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Client Interests vs. Company Interests?

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.

Posted by Catherine S. Read on 11/06/2007 02:25 PM

Comments (76)

mortgage, affiliated businesses, consumer services, respa, agents, corporate, brokerage, real estate companies

Post is included in group: Prosperity Mortgage

76 Comments on Client Interests vs. Company Interests?

NOV

2007

Catherine,

You've raised a good question. I think the answer lies in the quality of the loan officer or any other service provider you recommend. If you recommend a bad service provider than it's clear that you're looking out for the company interest as well as maybe your own. If on the other hand, your service provider is excellent than you are indeed looking out for the best interest of the client. And it's in the company's best interest to affiliate with the best service providers so that the consumer has a positive experience all around. So, provided we have excellent service providers, which I can say I do, it's a win/win for everyone. What's wrong with that?

Doesn't it always come down to individual service providers? If we peel back all the labels and mumbo jumbo, we pick other service professionals who will deliver really great service to the client. It ends up reflecting on everyone involved in the transaction - including the company.

It seems to me that the very reason companies expand their business bases into multiple divisions is to offer the best in products and services to their customers and to have oversight of the referrals to those divisions... no matter what the industry. Sprint/Nextel has several divisions, all referring business to each other, as does Marriott, Time-Warner, and so many other publicly traded companies. This is an example of good business practices meant to enhance the customer experience, not detract from it. The companies that survive and thrive are those that offer this full-service, value-added experience.

Good or bad service can be found at any one given time within a company. There can be one good agent and one bad agent one day and that can reverse rolls on any givin client. What if the client and broker just do not see eye to eye and that is your best mortgage broker. It just happens that sometimes they just do not get along.

So, I do not know if you are giving a referral then you are giving a referral and leave it at that and the client will know what is best for them. They found you didn't they?

Do not pressure me to use the companies companies unless they are the best. I can decide that. Its another profit center for the company at whose expense?

Thanks for all your help, what a great help you gave us.

@Pam - Point well made. I think part of the issue in this case is that agents are independent contractors. How much should we expect from them as far as being "company people." I think each agent views his/her relationship with the company in a different that affects his/her perspective and therefore support of corporate objectives.

@Susan - I can tell you've developed your philosophy, a very wise one, based on experience. There's a saying that we are all only as good as our last contact with the client, and sometimes things do go wrong even with the very best service professionals - including agents. Thanks for your response.

@Eric - Profits from the company go where? As Pam pointed out they are re-invested in the growth of the company in most cases, and certainly in this particular case. And why is it at someone's "expense" if the service meets or exceeds expectations? But you do give some insight on the fact that there are agents who do "the deciding." Thanks for your comment. It's really what I wanted to know.

What is wrong with referring a buyer prospect to the best resource? All agents have the opportunity to build relationships with lenders, title companies, home inspectors, etc. Prosperity Mortgage happens to be one of the best lender resources available to the consumer in our marketplace. They are reliable, trustworthy, offer all of the Wells Fargo Home Mortgage products, and most consumers appreciate one-stop shopping. Long & Foster agents and their clients know they can trust the Prosperity loan officers to get the job done.

How does that harm the consumer?

Thanks Lars. I believe that Wes Foster would not ask agents to refer any provider that was not in the client's best interest. I think he's invested a lot of years in developing a mortgage company than enhances the services L&F agents provide to consumers and he would like for the agents to actually use it. If I were CEO, I'm fairly sure I would feel the same way.

As a Long & Foster agent, I do offer clients business cards from more than one lender because clients are prone to shop and they like having choices. If I only "pushed" Prosperity, I believe it would affect my credibility because most folks are naturally a little skeptical and might feel I wasn't looking out for their best interests. By providing them more than one choice, they tend to believe I am doing what is best for them, not necessarily what is best for Long & Foster; it's a tough spot for agents, because in this case, we serve two masters, as they say. My philosophy is, if the Prosperity loan officer offers the best service and the program they need, then that's the mortgage lender with whom they are going to work.

