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Client Interests vs. Company Interests?

Services for Real Estate Pros with Creative Read, Inc.

November 06, 2007 06:25 AM

An article appeared in today's Washington Post, "Realtor Discourages Use of Outside Lenders," that was sparked by an email sent from Wes Foster, CEO & Founder of Long & Foster, to his agents urging them to refer clients to Prosperity Mortgage instead of "outside lenders." Like many large real estate companies, Long & Foster has affiliated business relationships and Prosperity Mortgage is one of them. The mortgage company is a joint venture with Wells Fargo and has been in existence for many years. The upshot of the article and the furor in the mortgage industry this email created is based on the assertion that there are improprieties in asking agents to refer their clients to the affiliated mortgage company.

From my perspective, this stance is based on a very key presumption that what is good for the company can't also be good for the consumer. Is that true? Are clients ill served in being referred to a well established local mortgage broker backed by one of the largest mortgage lenders still operating (Wells Fargo) just because it is affiliated with the agent's brokerage? Even with all of the lengthy and detailed disclosures required by RESPA? I would be interested to know what you think.

I am not an unbiased observer. Until recently, I was an employee of Long & Foster. In my capacity there I worked with the Prosperity Mortgage managers and loan officers, and also with all of the other Long & Foster affiliated businesses. I also worked with the managers and agents in Long & Foster offices in every region of the company. I'm asking if you feel that agents are best serving their client's interest by "pre-screening out" company affiliated services just because they are company affiliated? Does the consumer really have a problem with affiliated business arrangements, or is the industry just projecting their own issues with these relationships onto the consumer? Can't a consumer figure out for themselves what is good service or bad service, regardless of where they are referred?

The issue may be academic for the thousands of people who debate the "what if's" in imagined scenarios, but I am interested in your real life experiences with this. I have my own real life experience with the subjects of this debate. I'm interested in hearing where exactly you stand on this issue.

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Donna Grady

Keller Williams Realty - Wilmington, NC

Bringing Home Results

I am old school so to a certain degree I do not agree with in house lenders. I think that I am being asked to market a business that is not marketing me. However, I am personally in touch with a bank in our town that sends me leads and splits the cost with me for a toll free call capture number for my listings. I do try to send as many of my "good" credit clients to them as I can. But I do screen my clients needs before I make recommendations of lending institutes. If my client is a member of a credit union, I always recommend they go there first. My company does have an in house lender and I have sent clients to them. It is my choice who I want to recommend. But the choice needs to remain with the client's first.

Nov 06, 2007 03:22 PM

Anonymous

yes

Catherine, nice post... as long as you give the client a choice you are fine.

http://www.gregorygarver.com/

http://www.motelbrokersusa.com/

Nov 06, 2007 06:00 PM

#56

Catherine S. Read

Creative Read, Inc. - Fairfax, VA

The thoughtful feedback and comments are greatly appreciated. It helps to draw a clearer picture of the "real world" circumstances surrounding how affiliated business arrangements are perceived by agents. I have a great deal of respect for the way in which you have chosen to deal with the challenging nature of this industry and I do understand how relationships and referrals are the foundation of your business as independent contractors. Thank you for sharing your insight here.

Nov 06, 2007 11:13 PM

Josette Skilling

Keller Williams Capital Properties - Bethesda, MD

We want people to refer us to others and know that generally they feel better about working with us because of the strong referral. Why wouldn't we do the same and refer our clients to the best person for them - in house or out? As I said in another post on this today, do what's right for the client and the rest will take care of itself.

When the people I use are great at what they do it means I can focus on what I do. In house or out.

If it were me, I'd have phrased that memo differently. The message about more for advertising caused the main message that "Prosperity is better for your clients than using someone else" to get diluted by RESPA discussions about quid pro quo. No one asked me, though :)

Nov 07, 2007 01:28 AM

Catherine S. Read

Creative Read, Inc. - Fairfax, VA

Your opinon very much matters Josette! As a Long & Foster agent, you are the company's "customer" and if the communication isn't effective (or if it's counterproductive) it's important to speak up. The worst thing that can happen is that agents walk away in silent disgust and never allow the company (or Wes Foster) to address your concerns. Feedback is important to building a better company. Thanks for sharing yours in such a constructive way.

