Buying a home has to be one of the best things that a person can experience in life. Yes, after long years of dealing with rents, moving, and hard-as-nails landlords, you are finally getting your own piece of haven and place where your family can finally settle.
But, as joyous as this move can be, we have to observe that the real estate market is a complicated mess that plays by its own rules. And with so much money on the table, you do want to make sure that everything runs as smoothly as possible.
So, to make this easier for you, today, we are going to answer one popular question that bothers all real estate newbies for decades now – can a real estate agent also be a loan officer?
This issue may seem menial at first glance, but the conflict of interest is something not to be joked with. So, does the conflict of interest apply to this situation?
Loan Officers Vs. Real Estate Agents
When they are looking for their new home, most of the first-time home buyers will most likely have to work with two types of professionals – real estate agents who help the buyers to find the ideal property and loan officers who deal with the financial side of obtaining a mortgage.
So, what happens when you ask your real estate agent to recommend you a good loan officer, and you receive a business card with the same name on it? Most people would say this move is not strictly illegal as much as it is unethical.
To understand this complicated dynamic and see whether they overlap in a potentially harmful manner, we will first need to spend some time learning the responsibilities of both these sides. We will start with the one we are probably more familiar with – the real estate agents.
The Responsibilities Of A Real Estate Agent
As we briefly mentioned above, the real estate agents are the professionals that are representing two parties during the real estate transaction.
When they are hired by the buyer, they assume the role of a “buyer’s agent,” help their clients to find the properties that meet their requirements, inform them about the current market trends and prices, and guide them through the negotiation process.
If they are hired by the seller (seller’s agent), they do their best to get the best price for the property being sold.
In both these cases, state-licensed agents have to undergo regular training, hold a legal and ethical relationship of trust with their clients, and have to work under the broker even when they are classified as independent contractors.
Of course, the licensing standards may vary from country to country and from state to state. Still, the standards we have described above are considered universal.
Other Types Of Real Estate Agents
- The things we have talked about are the closest definition of the real estate agent you can get. However, it is worth noting that this term is often (mostly by people outside the industry) used to describe other professionals in the real estate market that don’t represent their clients in the same manner the agents do.
- So, to avoid confusion, we will break them down here for you:
- Real estate brokers – Real estate brokers are usually the managers of the real estate agencies. They need to go through the same training as real estate agents, but their formal education does not end at the same instance. In terms of day to day obligations, the job of brokers is to manage operations, oversee escrow accounts, and review contracts.
- Realtors – Essentially, realtors are the real estate agents that are members of the National Organization of Realtors (NAR) – a private association that proscribes its own set of industry standards. Keep in mind, though, that all realtors are at the same time, state-licensed brokers and agents.
The Responsibilities Of A Loan Officer
Unlike real estate agents that are more concerned with the process of finding the property, loan officers are there to help you navigate the financial side of this story. In other words, loan officers are trained professionals whose job is to act with your fiduciary interests in mind and allow you to get the most favorable available mortgage on the market.
The Difference Between Loan Officers And Mortgage Brokers
- But, much like real estate agents, loan officers often end up confused with other professionals that are working in the same niche but don’t quite share the same responsibilities. In this case, those are the mortgage brokers.
- So, to avoid further confusion, let’s break these two professions down for you as well.
- Mortgage brokers – Essentially, the mortgage brokers (they can operate as a group or as individuals) are the independent agents brokering the deal between you and the lending institutions (banks, trusts, mortgage corporations, credit unions, etc.). Their job is to review your personal finances and find the most suitable lender based on that info.
- Loan officers – Unlike mortgage brokers that are the independent third parties mediating between you and the lending institutions, loan officers are directly employed by the lenders. The loan you get at the end is the best suited for your current financial situation, but it is the product of the officer’s employer. Loan officers are also sometimes called “loan representatives” or “account executives.”
- In this article, we will deal exclusively with loan officers. So, keeping in mind that they are employed by or representing the lender, they doubling-down as your go-to real estate agents may be a bit shady. Let’s delve into this problem in greater detail.
Regulations You Need To Know
The answer to the question we have asked in the introduction largely depends on the local real estate market legislation. Since the laws regulating this industry vary from country to country, we will, this time, focus on the United States and present a short overview of all regulations that address the conflict of interest between the real estate agents and the loan officers.
- Real estate agents can help their clients with obtaining their loans only as long as we are not talking about the FHA (Federal Housing Administration). For the people who are not familiar with the term, FHA is the federal institution that insures mortgage products offered by private lenders and reserved for single-family properties, hospitals, multifamily rental properties, etc.
- Real estate agents can’t originate any form of FHA loan if the package is meant for one of their real estate clients (in this case, we are talking about the sellers).
- Real estate agents are allowed to broker and originate conventional non-federal loans such as commercial loans, portfolio loans, jumbo loans, etc.
- The real estate agents with the dual license are allowed to originate federal loans (FHA, VA, and USDA loans) only as long as the client is not at the same time their real estate client (buyer or seller).
Is It Ok For Your Real Estate Age To Originate The Loan?
So, now that we have finally covered all the nuances of the real estate world, let us finally see can a real estate agent also be a loan officer.
From a strictly legal standpoint, the answer is yes. As a matter of fact, the entire industry is filled with hard-working professionals that own several licenses. So, the chances are that your real estate agent of choice also holds the loan officer license and represents some of the local lending institutions.
As long as neither of the parties of the parties is applying for an FHA loan, that doesn’t cause any legal problems. The real trouble begins only if you try to apply to the federal loan through the mediation of the person serving as the real estate agent.
However, this issue can’t be strictly squeezed into the legal frame. Namely, some people hold a strong stance that the real estate agent doubling down as a legal officer in the same case may be legal but not 100% ethical. In their opinion, one person serving two masters inevitably leads to shady deals and a lack of focus.
So, if you really want to be 100% sure that you are getting the best possible deal, you should probably stop cutting corners and simply hire two experienced professionals with your best interest in mind.
On the other hand, some people simply appreciate the convenience and don’t want to bother with dozens of different parties to buy their property. They see the professionals owning two licenses as a way to streamline this already convoluted and tiresome process.
If you are willing to leverage these observations to your advantage, we say go for it. But, be sure to choose your real estate wisely – don’t settle for the first option that seems sensible, ask your friends and family for referrals, and read a couple of online reviews.
Properties are the commodities that are not purchased every day. You got your opportunity now, and you have to make it count. So, don’t rush through this decision.
As we can see from the previous discussion, as long as real estate agents represent the privately-owned lending institutions, they can also be hired as loan officers for the same real estate and by the same client.
The only stipulation is that the same person can’t, at the same time, represent the client as a realtor and originate an FHA loan.
And there are some ethical issues. But, we don’t want to push you in either of the directions because both of the opinions on how advisable is to put your trust in the same person have their merits. So, some thought to both of them. We are sure you will come up with a solution that works the best for you.