I feel my job is to let clients know what Prosperity offers and I certainly reinforce the service aspect, but at the end of the day, I am not making the decision - the client is. In many cases, my clients have chosen a lender that offers a couple of programs Prosperity simply does not offer. Unless there is a red flag or I see something I truly believe may not be in my clients' best interests, I am not going to interfere in that decision.

Well put Susan. I think it is the client's decision and they should be offered all the options in order to decide. You seem to have an approach that works for the client, for you and for P.Wesley too.

How many choices do you need to give a client before they don't feel pushed? Some people come in with their lenders already and that's okay. Some people are looking to you because you're the expert. When you visit the doctor and he says you need to seek the advice of a specialist do you ask for more than one recommendation...usually not. If this is a professional you trust, you (or maybe it's just me) trust his judgment and move forward with the recommendation.

Dennis always says "Don't project your values." Are agents projecting their own viewpoints onto the client when deciding how they will advise them? Is it really about what "the client wants"? What if they don't know what they want?

I also agree that you should give your client diifferent options. They need to feel that they made the final choice.

Thanks for the feedback Adele. I'm getting the picture that every agent has their own style when it comes to referrals.

NOV

2007

Catherine,

I posted this on Frank's blog also. Let's take a look at new homes builders. They tie huge incentives to using their lender. When you go talk to them, their rates are not competitive and they charge some interesting fees. And did you know that many new homes contracts require the grantors tax??

While Mr. Foster is asking us to use the partners, there are no huge incentives to the buyers to do so.

The thing that really bugs me about the Post article and some other blogs that I've read is that Wes Foster's e-mail is being construed as some sort of directive. He is being maligned for simply requesting that L&F agents use our prestige partners. No where in the e-mail does he insist that we do anything that that contravenes the best interest of our clients. He simply points out truths that some may not have considered. Those truths include the fact that L&F is not one of Bank of America's preferred real estate companies even though our agents sent them over 2200 loans this year. My experience is that most people buying homes now a days are pretty savy. They want options. What is wrong with asking agents to make their broker's mortgage affiliate one of those options?

@Nancy - I agree that no one is taking on the mortgage connection to New Homes Builders or crying "foul" over that. But again, independent contractors are not as involved.

@Boomer - An excellent point Boomer. There are lots of interpretations that can be placed on this email. There is a matter of intent, and perception, at play here.

Hello Catherine,

Great post. I wrote one too over here.

I have no issue with a broker recommending a lender. I do hesitate, but ultimately have little problems with the broker making money on the lending side (still open to debate on this).

The problems lies with how far does one take it.

Where is the line between "asking" and "telling?"

Is "nudging" ok, are "bonuses" or "awards" ok?

How about the subtle office cold shoulder if you don't use their partners?

While many say that they do give options and don't get bullied into using partners, some aren't as strong and they are voicing that they have been victim to these pressures.

Do we agree that pressuring, no matter how little, is inappropriate?

If that letter is pressure or not, that is for everyone to debate (will somebody post it here?). But can we agree at least that pressure, bonuses, awards, and DIRECT benefits might not be following RESPAs intent.

If we agree on that, then we can debate whether INDIRECT benefits such as "more advertising" (and I assume that means to ALL agents without regard to who uses partners) is acceptable.

Thanks for the post and the insider thoughts.

Frank

Catherine - you write: 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?

I am sure that is the presumption made by some. But I believe that to be a naive presumption. I also think it is incorrect to assume there are improprieties when a referral is made to the in-house lender. I believe the question on most people's minds is whether when such a referral is made, if it is 100% clean. That then leads to my question which is whether there's any way to ensure that such referrals are above-board. At this time, I can't say I have the answer.

@Frank - I've sat through many a Top Producer luncheon, breakfasts and other company events where Wes Foster brings up the use of affiliated partners, or lack thereof, and some agents have been very forthright in saying why they don't or won't use them. Wes Foster understands that the agents are his customers too, and the fact that so many of them have been there 10, 20 and even 30+ years without using affiliated business partners speaks volumes about the relationship between L&F agents and their company. Mr. Foster would like them to support affiliated businesses that serve the interests of the consumer as well as benefit the health and well being of the company. He doesn't penalize them when they say "no" - he just keeps asking and asking and asking.

