Long relying on real estate agents as referral partners, mortgage service companies like Rocket and Better are now building their own real estate brokerages. “Mortgage firms have historically low capture rates for keeping their existing customers,” said Steve Murray, senior advisor to RealTrends. To increase those mortgage capture rates, both companies are banking on real estate agents to make that happen.
The question becomes, can their model of salaried agents compete on the real estate stage, or will it only serve as a way to increase customer stickiness on the mortgage side? According to Christian Wallace, head of discount brokerage Better Real Estate Services, they plan to do both, and do it well.
This trend of mortgage companies getting into real estate is reminiscent of the days when banks started dipping their toes into the real estate brokerage business. “Interestingly enough, the Fed bank-owned mortgage companies, (JP Morgan Chase or Wells Fargo, for example) are barred from doing this thanks to regulations promulgated by the National Association of Realtors in past years,” says Murray. “So, only mortgage companies like Better or Rocket, along with credit unions, insurance companies and others can do so. Another new form of competitor — one that has nothing to do with improving the brokerage experience for consumers — has now entered the scene.”
And, this new form of competitor is accelerating moves into real estate brokerage as the writing is on the wall, according to Glenn Kelman, CEO of Redfin. In a RealTrending podcast he says, “Rocket just decided to build its own brokerage. Better.com, another lender, decided to build its own brokerage. They all see the writing on the wall that the refi boom is going to end, and that the only source of purchase applications is going to be buyers’ agents. You’ve seen the same thing with the iBuyers who have started getting into the brokerage business. There’s just this massive vertical integration where everybody feels like you’ve got to have a website, a bunch of real estate agents, a lender and title company.”
RealTrends spoke with Better’s Head of Real Estate Christian Wallace to find out more about their business model and strategic goals. Better Real Estate, part of the Better family of companies, plans to go public in the next month or so, said Wallace.
“We started as a referral business. When somebody comes into Better Mortgage looking for a home and wants to know what they can afford, we always asked the question, ‘Do you have an agent?'” said Wallace. If the answer was no, we would turn them over to one of our partners — Cartus was a big one.”
But, the thing that was missing was a relationship, she notes. “This year, we decided, rather than just have partners, we can own our real estate brokerage and build a team,” says Wallace, who came to Better from Open Door. “I was an agent with Sotheby’s first, and then moved to Open Door in the company’s infancy,” she said.
She says they are modeling the real estate brokerage after Open Door, with a nod to eXp Realty and Redfin — a salaried agent, virtual discount brokerage that focuses on a team environment. As of today, the company has 200 real estate agents in 15 states, as they strategically “go wide, not deep,” said Wallace. The strategy for expansion is to “watch the trends in the purchase mortgage volume to decide which markets to enter.” Wallace notes that 90% of the sales volume for the brokerage comes from mortgage customers of Better Mortgage. The other 10% comes from agent’s own leads. She says there is no RESPA issue because, “There are no payments or costs for the referrals. We also do not require the customers to use any of our services, but provide them with the benefits of a seamless transaction.”
Here are some highlights from our conversation:
RealTrends: Tell me about the brokerage model.
Wallace: We’ve really only tapped into the buy side because that’s how we gained our leads. We’re now entering into the listing side. We just launched in Texas, Phoenix and New Jersey with a 0% listing fee. If you think about it, we’re not only listing somebody’s home, in most states, [homebuyers] can utilize our title services. And, then you have mortgage, so it’s really like keeping everybody in our own ecosystem.
We do not have offices for the agents except in states that require it. We’re not building brick-and-mortar offices — everything is online. We have licenses under Better Real Estate in each state and, on top of that, we have brokers who live in each of those states. That’s how we make sure we have somebody going through compliance and following that state’s rules and regulations. We also have market managers in each metro area.
We’ve set it up as a sales team so agents have ongoing coaching. The market managers do weekly coaching.
RealTrends: What is your compensation model?
Wallace: We’re hiring salaried agents. We started as a 1099, but quickly turned to W2s so that we can have more say in how they work the leads on a daily basis. We want them to respond to the leads in a certain amount of time, and we want a more formal customer service process. Salary varies by region. Agents also have a monthly incentive, which is based on their activity. We also offer an annual performance-based incentive that isn’t just about closed transactions; it’s about customer service, too. Transactions are important, but I think the experience that we’re offering our customer is just as important.
We’re also offering equity and that’s a major motivator for our team.
RealTrends: Tell me about the agents you want to attract.
Wallace: We’re going after the full-time agent who wants a salary. We want agents who have a range of experience as we need people in the field to be mentors. They also [must have] that experience so that they understand the laws, ethics, rules and regulations of the industry.
I’m excited about training potential new agents, as well. We want to get them in transaction coordinator roles, get them licensed and trained, and then out in the field. We want agents who are looking for the security of health insurance and the comfort a base salary brings them. There are a lot of people out there who are really good at the real estate transaction. They love helping people but they don’t enjoy the marketing piece.
RealTrends: What services do you offer agents?
Wallace: We’re currently building out our tools and resources. We recently added a CRM. We have back-end support that allows agents to work on a schedule, with unlimited paid time off. We just started hiring our support system within the same markets. We had transaction coordinators in main areas where we had Better mortgage services, but we want in-market people, as they actually know the area, so if they’re setting up a search for a client, they understand which areas to include. We want a team in place in each market to service the agents.
Whether they succeed with this new model is yet to be seen. “It may be that they understand that real estate agents can, and historically have, had a strong impact on the choice of mortgage suppliers by home buyers,” said Murray. “While there may be incremental profits from the commission revenues they gain from real estate agents, either controlled in their brokerage firms or through referral relationships, the most important goal is to hold onto these existing mortgage customers.”
In the past, mortgage companies tried a wide variety of marketing and service tools to keep existing customers with varied success. It could be that these new real estate brokerage networks can help mortgage companies find that golden ticket to high capture rate success.