Pricing...How Do You Do It?

A New Post By Chris Johnson
Business Survival Consultant
Read other posts by Chris Johnson

One of the things that's lost in the great YSP debate is the idea of pricing.  How do you price your loans?  There are at least 5 ways I can think of that loans get priced:

1. Opportunistically: You squeeze every dime you can out of people, every time.  This is the "as much as you can get away with," model.
2. Haphazzardly: Similar to #1, but less intelligent about it.
3. Flat Price:  One broker I know charges $4500 per conventional loan and $6,000 per government loan.  He's booming.
4. % of loan amount.   Pretty straight forward.  MAny do things that are based on a percentage of loan amount. (2 out the front, 2 out the rear)
5. Per Work Involved: This is how I price; I do things based on a fee schedule, with modifiers on the loan.

However you price, we want to have a real business.  We want to make sure we're doing everything on purpose, and with the customers best interests at heart.  A rookie originator is worth less than a Mike Mueller is ever going to be (but they often charge more).  I can kick the teeth of any bank in any time I want to, that's the broker advantage...that still exists.  

So I'll tell you how I price loans currently, and I'm looking for feedback of the great cicerones, and those following us.

Minimum: $2,250 in total revenue (I'm on something like a yours-mine-ours with my company).  I will occasionally do a deal for a cooperative home buyer for less, but rarely.  Since I instituted this in July of 2007, I've only come under the wire one time.

Maximum: 4.5% of the loan amount, unless it's a small loan, then it's subject to minimums.

• Basic pricing for a vanilla purchase = 1.5% of loan amount, subject to the minimum pricing.  (Ohio still has its share of $95k houses that are not huts on the river.  Middle America rocks for affordability).  I also add a $425.00 junk fee for processing and paying for the expense that has become the credit bureau. 
• Basic Pricing for a vanilla Refi= 1.875% of the loan amount.  Usually refis take longer, and stress the system out more.  So I charge more.

Now the positive  modifiers:

• If it's for someone who has referred me business: $1,000 in the customers favor, subject to minimum pricing.
• If it's someone that gets their docs to me within 48 hours of request or at appointment:  $600 in the customer's favor.

Now for the negative modifiers (all adjustments are to fee)

• If either the customer or their Realtor is a jackass: .5% my way.  A jackass is clearly defined, and I'll get to that in another post.
• If the customer gets their parents/significant others/any non engaged non professional involved halfway through:  .25%-.50 depending on their level of hostility.
• Government Loans: .75% my way.
• If I have to chase docs for more than a week: .25-.5 my way.
• Investment Loans: $3,000 minimum, 1.0% my way for the first 2 loans from customer.
• If the customer tells me incorrect information: 1.5% my way, and the loan may die if it was organicly dishonest and malicious. 
• Stated, Bank Statement, 1099 or Self Employed Loans where I have to dig through a morass of paperwork: +1.0%, and I give the customer a referral to somone else.
• 911-emergency loans: .5%.  I love these loans, so I don't ding them much.
• Loans with an affiliate title company that does not get me paperwork in 72 hours: .5 (that one is for you, Diane Cipa)

This is for loans that come through my channels conventionally.  I'm experimenting with different marketing and different pricing right now, and I have no problem with big fees--especially when talking to Brian Brady.

I base everything on the amount of work I have to do, as a standard.  I've thought this through, and it seems to add up, but the real gist is that if a customer makes things easy on me, refers me business, I can work cheap.  If a customer is a nightmare, they pay for it.  The most common one I get is the customer being a Jackass and an Investor.   I absolutely love it when I'm saving a deal on a house in contract for an investor, and they try to compare my quote to the one that never closed, and make me compete against a fictional loan. 

Everything is properly disclosed, and I have a very specific spiel for each part of the process, so the customer knows how to get me to work cheaply and what I want from them.   I tell them if things happen that take time, that the loan is subject to repricing and redisclosure.  This is  how Zillow's mortgage marketplace can work for originators.  "All quotes presume that the customer can get necessary documents within 48 hours of request,"

I'm actually rethinking this,

So:

I have three questions: 

1. How Do You Price? 
2. How do you want to price,
3. How should originators price?

Oh, finally, I'm in the last days of selling Loan Officer Survival Guide for $13.50.  I offered 'em dirt cheap in May, and the response has been fabulous so there's no reason to extend my introductory offer.  So if you haven't bought it yet, you've got till Wednesday to buy it, and see what the fuss is about.

Comments

[Rhonda Porter]

Chris, do you actually explain this upfront? I want to be a fly on the wall when you tell someone if they turn into a Jackass, you're gonna charge them! :)

I wrote a post a while back at RCG stating that I thought we (Loan Originators) should be charged hourly instead of based on the loan amount...and we could charge for advice, credit repair, preapprovals, etc. No loan required.

I'm always surprised when I see your points but I forget what your average prices/loan amounts are.

[Genuine Chris Johnson]

Rhonda-

I pretty much do. When I present on pricing I say, that if we have to deal with hostility, we will charge more for that. I agree on the 'hourly' rate, provided that people like you get paid more than jerks.

My average fee is about 3300 bucks. Average loan size is about 160k. I generally make YSP almost exclusively, and I generally give the customer several revenue neutral choices.

There is one realtor that always gets the 'asshole,' rate, and keeps coming back. I don't begrudge my best service to his clients because the drama is built into the price.

[Genuine Chris Johnson]

Bascially--what I say--is "These prices assume that I'm going to get what I need from you to close the loan on time. IF I have to run after documents, or deal wuth unecessary adversity, that takes time away from other things, and that may cause your fees or rate to go up."