In Season 2, episode 1 of the Real Estate Replay, we discussed a homebuyer's story in which their agent pushed them to use the in-house (meaning a company that shares their office or is under the same company umbrella) title and the insurance company.
This led us into a deep conversation, with agent Matt Ward, about in-house companies and the incentives given to some real estate agents for selling in-house services.
It's against the law for agents and lenders to give each other money in exchange for leads. However, the real estate industry is excellent at finding loopholes to its advantage.
In the US, Lenders are allowed to pay for % of an agent's monthly advertising costs. They can also "rent" office space where your agent works. In exchange for these "payments," agents will introduce their clients to this specific lender.
Some keywords that might indicate this is occurring are if your agent tells you about their "partner lender" or if they only suggest one lender when you first start looking at homes.
Not every agent has a partner lender; some just refer to lenders because they are great at their job. Other agents, however, refer lenders because they just paid $5,000 of their ad spend last month. Your agent should disclose to you if there is a partnership.
While you can entertain their partner lender's offer, ALWAYS shop around and compare your loan estimates to ensure you get the best deal.
Some brokerages (where your agent works) will offer in-house title and insurance to help increase their revenue. To promote their in-house services, some will offer their agents an incentive to sell them. We've been told of agents getting monthly fees waived and an increased commission percentage when selling these in-house products.
In some states, like Ohio, agents can invest in a title company and become a "shareholder." Pushing their clients to said title company helps increase their sales, which then increases the returns given to the agent.
Your agent should disclose this information to you before selecting a service.
Some brokerages rely on the fact that title and insurance selections are an afterthought for homebuyers since they don't appear until later in the process. If you are getting ready to hit the market, start researching companies now in order to price shop when the time comes quickly.
A few agents have brought to our attention that one home security company (towards the beginning of the alphabet) offers real estate agents up to $200 if the agent shares your information with them after you close. When that happens, your phone will not stop ringing for a while, nor will your doorbell!
Being referred to a provider doesn't always mean they are the best. Always get talk with more than one provider when looking at lenders, title, insurance, and more. Getting multiple quotes ensures you can get the best pricing from service providers. In the biggest purchase of your life, every penny counts.