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Yes, this is a slightly edited and recycled version of an article that I wrote for CMP earlier this year.
My thought for today;
The origins of quality referrals.
A quality referral represents a transfer of trust. The client has a degree of trust in the person referring you, the higher that degree – the greater likelihood you have of not only getting that clients complete application into the system smoothly and efficiently but also of retaining that client all the way through the process. It follows that the greater the trust placed in you early on leads to that much less shopping around on the clients part. Instill confidence quickly.
The number one way for you to instill confidence and build trust, in both your clients and of course the referral sources themselves, is in my opinion based on a key comment made to me by a fellow far sharper than I, (his initials rhyme with RRP), ‘position yourself as an expert’. Those five words have been the foundation of much of my success in this business. I must confess that I neither seized this concept specifically nor pursued it single mindedly at the time the advice was given, rather it was over a period of a few years of doing all sorts of different things to try and drive business that I realised simply having the knowledge to give a comprehensive answer to a Mortgage or Real Estate related question is what people appreciated. That and chocolate…more on that another time though.
The higher the quality of data you supply your clients with , the tougher for any other lender or broker to poke holes in your specific financing plan for that client. For instance do not talk about month payment differences between interest rates, instead calculate the specific interest expense difference, it is a different $ figure and more meaningful to all clients once it is set out for them.
Real life example;
I often use this precise approach to break down ‘interest only’ mortgages vs. closed variables; Clients are attracted to lines due to the low monthly payment. However once you show them the actual interest cost of a line at Prime +.50 as compared to a closed variable at Prime -.40 things change. Then we look at the true cost of the penalty to break a closed vs. the true expense of sitting in an Open ‘penalty free’ product.
Product Balance Monthly Payment Interest Component Penalty to break
Open Prime +.50 100K $289.56 $289.56 Zero**
Open Prime +1 100K $330.59 $330.59 Zero**
Closed Variable P-.20 100K $410.03 (30yr) $231.00 $693.00
**often an Open mortgage will include a $500.00 fee for early payout, this varies from lender to lender and obviously makes a huge difference as well.
As you can see by the detailed numbers above the ‘crossover point’ (as I refer to the moment that the 3 months interest penalty has been paid via the higher interest of an Open) varies from 12 months to as little as 7 months. Factor in a $500.00 early payout admin fee on an open and you can be down to 2 months before the Open is in fact costing the client $100.00 per 100K per month more than a closed variable.
At this point the conversation turns to prepayment privileges, another opportunity to demonstrate how superior your products offerings are to those of other lenders. (I try and avoid lenders that only allow annual lumpsum payments whenever possible)
Is the client truly going to pay the balance down by more than 15% or 20% in the next year? Are they truly going to pay it out completely in 7-12 months? If not then a closed variable makes far better sense. If you are educated on all of this and can articulate it along with a few other related topics (i.e. lines of credit are ‘demand loans’ and the premium applied can be changed at the whim of the lender as was done in 2009 when lines jumoed from Prime to Prime+1% overnight) then at the end of this little exercise you have generally explained more about mortgage financing to your clients than any Banker or Broker they have ever encountered.
What does that do? It creates trust. The client is justifiably confident in you.
Lets talk about the question of who has the trust. The #1 option should be you, as we have just touched on. Trusted for your expertise and detailed answers rather than generalities and fluff.
Who else has a high trust factor? There are lots of candidates; doctors, nurses, priests, schoolteachers, community leaders, notaries, lawyers, family members, friends, co workers, accountants, insurance agents, financial planners, and just all around genuinely nice people. I am sure there are more to add to this list.
However I suggest that focusing on the folks that have the same sort of trust that you are going to require from clients as a starting point. i.e. trusted folks that already have similar client data on file.
To that end Accountants, Branch Managers, Insurance agents, and Financial Planners are all excellent choices. Very similar data is involved in the client interactions and thus a very similar sort of trust exists with these contacts as you will need to have with the client.
From my experience the smoothest transitions from ‘Hi I was told to call you’ to my taking a detailed application come from referral sources such as these. Not exclusively, but typically.
You may have noticed that I left Realtors off the initial list. This is because increasingly I believe that we are a source of quality referrals to Realtors, more so than Realtors are for us. Not to discount the opportunities for building strong Realtor relations for a healthy client experience all the way around. The group of Realtors that I work with are top notch professionals and absolutely have the trust of their clients, however it is often a slightly different form of trust and the clients are sometimes wary of the Realtor being aware of how much money they make, or potential credit issues that exist.
One must always keep in mind that a referral is an extension in many ways of the referral source and how you treat that client is absolutely being reported back to the source and will impact the likelihood of any future referrals flowing your way…or not. As such it is important to look at even the most challenging files as an opportunity for both the client and yourself. Perhaps it is an opportunity to do business two years from now, and if you give that client a roadmap to repairing their credit or budgeting for increased savings and then continue to stay in touch with that client it will pay dividends in a variety of ways. Aside from simply being good for the soul.
I have picked up client files where the previous broker told them outright that ‘they would never own a home ever’ . This is a ridiculous statement to make ever, least of all directly to a client. OK, perhaps it will take two years, but here is what needs to happen and yes you can own a home. Indeed I have had more than a few clients that took as long as two years to get all their ducks in a row. However working with them all the way through the process is rewarding to say the least. Often you are also creating a great referral source in that client through that behaviour.
So this would be point two – be a nice person, not just a well informed one.
The third key point; always reward the behavior, the specific behavior being the act of referring. it is not about whether the file goes anywhere immediately or ever. The very fact that somebody got another individual to call you is worth at the minimum an instant thank-you email, followed with a phone call perhaps or in my case typically a thank you card with a Starbucks gift card. (I use www.sendoutcards.com which keeps the process smooth, simple and easy to repeat).
It is important to not differentiate ‘Thank You’s’ between files that fund and files that go nowhere at all. it is all about encouraging the behavior, keep that phone ringing. The referral source did their job making that much happen. Whether you get the deal done of not has nothing to do with their component of the job. Their work is done, act accordingly.
Lastly, Follow up…with the referral source – something I have had challenges with in the past. Some referral sources really want to be a part of the action. They have a variety of reasons and motivations, perhaps they want some credit for playing a role in a tough refinance situation getting sorted out, and that is cool – you are their expert and they handed the client over to you for expert attention…and it worked. You have made them look good. However I have struggled with communicating much beyond ‘thank you, indeed we made contact’ as it is a tricky balance between a clients privacy and in particular their perception of privacy and the referral sources good feelings. Sometimes files cannot cross the finish line and the client does not want the referral source to know this, especially the ‘why’. I usually focus on the fact that I share nothing of that referral sources life details with anybody ever, and thus I must do the same for the client they referred me. Not matter what the relationship.
Within my own business the bottom line has largely been ‘position yourself as an expert’ . Do this amd client will seek you out.
People like to refer business to people that make them look good. Are you making your referral sources look ‘connected’?