80BPS…The earning potential for
many, but also the amount that can be lost if a deal explodes. All in all – a
pretty important number. An amount that you see once your deal closes, despite
that all of your work will occur in advance of payment. The stakes are high to
make sure those applications you work hard to acquire are funded!
Not all customers tell the truth –
although this is often unintentional. Some deals will go sideways and in
retrospect there was nothing that could have been done to avoid this – but
through due diligence, most deals can be saved. The question is, how much
should one invest performing due diligence?
Well first, let’s review the
actual cost of a deal lost due to omitted information.
·
Assess an hourly rate
that you think your time is worth and multiply by the number of hours you spend
on a deal.
·
Cost of the credit
report.
·
Things you may have
paid for to land your deal – appraisals, condo certificates, etc…
·
Impact to credibility
and closure rates – you know as well as we do that banks do not like wasting
time either and many keep track of the number of applications you submit
against the number of your deals that are funded. If a lot of your deals are
not going through because information is wrong, whether it be value or some
information that is discovered later like someone else on title, they may
decide to deprioritize your applications or not deal with you at all. How about
other partners like lawyers who may have started work on a file?
·
How about paper,
toner, supplies, couriers, etc… that will be used through the course of working
on a deal?
The cost of a lost deal is huge
and so it pays to invest in identifying a bad deal. What are some of the most
common things that you can do to greatly increase your closing rates and the
speed getting your deal closed? Some of these apply to purchase mortgages, some
to refinance mortgages, and some to both.
First of all, don’t just rely on
documents provided by clients. You won’t always know how old they are and they
may be inaccurate. Save time and perform your due diligence by verifying
information directly, whether it be the government, other lenders, property
title information, pay outs, etc…
1.
Verify who is on
title. So often others show up on title and so identifying this sooner rather
than later enables you to get consent and/or mortgage applications from others
on title, thus reducing fraud and showing your lenders that you know who is on
title before you submit an application to them.
2.
Get a general estimate
of the value of the property. Generate comparable sales and estimate value
using tools that enable you to generate an AVM. An AVM (Automated
Valuation Model) is a mathematically based computer program that produces an
estimate of the market value of a residential property based on the analysis of
public record data, property location, market conditions and real estate
characteristics at a specified date. This is a great
way to gauge whether or not the homeowner or seller is way off on value and
also identify non arm’s length transactions that may not have been disclosed
and will reduce unnecessary appraisals and applications to insurers.
3.
Get an idea of what is
owed on a property. It is undeniable that getting consent signed by the client
and requesting a current mortgage statement or discharge statement is the best
way to learn if the homeowner has properly estimated what is owed on the home.
Requesting the mortgage statement from the bank can result in a $100-$250 admin
fee being added to the client’s mortgage and it could take a week or two to
receive an answer. An easier way to do this is to look at current mortgages
registered on the property, when they were registered and their face value at
the time of registration. You can pop that number and a realistic interest rate
to ballpark the general balance of the mortgage. If there is a large
discrepancy you can ask your client before submitting the deal and either
discover prepayments that may have led to a lesser balance or the client may
realize they can’t really accurately recall.
Due diligence should be performed
at the application stage because that is when it will yield the most benefit to
both you and your partners.
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