Nov 07, 2007 01:42 AM

Abe Do

Olympia, WA

Interesting read....definitely has sparked quite the commentary. I will continue to monitor comments, seems to be heating up even more!!

Nov 07, 2007 02:03 AM

Josette Skilling

Keller Williams Capital Properties - Bethesda, MD

Catherine, I'm sure Mr. Foster is getting all the feedback he can handle right now:) The discussion is a healthy one and should continue.

Nov 07, 2007 02:29 AM

Mitchell J Hall

Manhattan, NY

Lic Associate RE Broker - Manhattan & Brooklyn

As an independent contractor no broker I work for can ever force me to recommend an affiliate that I didn't think was the best. Having said that I have not only been able to get my clients good deals, I have been able to get buyers represented by another agent who bid on my listings better deals through my affiliation. I have not only saved another agent's buyer money but I can assure my seller that the loan will close.

Nov 07, 2007 03:04 AM

Catherine S. Read

Creative Read, Inc. - Fairfax, VA

You bring up an excellent point Mitchell - being able to help the client on the "other side" of the transaction. That is a bona fide benefit to your sellers to know the deal will close. Prosperity Mortgage does that regularly for the agents who use them. Another L&F affiliate, Long & Foster Insurance, has bailed out more deals at the closing table than I can enumerate because someone forgot about homeowner's insurance until the last minute. One phone call and people are jumping through hoops to make it happen - for the agent and for the deal. The affiliates are aware they have to be better than "outside" alternatives. And still they are regarded with suspicion by many.

Nov 07, 2007 03:15 AM

Robert L. Brown

www.mrbrownsellsgr.com - Grand Rapids, MI

Grand Rapids Real Estate Bellabay Realty, West Mic

I believe the best transaction is an "arms length" one. There are times when someone in-house can be beneficial to your client. But it should be on a case by case basis. As an independent contractor my broker could not "force" me to use someone. I would along with client make that determination.

Nov 07, 2007 05:03 AM

Jim Willis

Rose and Womble Realty - Virginia Beach, VA

Knows Virginia Beach Area Real Estate

Most sizeable real estate companies have been developing a "one stop shop" by having ownership interest in many areas that are related to Real Estate ie title, mortgage, and insurance companies.

To say that the principals in these Real Estate companies would prefer that their Realtors use these affiliate organizations is certainly accurate. The organization that I'm associated with as a Realtor is no different.

They prefer that we utilize these affiliate companies but there certainly is no pressure to do so. The article seems much ado about very little unless Long and Foster is pressuring their Realtors unduely or are offering hidden incentives that might be problematic.

A bigger issue in my opinion are the many "charlatan type" mortgage people from the internet that try to take advantage of unsuspecting home buyers.

Nov 07, 2007 07:05 AM

Catherine S. Read

Creative Read, Inc. - Fairfax, VA

Jim I appreciate you bringing the Internet lenders into this discussion. As I mentioned to Esko in an earlier comment, when price becomes the central focus and consumers are shopping only for the least expensive product, they are not necessarily comparing apples to apples. Many of us have become accustomed to shopping online and to a certain degree we are comfortable with the anonymity of doing business with people we never meet. But funding a mortgage isn't like buying a book or making an airline reservation and I'm not sure consumers understand that predatory lending can happen anywhere. I think that's where referrals from agents become centrally important to buyers successfully obtaining reliable financing.

Nov 07, 2007 07:22 AM

Vero Tabares

SymphonySEO - Baltimore, MD

People like choices.....If Realty/Mortgage companies did the Progressive Insurance Approach, they'd gain a lot of credibility and potentially more sales.

Nov 07, 2007 07:35 AM

David H. Stevens

HUD - Fairfax, VA

Wow - I am a relative new comer to the Long & Foster family, but I was surprised by the reaction to a simple memo. When I go to Bank of America, they thank me for being a "premier" customer. They try to cross sell me mortgage, credit card, and financial planning services all the time. Wells fargo has a goal of the "super 8" which refers to their objective to cross sell a customer 8 products.

Wes did what any good ceo does - put emphasis on the family of services in order to maximize the return to the company. Since agents are independent contractors, he knows that these objectives can only be requested, but it is his obligation to ask, or "beg" as he put it.

I was most by surprised by some of the agents who have been here for a decasde or more and both contributed to the success of the company but also benefit by the brand recognition of this company, but complained about this. I think the debate is almost out of control, although I really appreciate Catherine's post here. Do we get as fired up when other executives promote their internal partners in internal memos to their employees?

One last point, read the front page story in Mondays (nov 5th) Wall Street Journal about the ousting of Chuck Prince. In that story they said one of the key reasons he failed was the failure to successfully integrate all the Citi business lines. It goes on to say the Soloman Borthers people refused to change their phone response and continued to answer the phone "soloman" at their bond dealer desk.

Our affiliated companies (prosperity, the title companies, and insurance) get almost blackballed by many outside non Long and Foster companies because they are inside this company. These folks are different because if they don't do a better job for the homebuyer they have no where else to go. They have to be better all the time. Outside players can make a misstake and if the do, they can go try to get business from Remax, Weichert..or someone else.

Choices still exist. Competetion will always be there, but Long & Foster would be a stronger company right now if more clients worked with all the businesses. The retunrs would be higher, the company would be able to do more, and the consumer would win out be getting the services of companies that simply can't afford to screw up.

Just sayin

Anyway, thanks Catherine....

Nov 07, 2007 11:24 AM

FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com

Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

I think the comments are missing the point of the debate about the letter.

Of course companies should be allowed to profit and cross sell.

The question however is RESPA and if it is a violation to have the agents indirectly benefit from recommending ABA (affiliated business arrangements) partners. Unlike lenders, Realtors have a FIDUCIARY DUTY to do what is in their CLIENTS best interest, and not what is in their personal best interest.

It is against the law for agents to get a direct kickback on loan referrals. But is it ok for them to get INDIRECT benefits?

Is it ok to have a slush fund available ONLY to those that use the partners. (one commentor on my blog said that was the case)

Catherine,

Can you tell me what you WOULD consider a RESPA violation and where that fine line is in your opinion?

Thanks and congrats for the feature!

Nov 08, 2007 01:30 AM

Catherine S. Read

Creative Read, Inc. - Fairfax, VA

A slush fund? Not to my knowledge. I've sat through many a weekly sales meeting in the branch offices, company-wide managers meetings, and Executive Committee meetings over the last 5 years and while discussions have focused on how to get greater usage of affiliated businesses, everyone clearly understood what violates RESPA. Why would a company the size of Long & Foster that's been around 40 years take the risk of violating the law to increase mortgage usage? Even in developing advertising campaigns that promoted affiliated partners, there was always discussion of what did and did not violate RESPA. Long & Foster is a company that errs on the side of being conservative in nearly every decision they make. Even the possibility of additional profit is not enough to take those types of risk for this company.

What does happen is that at branch sales meetings, agents are recognized for the amount of business they refer to the affiliated businesses with a paper certificate that probably costs about 10 cents to produce. The hilarious part of that exercise are the times I've seen agents being recognized in sales meetings who had no idea what they were getting a certificate for! The manager had to explain it to them. Which tells me the agents are not referring business to affiliates because of receiving recognition. At those same sales meetings, agents are recognized with a Long & Foster Service Star for surveys that are returned from clients saying what a great job they did. You could ask why in the world the company needs to publicly recognize agents who are simply doing their job, but that is the nature of a sales organization. Is it not? We motivate people not only with money, but with recognition. Relocation recognizes agents who refer business to the Relocation department. Isn't that standard operating procedure for sales people in a sales organization?

I have seen no evidence of kick-backs, monetary incentives, slush funds, additional advertising or anything else to agents who support affiliated businesses over those who don't . What agents have received is RECOGNITION in the company of their peers and a 10 cent paper certificate printed out at corporate headquarters. Which may account for why usage seems to be pretty flat. For a group of professionals motivated by "What's In It For Me?" how many paper certificates can they get excited over?

Nov 08, 2007 02:50 AM

Tchaka Owen

Galleria International Realty - Hollywood, FL

Catherine - the past decade has shown us that the craziest things can occur in business. Look at Tyco, Enron, Global Crossing and others. Companies way larger that went astray and still boggle our minds why. Yes, arguments can be made that they're public, that shareholders want to see profits, etc, but the underlining fact remains that we are aghast that their leaders would do such highly unethical things.

To all - it appears that this discussion has veered off course. The issue at hand is about RESPA, affiliated companies and potential kickbacks. It's not about frying L&F. Wes Foster sent a letter to his employees which in my opinion should not have gone out because it walks too close to the line of potential kickback. Is L&F getting a kickback from Prosperity? I don't know. Even if L&F isn't, the perception exists that there could potentially be a kickback. Whether we like it or not, perception matters in this case.

Though Wes Foster may have erred in judgment by sending out this letter, that is not to say he is a bad person, that he's real estate's Skilling or anything of that sort. He made a mistake. We all do. Short of proof that he's involved in improper dealings, it's unfair to say that he definitely is. I admire the guy for building such a successful company For those AR members who are not from the mid-Atlantic, L&F is household name (no pun-intended) here. Also, L&F as a whole isn't (or shouldn't) be targeted because the Wes Foster's letter.

Instead we should refocus on RESPA. What the boundaries are, what checks and balances are or should be in place, how to ensure transparency and so forth. That will clear up a lot of things.

Nov 08, 2007 04:25 AM

David H. Stevens

HUD - Fairfax, VA

Frank - "kickbacks"? There is nothing of value, not will there ever be, provided to an agent for referring a transaction. Long & Foster company, which pays the costs for offices, buildings, lights, advertising (their portion of it), computers, IT development, Human Resources, Legal, E&O insurance, etc....etc.... uses it's company revenue to cover costs and profits to grow the company and make it better than it's peers. The company profit comes from all the businesses.

The mortgage, title, insurance businesses all provide a consumer benefit. They provide a one stop shop with much more attentive service levels to the agent and the home-buyer. In addition, because of the investors in the market who are eager to be involved with te quality of the purchase market, they get great business terms that get passed onto the consumer for their direct benefit.

Should other players be able to compete? Yes! They do every day. They win some and lose some, just as Long & Fosters companies do. Wes only asked - yes, asked - that they try to use the in house companies in order to keep the company strong, and this use does make Long & Foster a more competitive brand in the market over time. As the post article said regarding Wes's comments - he knows he cannot demand. He never does that, he just wishes they would try to use them more.

Every major Realtor has affiliated businesses in it's company. Weichert, Remax, Coldwell Banker, C-21, Prudential, etc.......it's key to corporate success, it's key to consumer satisfaction as proven in a multitude of studies (go to the RESPRO website), and it's a great way to keep the industry strong especially in correcting markets like this one.

Nov 08, 2007 04:31 AM

Tchaka Owen

Galleria International Realty - Hollywood, FL

David - "There is nothing of value, not will there ever be, provided to an agent for referring a transaction" and "They provide a one stop shop with much more attentive service levels to the agent".

Help me out here.

Nov 08, 2007 04:39 AM

Catherine S. Read

Creative Read, Inc. - Fairfax, VA

I appreciate the spirit of this debate and I don't feel that those who have commented are taking personal shots at Wes Foster. Would I have worded his email the way he did? Probably not, but it's not my company. It's his company. And let's remember too that agents affiliated with Long & Foster chose to be there. I know there have been former L&F agents making comments both negative, and in the case of Cindy Jones, positive. But independent contractors hold very dear their right to pack up their marbles and go play somewhere else. As Dave Stevens points out, most other large brokerages have the same affiliated services and are working to sell those services through their agents as well. There is a sense of "team" among affiliated partners in the sense that when clients choose to use Prosperity Mortgage, L&F Insurance and an affiliated settlement partner, those people all work together regularly. If you want to talk about the importance of relationships, and many agents have certainly flogged that in this forum, all of those affiliated service professionals have a certain level of commitment to one another not to be the one who drops the ball in delivering a smooth transaction to the client. It's not all about the agent-client relationship. By necessity there are other professionals and companies involved in a real estate transaction and those who work together regularly and well, do deliver a very high level of quality service to the client and to the agent as well.

Nov 08, 2007 04:51 AM

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