@ Tchaka - I'm not sure what "100% clean" really means, but the consumer has been left entirely out of the equation in this debate. We speak about referrals and what is appropriate and inappropriate as if these buyers are helpless children who can't figure out what is in their own best interest without their real estate agent telling them. I don't believe consumers blindly follow their agents advice when it appears to be counter to their own best interest. I happen to think the majority of agents are ethical and choose to advise their clients based on what they feel is "right" within their own sense of what that means. "Right" obviously has a different meaning to each of us. But I do appreciate your viewpoint.

I believe that the client should have choices -- having said that, I do encourage the buyer to use a trustworthy lender. The disclosures are meaningless -- have you tried to read and understand them -- what a joke! I guess it whether one pushes an affiliated lender would depend on all of the cirmstances. I don't think L&F is always looking out for the best interests of the buyer -- sometimes that interest in conflict with the client company that hires L&F. Just my .02.

I can appreciate your point of view Joan. I think many situations come down to the specific circumstance and the individuals involved. I am biased in saying I think Long & Foster agents are some of the most professional, ethical and well trained agents in the industry. Not 100% of those agents are great all the time and neither are the service providers they recommend either inside or outside the company umbrella.

I do think it is important to give buyers several options. Good post

This is just one of many forced issues at this outfit. The agents don't receive any of the bonus through the sales of the home warranties, $20/mo. + to the agents for hospitality (coffee)...I just don't get it. Times and the Industry are changing back to a positive relationship between the agent and the company.

Catherine - thank you for your response. I must say that I disagree with you in terms of buyers figuring out what is in their best interest. In the Washington, DC area buyers tend to be well-educated and show up with some idea of what's going on. But in many other areas buyers are just like "helpless children". It is that very reason that you get so many horror stories of people losing their homes because they were put in the wrong programs and/or given horrible rates and can't afford their places anymore. High-credit borrowers put into sub-prime programs, etc, etc. And in the DC area, I work primarily with 1st time home buyers and though generally on top of things, they tend not to know much about the lending side and rely on guidance. At least that's been my experience.

Cheers.

I am a former L&F agent and I can verify the pressure these companies put on agents.

Catherine, I think it all depends on how you feel about the affiliated companies you work with. My company is affiliated with not only a lender, but we also own (and affiliated obviously) an escrow company and 1/3 of a title company. To be honest, I don't like our affiliated lender. They are slow, have no clue what customer service is and are generally incompetent.

However, our escrow and title companies are great! The escrow officer I use is part owner of the company and she has 30 years of experience. She can solve 99% of the problems we encounter and I find her to be very helpful. Our title company reps are VP's of the company and can get us anything we need for title problems.

Personally though, when dealing with a client, one of the things I let them know is who we are affiliated with (and they sign a disclosure also) and then tell them what I think. I tell them to shop their loan with at least 3 different banks, mortgage brokers, etc. Sometimes I will refer them to my lender (not the one we are affiliated with) and have them get a quote. When it comes to escrow and title I tell them that I use them all the time, however it can be up to the seller in some cases (REO's, etc.) or they can choose their own if they do not want to go with ours.

Catherine, In our county our local MLS frowns on such practices. However, if it is disclosed to the client that the two companies are affiliated then their are covered.

Catherine, I have worked for two companies where the in-house lender was one of the best and I had no qualms about recommending them. However, I recently worked for a firm like Long and Foster and I used their mortgage affiliate once...it was a terrible transaction and we ended up switching lenders a week before closing. Yet, that firm kept selling their one-stop shopping as if they were better than the rest when in fact almost no one would used their lender. I didn't like the pressure to use affiliates that I felt were not the best. It truly depends on the of the lender.

