serving clients and providing solutions for
fair compensation. Without them I would be back waiting
tables.
----------------------------------------------------
Contributed by: Patrick Bedall, Vice President, VEC
Financial Group
The VEC Financial Group (VEC) was created to solve the
problems facing mortgage brokers and to provide the tools,
support, and clients required to be successful. Together
with the Commercial Real Estate Investors Network (CREI) we
are changing the commercial finance industry.
VEC FINANCIAL: VISION-EXECUTION-COMMITMENT
http://www.vecfinancial.com
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