GETTING A FOOT IN THE DOOR

Transcription

1 GETTING A FOOT IN THE DOOR WINNING PURCHASE MORTGAGE VOLUME WITH REAL ESTATE AGENTS AUTHORS Ahmet Hacikura, Partner Mei Guan, Principal Casey Barnes-Waychus, Engagement Manager Ryan Singel, Associate

2 EXECUTIVE SUMMARY It is only a matter of time before the mortgage refinance tide goes out and we find out which lenders are well positioned to succeed in a purchase market. According to the Mortgage Bankers Association, purchase volume is expected to make up almost two-thirds of overall mortgage originations in 2017, as compared to roughly half in 2016 and only a third early in Purchase volume is expected to continue increasing throughout 2018 and Our survey of mortgage borrowers last year revealed that having referral relationships with influencers, especially real estate agents 2, can be a key element for success. However, not every agent may be a willing and productive referral partner, and not all agents may want the same things in a relationship with a lender. So how can lenders figure out which agents to focus on and how to win their referrals? To help lenders understand what agents are looking for and ultimately develop a winning strategy, we recently surveyed agents across different geographical markets, and conducted in-depth interviews with many agents and their customers to garner additional insights. We have confirmed agent referral business as a significant opportunity for lenders and also obtained interesting learnings on agents referral relationships. We also found that there is a wide range of referral relationship potential among agents. For example, most agents do not have many clients to refer, and some agents do not or cannot influence their clients financing decisions or only refer to mortgage brokers instead of individual lenders. Additionally, agents who do refer clients typically already have a favorite lender that receives most of their referrals. These findings, combined with our own interpretations and recommendations, point to ways lenders can win agents referral business. This includes identifying willing and able referral partners, delivering top-notch customer service, and becoming the preferred lender through a value proposition that matters to agents. These symbiotic relationships benefit lenders and agents, as well as their mutual clients, who will be shopping for homes in the future. 1 Source: Mortgage Bankers Association (MBA) Mortgage Finance Forecast, as of July 20, Hereafter, real estate agents referred to as agents. 1

3 THE UNMISTAKABLE OPPORTUNITY Agents play a vital role in the home buying journey (almost 90 percent of buyers purchase their homes through agents) and the related purchase mortgage borrowing process. Lenders who do not actively cultivate strong relationships with agents are passing on one of the biggest sources of influence for mortgage borrowers. OUR AGENT SURVEY * INDICATES: OUR MORTGAGE BORROWER SURVEY ** INDICATES: 78% of agents have referred clients to lenders or brokers in the last 12 months 76% of the time agents refer clients, the client applies to that recommended lender 56% of purchase mortgage customers consider an agent referral in their shopping process 26% of purchase mortgage customers rely only on an agent referral * Conducted in the Spring 2017; unless otherwise noted, the analyses in this paper are based on data gathered from this survey. ** Source: Oliver Wyman, 2016: Different Strokes for Different Folks: The Buying Habits and Preferences of Mortgage Borrowers. GET REAL: BUILD REFERRAL RELATIONSHIPS IF YOU CAN GET THEM It is important for lenders to be aware of the wide range of relationship potential among agent. Every agent is not a potential referral partner and every potential partner is not equally valuable. DEPRIORITIZE AGENTS WHO DO NOT HAVE MANY CLIENTS TO REFER With more than a million agents in the US 3 and approximately six million homes sold per year 4, the average agent only does a handful of transactions annually. Of the agents we surveyed, slightly less than 20 percent completed more than 12 closings in the past year, or one or more closings per month (Exhibit 1). The remaining agents completed fewer deals and were less likely to refer clients to individual lenders. Lenders would be wise to focus their efforts on the most productive agents. 3 Association of Real Estate License Law Officials (ARELLO) estimates that there are about 2 million active real estate licensees in the United States. National Association of Realtors has 1.2 million members as of April According to data from the National Association of REALTORS, 5,250,000 existing homes were sold in According to the US Census Bureau, 510,000 newly constructed homes were sold in Copyright 2017 Oliver Wyman

