I tweeted earlier this week that it was starting to seem like the real estate brokerage business was becoming nothing more than the mortgage industry’s marketing department.
I had lunch with an industry friend a day later who offered, with slightly less overstatement, that real estate was quickly becoming mortgage’s ancillary service.
It’s kind of been this way for ages — agents and brokers have always been an important marketing channel for mortgage originators — but we’re looking at a different beast now.
Companies are willing to do and lose a lot for the sake of capturing a mortgage customer.
Inman reported last week that Better, a Softbank-backed online lender planning to go public later this year at a nearly $8 billion dollar valuation, is going big on brokerage, with plans to have salaried agents in all 50 states by the end of 2022.
The company is currently testing a 0% listing fee program in Dallas, with plans to expand soon. If Better can “…match you with one of our buyers at a price you like, we’ll help facilitate the transaction for 0% for both sides.”
I give them props for transparency.
Here’s what Knock, the biggest of the “buy before you sell” companies, is willing to do to get a mortgage customer:
- Fully approve and underwrite a loan before a buyer gets into a contract (so the buyer can write a non-contingent offer)
- Front buyers up to $25,000 to spiff up their existing home (if they have one) to get it ready to sell
- Cover buyers for up to 6 months of mortgage payments on their old home while they are living in the new home they bought with Knock
- Partner with agents and brokers who can get both buy and list-side transactions, while charging those agents nothing
Killer deal, no doubt.
Loan Depot, the big online lender, went all-in on a referral brokerage/agent network called mellohome back in 2018. Last week they announced a “Grand Slam” package giving homebuyers:
- Up to $7,000 cash back from mellohome at the close of the transaction, depending on home purchase/sale price
- A close-on-time guarantee of $1,000 cash back if the company fails to close the transaction within 25 days of the customer’s pre-approval
- A digital home security system
- $100 DoorDash gift card
I think they forgot “nightly turn-down service for your first year.”
Again, this general practice isn’t new. Lenders rebating part of the referral fee they take from partner agents to buyers has been done plenty. But this is an unusually flush offer.
Companies are doing a lot to get a mortgage origination, and betting heavily on the profitability of those originations.
Compass launched a mortgage company a couple weeks ago and will almost certainly be touting it to investors who have blanched at their losses to date as some sort of light at the end of the tunnel. Zillow seems to be banking on mortgage as a profit center adjacent to its iBuyer business (although both are losing money right now).
The question I am left with on all this is this:
What about those mortgage profits?
Well, they hit record highs last year, but that followed near-record lows at the end of 2018.
The long-term trend looks like this:
I dunno… I am not sure giving away the store to capture business in this sort of world, or counting on mortgage as the way you can eventually set the hook on an unprofitable real estate or proptech business, makes a ton of sense long term.
Of course, I could be wrong. I am not a finance or mortgage market expert. I look at these things through my small business owner lens. That’s me.
Maybe mortgages will redeem us all.
Our new membership program, 1000watt Inside, sold out in just 7 weeks. We have a fantastic and varied group of companies as members — brokers, proptech cos., high-powered teams and more.
For now we are focused on delivering them an awesome experience, but will, at some point in the future, make a new tranche of memberships available. You can get on the waitlist through the Inside website.
That’s it for now. Have a wonderful weekend.