One-Stop Shopping

Major forces in the industry keep trying to convince Congress that consumers want one-stop shopping for all real estate services when they buy a home. I’ve met thousands of those consumers and the ones I know are more interested in getting the best combination of service and price and don’t seem to give a hoot about one-stop shopping.

The reason for the real estate industry’s obsession with this is that the major companies all have gotten in to these other related businesses and they want to “steer” customers to these other entities so they can make more money. These other entities are mortgage companies, title companies, escrow companies, inspection companies, and so forth. They are referred to as Controlled Business Entities, or CBE’s.

I certainly have no philosophical objection to this, it being a free-market economy, but my experience in looking at the last twenty years is that the service provided by these captive companies is seldom as good as those provided by companies that have earned their share of the marketplace through hard work.

What happens, typically, is that the real estate agents try their company’s new related services. They find that they don’t care for it, so they go back to their traditional service providers. You can imagine how their management feels about this! They know zip about the service being provided by the competition; they just think that their people can do just as good a job and they don’t understand why the agents won’t use them.

So the situation is that these companies make an investment in these new entities and the volume and profit projections they make aren’t met. What happens next is that management starts to pressure the agents. This happened with my wife’s company and it got so offensive she finally got fed up and went to another firm. Pretty silly to lose a good agent over something like that!

When the pressure doesn’t work, management tries to incentivize the agents to use the services. This is illegal because Federal Law forbids kickbacks for referring services in all aspects of the real estate industry. The incentives are correctly interpreted as being kickbacks, so they are forbidden.

That doesn’t mean that kickbacks don’t happen. I hear lots of stories. Agents who steer lots of business to the CBE’s find that they get a slightly better commission split, or when someone calls the Manager with a listing, it gets referred to the person who “plays ball.” That, too, is illegal but it goes on all the time!

This is invariably accompanied by a policy forbidding the sales people from competing entities from coming into the office. They don’t want to make it easy for the competition. Real Estate companies even use the words “CLOSED OFFICE.” That terminology used to get Anti-Trust people motivated, but no one in HUD or the FTC seems to care about it here.

When you consider that the purpose of the Federal laws is to allow consumers the ability to chose whoever they wish, you just have to be amazed at all the efforts the management of the real estate industry to circumscribe their customers’ choices.

In the meantime, if you’re about to buy a home, discuss this situation frankly with your agent. You want to get good service at a reasonable price. If your agent suggests that you use a CBE, ask if you can compare with another recommendation s/he might have.

This CBE issue also affects the new home industry too, a topic I’ll discuss in more detail next week

Be careful out there!