I'm a current Long & Foster agent and can verify that there is no pressure put on me. And I do use the partners. Do I get a bonus if I use them? NO. Do I get rewards or awards?NO

What I do get are transactions that close.

Catherine,

Good post. I did not realize that down in the DC area this had been a problem. I saw the email and decided that i would do what I have always done which is to provide my clients with the names of three or four mortgage professionals who can help them. This is the same that I do with home inspections etc. I was taught very early on in my RE career that whatever you do think about protecting your license. Let your client decide and whilst you can give advice it is their decision. You are their AGENT, not their decision maker.

Was it wrong for Wes to ask his agents to support Prosperity, I don't believe so, he set this company up to help his agents, so he is encouraging his agents to make use of it. But as some have said it is often the personal relationship a client has with the mortgage professional that seals the deal. if they like the person and the rates and fees are fair they will go with them.

Nick

Nancy,

There is no pressure since you DO use the partners! The entire question is what if you did NOT use those parters, would you be pressured?

And if so, is that pressure wrong?

Wow! I appreciate the time everyone put into responding to this post. I think there is real debate about where company affiliated services fit into the picture of what agents provide to their clients. It's a unique situation because of the independent contractor status agents have with their brokerage. Agents are concerned, rightly so, with their relationship with their clients and the health of their own personal business. Wes Foster has to think about the health and well being of an entire company. Agents don't get up every day and go to work wondering how the electricity bill will be paid on 250 offices that have Long & Foster on the building, but someone has to be concerned with that. Affiliated businesses are a natural follow-on to core real estate services. They can and do provide value to the consumer as well as benfit the company financially. I don't believe those things are mutually exclusive. But I can respect the many points of view that I am seeing here and that personal experience has led some agents to reach a different conclusion.

As a new homes sales agent I was instructed to have all the buyers that were interested in buying from this high profile traded on the stock exchange builder qualify with the lender that was associated with this builder. The client/customer could choose to work with another lender, but it was part of the contract that the XYZ company would get a loan application from the buyer. If the client/customer refused to comply with the builders demand they did not purchasea home at this community. Many buyers were lost and not happy about the its my way or the high way kind of treatment. I felt that the buyers could have done better getting a loan from an outside lender, because it was apparent that the builders lender was making a sweet deal, and if the buyer chose to go with an outside lender after filling out the loan application, it was the sales agent responsibility to grind on the buyer about working with a outside lender and try to convince the buyer to go with XYZ. No fun. Many buyers were not happy about doing a double application, to acquire a loan to purchase a home from this builder. The builder was counting on the fact that many buyers would not go in search of another lender, once the paper work was complete.

Lorraine

I'm glad you made the point Lorraine. What goes on in the new homes industry with buyers strong-armed into using the builders financing is far more aggregious than what were are discussing in referring buyers to an affiliated mortgage company as an option. And yet there doesn't seem to be the same kind of debate on that issue that we have with this one.

STEARING----RESPA----Does this not mean anything anymore...what if this small mortgage company can not do a loan due to the inability to find a lender? The big banks and big lenders usually only work with bigger brokerages that do upper volumns of loans...some require you do do 50 or more loans per year. Some lenders give rate decreases to Mortgage brokers based on volumn. Greed never helps and can make one appear unfaithful to helping their client or helping themselves to screw the client.

I think it is very much a two edged sword. On one hand, if the in-house provider is not as good, there is a problem with recommending them anyway. This could be compounded by the other selections the agent may (or may not) offer. If the consumer isn't provided with a good selection of lenders, or is steered towards a bad lender, the industry at large will get a black eye over it.

On the other hand, if the in-house company provides excellent service, then they should be able to win out over other strong selections offered by an agent. So, because the quality is great they are still the preferred choice.

What it comes down to is that if the CEO of the parent company has to chastise his agents for not sending enough business to the affiliate company, it leads one to wonder if the problem is that the affiliate isn't as good as other sources, or if the agents are just that afraid of the appearance.

