Every time I represent a client purchasing a “builder” home, it makes my blood boil when I hear the salesperson list all the “incentives” the builder is willing to concede only if the buyer “chooses” the builder’s preferred mortgage company. That is right before they ask the buyer to sign a notice that he understands the mortgage company is actually owned by the builder.

This doesn’t smell like fish to anyone else? First of all, many of these so called incentives, the seller is supposed to pay for either way, i.e. title commitment. And I surely don’t have an issue with the builder getting first shot at the buyer (especially in build-from-scratch situations) to ensure that they are not building a home for an unqualified buyer. The problem arises when the builder, mortgage company doesn’t feel like they have to be competitive in the rate or terms department because after all the buyer is getting the two inch blinds because of it. I understand that by naming it an “incentive” legally they are not obligated to offer it unless they set a condition. But last time I checked, there is no “exclusive” relationship allowed in the mortgage business. In other words, you cannot force someone to go with a particular company in a similar fashion to the real estate industry. In my view, the current setup constitutes an unfair advantage to the builder because even if a competing company beats the rate and terms of the builder’s company, there is no way you can offer the buyer a refrigerator, washer and dryer and $3000 in upgrade (singular on purpose). Such an unfair advantage should not be allowed because it ultimately punishes the consumer who gets stuck with a higher interest rate and a washer that they paid through their origination fee.

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