4 Exhibit 1: Distribution of agents and their referral behavior 32% 29% 21% 18% Number of closings Refer to lenders 54% 60% 61% 85% Do not refer to lenders* 46% 40% 39% 15% * Includes agents who do not refer at all and agents who refer to brokers only. Includes the distribution of agents and their referral behavior by the number of closings they completed in the last 12 months as a buyer s agent. AVOID AGENTS WHO DO NOT OR CANNOT INFLUENCE THEIR CLIENTS FINANCING DECISIONS While most agents do make referrals, slightly less than a quarter of them do not refer clients to anyone (Exhibit 2). Most commonly this is because they work with clients who do not need financing, already have pre-approvals, or do not want referrals. In other cases, the decision not to refer is driven by a personal preference against referrals, lack of experience with referrals, or prohibitions by the agent s employer. Neither the agents in this bucket nor the lenders who pursue a relationship with them are likely to benefit from such a relationship. PASS ON AGENTS WHO REFER CLIENTS TO MORTGAGE BROKERS INSTEAD OF INDIVIDUAL LENDERS While many banks have abandoned mortgage brokers, there are agents who continue to refer clients to mortgage brokers. In fact, 15 percent of agents refer exclusively to brokers and state that providing clients with options is the primary reason, making them unlikely referral candidates for individual lenders (Exhibit 2). Another 27 percent refer clients to both brokers and individual lenders, diluting the strengths of the relationship value for lenders (Exhibit 2). Exhibit 2: Distribution of agents by referral destination 36% 27% 15% 22% Refer to lenders only Refer both to lenders and mortgage brokers Refer to mortgage brokers only Do not refer Includes the distribution of agents who refer clients to lenders only, brokers only, lenders and brokers, or no referral. 3

5 AIM TO BECOME THE PREFERRED LENDER Lenders who enjoy exclusive relationships with agents may feel victorious, since this is a rare setup according to our survey. Most agents have referred clients to multiple lenders in the last 12 months. Most commonly, there are multiple lenders involved, but one preferred lender receives the majority of referrals. For example, 45 percent of agents refer more than half of their referrals to one lender among their relationships, as compared with 11 percent of agents who spread their referrals around more (Exhibit 3). Lenders shouldn t feel satisfied with an agent relationship unless they know they are the preferred lender. If they are not, then they re likely only getting a small slice of a bigger opportunity. Lenders approaching a prospective referral partner for the first time face the biggest hurdle. They may or may not be lucky enough to do a trial loan or two, but it may not be easy to displace an established competitor who is more invested in the relationship. That said, it does pay to be present and persistent, as some agents shared that they can only tolerate a handful of bad deals, at most, before they decide to switch to a new lender. Exhibit 3: Distribution of agents by how much they refer to their preferred lender 31% 37% 8% 14% 11% Exclusive - one lender only Multiple lenders % to preferred lender Multiple lenders 50-75% to preferred lender Multiple lenders <50% to preferred lender Do not refer to individual lenders Includes the number of lenders to which they referred clients and the percentage of clients referred. Copyright 2017 Oliver Wyman

6 WIN TOGETHER: ACHIEVE SUCCESS IN REFERRAL RELATIONSHIPS What lenders need to do in order to succeed seems simple just become a preferred lender to productive agents who make referrals. But how they can accomplish this is actually not as simple. Our research provides helpful pointers, in particular, on how to develop a service-oriented value proposition around what matters to agents, deliver it in a manner that is in line with agent preferences, and focus on productive agents. DEVELOP A VALUE PROPOSITION THAT MATTERS TO AGENTS Nothing is more important to agents than reliability of lenders as experienced through loan officers (Exhibit 4). Agents with whom we interviewed were quick to point out that despite the increasing use of technology, you have to be a people person to succeed because this is a people business. When probed further, agents highlighted responsiveness and truthfulness as key characteristics they look for in a loan officer, and provided examples of behavior they appreciate, such as prompt notification about problems, following through on promises made to agents and customers, responding quickly, and providing accurate closing cost estimates. Missing a closing date was frequently highlighted as a mistake that is nearly impossible to recover from. To provide more certainty, transparency and immediate access to information, lenders could consider equipping agents and loan officers with dashboards, digital trackers, and real-time notifications which they are starting to do with customers. 5 Client experience is also top-of-mind for agents. They want their clients to receive good service and competitive rates. What seems to matter most to them is the avoidance of bad experiences or high interest rates that may drive customers away and sour a deal, rather than an insistence on delightful experiences and the best rates. As one agent explained, it is the lender s job to sell the rate, not mine. 5 For examples, please refer to Oliver Wyman s Digital Mortgage Nirvana paper. 5