Personally, the first thing pops into my mind is that there is a performance reason that drives the business elsewhere. If I had an affiliated company (and I actually do), I might be able to keep better pressure and communication going. With a random company, that may no longer apply.

very good post! How long have you been doing mortgages?

I'm a former L&F agent and I didn't feel pressure to use the services but every month a report came out by office about the use of Prosperity Mortgage and there was discussion when the numbers were low. I still have a Prosperity Mortgage Professional that I recommend to clients because he does a great job and that is the only reason I ever recommend anyone whether it is a title company, mortgage company or handman. When they do a good job we look good too!

@Chuck - I don't know that referring to an affiliated business is "steering" a client anymore than referring them to your home inspector of choice or the termite company that comes through for you. Agents have preferred providers whether you call them that or not. Prosperity Mortgage is a joint venture with Wells Fargo. Yes there are loans on which Prosperity is not as competitive as other companies, but Prosperity also shows up the day of closing with funds nearly 100% of the time (I don't have exact stats on that.) Prosperity has also bailed out transactions where the funding fell through the day of the closing - sometimes where the buyer was not a Long & Foster client. But I don't see anyone stepping up to plate to talk about how having an in-house mortgage company can save a deal. Prosperity has, and they do, regularly.

@Lane - I think if you look at Chuck's comment above you will see one of the reasons that agents don't want to refer clients to affiliated mortgage companies: [Greed never helps and can make one appear unfaithful to helping their client or helping themselves to screw the client.] It's a matter of perception. As I said in an earlier comment, it's important not to project our own set of value - or perceptions - onto the client. Another perception by agents, and I've heard it many times: "I'm not going to put another dollar in Wes Foster's pocket!" As if he's stuffing dollar bills under his mattress instead of re-investing it in the company. It's difficult to manage the perceptions of 16,000 agents. Many of them arrive at the company with these beliefs. And Wes Foster is very persistent. To know him is to understand he does not take "no" for an answer. He just asks the question a different way on another day until he hears the answer he wants. This email was the different way on a different day than what he's done before.

@Family First Mortgage - Long & Foster has had a mortgage company for as long as I can remember, and I arrived at the company over 20 years ago. The joint venture with Wells Fargo is more recent. I want to say the original JV with Norwest was back in the early '90s. It's a well established and reputable company.

@Cindy - Thanks very much for being the voice of a positive experience. That supports my comment above about the quality of mortgage services being provided. In fact, Prosperity Mortgage does a lot of business from other agents (like you) who are not affiliated with Long & Foster. Wes Foster sees those numbers too and wonders why Prosperity can get referrals from other "outside" agents and not the ones at L&F. If you take a moment to see it from his perspective, it's a bit easier to understand where he's coming from.

I will go back to your title, clients vs. company. You always put the clients best interests first. There is nothing wrong with referring the client to an in house provider as long as they are qualified to get the job done. As a part of my job and for my clients best interest I screen my vendors really close. Just being in house will not get you my business.

Thank you Michael. So the rest of that final sentence might be "and being an in-house provider will not prevent me from giving you my business either." Yes? A very practical way to look at it. All businesses should ideally be meritocracies.

Personally, I never refer my clients to just one mortgage broker. I find that it's better to provide my clients with 2-4 recommendations (depending on who I think will click with my clients), and let them shop and choose for themselves. Some of my recommendations are affiliated lenders, some are just lenders I've had good experiences with. But I don't want the liability of being accused of directing them to one individual or another if something goes wrong. I provide names and numbers, and ultimately they choose which of my recommendations (or their own person) to use.

I do think there's a distinct benefit to the client of working with a lender that their agent has had a good experience with, as they're that much more likely to have a good experience themselves and get their escrow closed.

I think some of this does come down to what you feel comfortable doing Cindy. When things go wrong, blame is liberally spread among all the parties. I've been on the receiving end of that myself: "I would never have used that mover except my agent told me to." When in fact they had a choice of three or more movers and selected the one they wanted. But it came back to the agent referring them to Long & Foster's Home Service Connections program (I was the Director), and everyone got a share of the blame for a bad move. I can understand the difficult situation agents are in when they refer anyone to a client.

