Why does your Realtor have an "in-house" mortgage company?
Your Realtor has an in-house mortgage company because they just can't make any money on real estate brokerage. Commission splits have been rising exponentially for the past 15 years. The introduction of the 100% model combined with discounting pressures has had real estate broker scrambling for ways to increase the bottom line by offering a "one stop shop" for customers.
How much can the broker really make off of an ABA with a loan company?
Well, that depends. If it's the Coldwell Banker/Century 21 model, not a lot. tThe originating broker makes about $300/transaction. Now if your office is a 30 agent office with 8-10 loan a month, that may pay the salary of a receptionist (which helpsl)
I had an arrangement with 3 Keller Williams' offices in Phoenix. I paid "rent" to the office, had a separate entrance, and operated as my own business. I still had to hustle and my rent was "all-inclusive" (phones, fax, copies, internet at $2,000/month per office). When I operated by myself, it was a great deal. When I hired loan officers, I didn't make any money.
I was proposed a "partnership" with the real estate brokerage because they were convinced that they were missing out on thousands of dollars in profit. This was the greatest thing that ever happened to me. We split "profits' after the loan originators, rent, and all of the incidentals were paid. I made more and the brokerage made about what I was paying in rent. The broker had more of an incentive to encourage the agents to utilize our services.
How about title or escrow services?
In California, many brokerages have in-house "escrow" companies. In fact, the term "virtual escrow" has popped from title companies to capture the title policies. This platform transfers some basic escrow functions to the real estate broker and allows them to be compensated for it.
Does this violate RESPA?
Absolutely not if it is done correctly. Section 8 (c)(4) of RESPA provides for these arrangements if they meet a safe harbor test. It is required to use the HUD disclosure for each customer disclosing compensation or ownership.
Summary:
Real estate brokerage is a low margin business today. Experienced agents are demanding (and getting) splits of 80-90% as well as increased services. Big shops that have over 100 agents can afford to operate on brokerage alone. Small shops where the real estate broker produces are able to operate on brokerage alone. It's the 10-60 agent shop that needs to find alternative revenue streams to make a profit.