7 Exhibit 4: Reasons why agents refer business to their preferred lender* Reliable loan officers 71% Good customer service 66% Competitive rates 65% Local presence 50% Fast fullfillment 46% Personal relationship with loan officer Other** 34% 36% * multiple selections allowed ** Other includes existing firm relationship (for example, formal Marketing Services Agreement), leading digital capabilities, culture fit, company decision, etc. Fifty percent of the agents surveyed valued lenders with a local presence. This was driven less by a wish to communicate in person with loan officers, and more by a desire to work with lenders who know the local market. Agents are skeptical about non-local lenders abilities to understand the nuances of the local market, secure fair appraisals and ultimately close deals. For lenders with local branch networks, this skepticism provides a competitive advantage as their market knowledge is generally assumed. Other lenders will face significant hurdles unless they can demonstrate local market knowledge and experience. Fast fulfillment was also emphasized as a reason for lender selection by nearly half of the agents we surveyed. Lenders need to close every transaction on time or significantly early and, if there is a problem, agents need to know as soon as possible. In order to make this promise and be able to deliver on it, lenders might consider developing a dedicated fasttrack fulfillment lane for referral partners who demand speed, and establishing tailored service levels, communication strategies, and process management approaches for that lane. The corollary to this finding is that half of agents did not pick their preferred lender based on speed. With these agents, lenders can manage expectations about speed and instead focus on reliability as a differentiator. A third of surveyed agents had a personal relationship with a loan officer at the lender they worked with. The personal relationship does not appear to have compensated for weaknesses in other areas though, since these agents also cared about the factors described above. Copyright 2017 Oliver Wyman

8 SERVE AGENTS IN THE MANNER THEY PREFER Agents appreciate consistency in their relationships with lenders. They often have a primary contact or interact with the same small group of people (Exhibit 5). Agents are also quite loyal to their contacts. Approximately half of agents who have a primary loan officer contact would follow their loan officer if the officer moved to a new lender (Exhibit 6). To encourage and develop strong, consistent relationships between loan officers and agents, lenders can assign loan officers clear-cut responsibilities for covering agents. This includes establishing small coverage teams where appropriate, and clarifying territory assignments to avoid frustrating agents who prefer to deal with one officer or a handful at most. Loan officers should be held accountable for establishing relationships with agents, and for following through with high-quality service to these agents and their customers. Given the level of personal loyalty that may develop, lenders should also build agent relationship retention tactics to be used when loan officers leave. Lenders pursuing completely self-service models with no loan officers will need to determine whether they need agent relationships to succeed in a purchase market, and figure out how to establish and manage these relationships. Exhibit 5: Real estate agent interaction with preferred lender I have a primary contact at the institution 57% I interact with the same small group of people 28% I interact with a different person almost every time 11% Other 4% Exhibit 6: What if loan officer at preferred lender switched lenders? 48% 52% Agent would follow loan officer to a different lender Agent would not follow loan officer to a different lender 7

9 Preference for various forms of lender outreach varies among agents, and lenders should tailor their approach accordingly (Exhibit 7). Agents seem to prefer more outreach than they receive today, especially in the simplest form s. The preference for is highest among highly productive agents, who likely are too busy with their clients to appreciate other forms of outreach. The targeting of time consuming in-person forms of outreach is important since preference among agents varies, and it needs improvement since large percentages of agents currently receiving this type of outreach do not prefer it and similarly large percentages of agents who prefer it are not receiving it. Loan officers should understand and respect each agent s communication preference. They should focus their more time-consuming in-office presentations and workshop efforts only on those agents who appreciate it. To improve the efficiency of their efforts, they should identify agents who do not wish to receive any outreach beyond communications relating to specific customer transactions. Lenders may wish to help loan officers understand and manage these preferences through contact management tools, reminders, agent satisfaction surveys, and any digital self-service interfaces they build for agents. Exhibit 7: Preferences of communication channels 60% 40% 20% Preferred communication* Received communication** 0% Regular s to me and my colleagues Reaches out at industry events i.e. conferences, dinners Hosted educational workshops at my office Delivered presentations about their companies offerings at my office Co-located in the same offices Other No outreach Of those receiving, what percentage preferred it 61% 58% 53% 65% 50% N/A N/A *All agents surveyed **Agents with preferred lender Copyright 2017 Oliver Wyman

