I hope all is well with you. I want to let you know that I have been enjoying your webinars and found them to be informative. I have one question that I have been wrestling with and I am not sure whether there is an answer for it. Since you are a seasoned expert in this field would love to see what your thoughts are regarding my question; My question is this: assuming that you have the full trust of your client and whatever rate and cost you quote they accept, how much of a fee should a loan adviser charge that is morally and ethically acceptable (not necessarily legally)? I am challenged with this question and hope that you can shed some light and share your thoughts with me. Best regards, John from California
Thanks for the kind words and I have to say that this is a good question—one that I have gotten, many, many times. And one that is always hard to answer and my answer must change in light of the new compensation plans. Or actually it does not—just the background changes.
A few rules.
- You must have a pricing policy. For years, many originators tried to get the most they can from each client. Well, what I have preached for years has now become law. It does not matter if the customer trusts you or is a cold call-you should be charging the same unless you need to cut to make a deal. Every other industry has a pricing policy—attorneys charge “x” per hour or “x” per legal action. The only problem with the new law in this regard is you can’t charge more if it takes longer and you have to work harder. The attorney could say—I charge more for your bankruptcy because of ____ will take more time. We can’t. This is not fair.
- You should not be talking about what you charge. You should be talking about the pricing policy of the company. Too many originators say “I charge this” implying that the revenue goes into the pocket of the originator. It is not, it is revenue to the company. If a person pays $40,000 for a car, do they think the car salesman gets $40,000? No. There is revenue to the company and commission to the sales person and there are many, many other expenses, including those incurred by the sales person. The problem is when the originator says “I charge two points” then the customer thinks all that money is up for negotiation. If the originator says, the revenue to the company is two points, then the customer does not have that realization. They know the company has expenses. It puts you in the right place to be if negotiations start and with the new comp plans, many originators have less flexibility.
- Finally, I can’t set your pricing model for you. If I knew more about you and your business, I could give some advice, but you need to set your pricing where it is competitive and you can make a good living. And not on one or two loans a month—but with decent volume. If you price too high, your volume will not be decent. If you price too low, you won’t make a living. It is a balance. Even your average loan size will be factored into the equation as well as the quality of your deals which will affect how many loans you can close. A final point—experts can charge more. That is why I have dedicated my life to making loan officers experts.