Hi Catherine. Excellent topic. My firm has a partnership with Wells Fargo. With the current mortgage climate I think it was one of the best things they ever did. Wells is a great bank and having a private mortgage banker is a service I can offer clients.

Most major firms in NYC either own or have a preferred lender. Consumers have many options. I know several really good mortgage brokers that I can recommend but our Wells mortgage banker can get a client a commitment in 24 hours guaranteeing the funds at closing. I would be remiss if I didn't recommend them.

I don't think the affiliated businesses are necessarily any better or worse for my Buying clients. But I do know they have to overcome a lot of suspicion that there is something going on behind the scenes and not everything is being disclosed. That is MY suspicion as an agent.

Thank you Mitchell, I appreciate you sharing a positive experience with an affiliated mortgage company. Wells Fargo has been a great partner for Prosperity Mortgage. When agents talk about products and pricing not being competitive with other lenders, much of that is because Wells Fargo has been far more conservative in the types of loans they will underwrite than some of their competitors who are now out of busineess or in deep financial trouble. Prosperity Mortgage consistently delivers the loan the day of closing. That has to count for something.

I think your suspicion is shared by many Sarah, but I don't believe it's founded. It's just a perception. Many other types of companies diversify their services in order to stay viable. But those other corporations are not staffed with independent contractors the way real estate brokerages are. I think expanding beyond the core service of real estate into other services does make agents leary, but it's becoming increasingly important to do that for the financial health of the brokerage. It's not consumers that have a problem with this arrangement. It's agents. And how do you overcome that?

I've always felt that my clients are entitled to the Very Best in every aspect of the real estate transaction. If an affiliated company is truly the best (service, price, etc) then I recommend them. If they aren't, I don't.

And Sharon that is a great way to do business and stay in business. I think Wes Foster is only asking his agents not to turn away from the affiliated mortgage company simply because of that affiliation. That is putting up a wall that isn't benefitting anyone. Evaluate the individual loan officers and the underwriting process on their own merits and quit looking at the label!

Catherine,

Companies that have affiliate relationships like this, in-house lender in this case, of course are looking after themselves first. The product they offer could be comparable to outside products, but it often is more expensive. Consumers would be better off at least initially to shop around.

Well Esko, this comes back to my initial question of mutual exclusivity between the interests of clients vs. the company. You seem to be falling on the side of "company benefit" at the "expense" of clients. I agree that a cheaper product can always be found. I would point out that a cheaper agent can always be found as well. "Value" isn't the same thing as price. Many buyers are shopping their loans online. They might find a cheaper product, but where's the value if it doesn't fund the day of closing? I do take your point about the benefit of comparison shopping, but consumers need to compare apples to apples.

I think affiliated services should offer something more. They should beat the best other offer.

I agree Ardell...If you are going to recommend someone they should be best in class.

But what it really comes down to is relationships with the lenders. You are not going to break the trust you have with a lender and immediately run to our in house, because he asked. He is asking you to give them a chance. (and asking and asking) I have used Prosperity multiple times, but I have not always used the same in house Loan Officer...why? Not because the product was bad, but the service was bad from the loan officer. My reputation is on the line when someone asks me for a recommendation, so it's the personal service I recommend not just the company.

Last I check Long & Foster was a company...companies are out to be profitable. Wes is recommending using services that benefit the company. He is not strong arming the agents to use them. He is not recommending a service that is broken or substandard. The more money the company makes the more the agents have in return. Isn't that the way most companies work? He is not requesting anything unethical.

The other side of this is...buyers are getting smarter and more informed. They are shopping loans and finding the best program BEFORE the are coming to the agents. We have trained them that way over the last few years.

Nice job Catherine..post and comments

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

2007

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

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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.

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 :)

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.

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

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.

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.

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.

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.

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.

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.

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

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

2007

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!

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?

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.

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.

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.

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.

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