10 FOCUS ON PRODUCTIVE AGENTS Given the range of potential referral productivity among agents, lenders should prioritize satisfaction and retention of existing referral partners by delivering on the expectations described above. Mending fragile or broken relationships with productive agents should also be a priority. Problems may manifest themselves through complaints and declines in referral volume, and the solution may involve improvements in loan officer behavior, re-assignment of loan officers, and a closer watch on fulfillment experience. Lenders making improvements to their value proposition should keep existing and prospective agents informed in case agents want to give them another shot or shift more referrals to them. Identification of new productive agents remains a distributed responsibility for loan officers, who can use their networks to pursue relationships with top local agents and rising stars. To supplement these local efforts, lenders may wish to experiment with reconnaissance analytics like structured and unstructured data mining from agent websites and property listings. To help loan officers manage their book of agent relationships more effectively and efficiently, lenders can produce reports, dashboards, and analyses to highlight noteworthy trends like inbound client referrals from new agents in their territory, upward or downward trends in referrals from agents in their existing portfolio, problems and delays faced by referred clients, and complaints from agents or their clients. 9

11 IN CONCLUSION A SAFE AND BENEFICIAL PATH FORWARD FOR LENDERS, AGENTS, AND THEIR MUTUAL CLIENTS Lenders and agents are understandably cautious about their referral relationships due to the increasing focus of the CFPB on potential kickbacks and violations of RESPA. Many lenders have disbanded their marketing service agreements with real estate agencies and are rethinking their co-marketing approaches. Fortunately, as our research has shown, there is a virtuous way of partnering that benefits agents, lenders, and most importantly, their mutual customers. Overall, it provides high quality service and reduced hassles in the customer s home and mortgage shopping process. Copyright 2017 Oliver Wyman

12 WILL WHAT MATTERS TODAY ALSO MATTER TOMORROW? Will agents matter this much in the future? This question kept coming up in discussions that resulted in this paper. Agents have traditionally played a vital role in their clients home buying journey and mortgage shopping process. As emerging technologies challenge or reshape the traditional roles of many professions, some doubt naturally is raised about the future. Specifically with agents, the increasing popularity of home shopping apps and the emergence of we buy homes companies appear to pose an existential threat to the business model. While we cannot predict the future, so far we have seen no signs that agents are becoming irrelevant in the home buying process. The increasing availability of home buying and selling tools and information online has not yet resulted in a diminished role for agents. They re just as likely to be used by customers today as they were three years ago, and millennial customers are no less likely to use them than older customers are (Exhibits 8, 9, 10). Exhibit 8: Percentage of buyers purchasing their home through an agent over time 88% 88% Exhibit 9: Percentage of buyers purchasing their home through an agent in 2016 across age groups 92% 87% Exhibit 10: Percentage of sellers selling their home through an agent over time 88% 89% Milennials Others Source: National Association of REALTORS Home Buyer and Seller Generational Trends reports. One of the reasons for their continued relevance is the range of services they offer beyond just matching buyers and sellers. Research findings by agent associations, as well as our own interviews with customers and agents, indicate that, beyond matching buyers and properties, agents offer a range of services that are not yet effectively provided by self-service tools. Examples include: help with terms of sale, negotiations, concessions, coordination with the variety of professionals involved in a transaction (for example, attorneys, inspectors, insurers, lenders and brokers, and contractors), contract preparation and other paperwork. While it is plausible that the use of robotics and other technologies could enhance self-service offerings and shift the role of agents in the future, we do not expect mainstream changes within the planning horizon for most lenders, especially considering how personal, emotional and complex the home buying experience continues to be. 11

13 ABOUT THE AUTHORS Ahmet Hacikura Partner Mei Guan Principal Casey Barnes-Waychus Engagement Manager Ryan Singel Associate Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. For more information please contact the marketing department by at info-fs@oliverwyman.com or by phone at one of the following locations: AMERICAS EMEA ASIA PACIFIC Copyright 2017 Oliver Wyman All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman.