You and I were always told in our real estate classes that "steering" is not only taboo it is surely guaranteed to land you and I in court. I have been very careful over the years to give at least 3 names of all service related companies my clients will need services from. After a conversation I had this weekend with another Realtor I am taking my advice a step further.
Many "Full Service" real estate companies have popped up over the past several years. These companies have brought in Ancillary companies such as title companies, mortgage lenders, insurance companies, warranty companies and other related services. Some owners have gone as far as purchasing companies such as insurance companies (which are very popular) and adding that service to their real estate company. They advertise their real estate company as a "Full Service" company their clients can come to and "Shop at one stop". They can buy their home there, insure it there, and close it there.
I always felt this was walking on thin ice. I know for a fact there are full service real estate companies in my area that have brought in mortgage lenders into their office building and the Brokers have encouraged their agents to use these mortgage lenders. I know for a fact many of these Realtors are not giving multiple names to their clients. Is this a good idea or inviting trouble?
Well I had a nice conversation with an out of state Realtor that was kind enough to refer me a buyer I am working with. During that conversation this Realtor tells me there is trouble brewing in her county. She explains to me that there is real estate company in her market area that has a mortgage company and title company which are both owned by acting Broker of a certain real estate company.
Turns out one of the Realtors of this full service company sold a home to a buyer and closed a purchase of a home using the services of the in-house mortgage lender and title company. The buyers have now discovered some things they are not happy with in their mortgage and are upset enough they have hired legal counsel regarding what they consider as major disclosure issues and misrepresentation issues.
Of course no one knows if this will go anywhere but it does open up an interesting discussion as to whether or not real estate companies with these ancillary services is a wise move or simply opening up the company and it's Realtors to more potential litigation.
Even if I am a Realtor licensed with this full service company and I do give out 3-4 names of "other service companies" will I be safe? Or would a court of law see me as more liable for having this service within my company?
If nothing else we all need to think twice about who we refer our clients/customers to and make sure we give multiple names of service related companies. Having clients initial or sign and date a list of services and an indemnification agreement would not hurt. It many not stand up in a court of law but it may deter an unhappy client from pursuing legal action.
Food for thought
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37 Comments on Ancillary Companies - Are they a liability?
George,
I too have always given buyers and sellers a choice when it come to ancillary company's.
I was told however by an attorney friend, that while giving a choice is good it doesn't really lessen your liability as much as you might hope.
The fact is, no matter which company they choose, it is still a company you suggested and with the right attorney they still might sue you.
The Burnett case in Minnesota highlights the problems that can arise in these arrangements or one stop businesses. Although they may start out with good intentions they will ultimately fail the client. Clients should have a choice and the nature of ancillary companies takes that away because those in charge are going to push the use of all of their services. This trickles down and in the end the client is pushed towards using only that companies business units. This allows the company to charge higher rates and provide less than quality service since there is no real choice for the consumer.
Well we see it all the time here in various forms-- the builders are best, tying their incentives (3000 Towards Closing Costs! $10,000 Free options) IF you use their lender, Title company and closing attorney.
And monopolies rarely provide real service... even when McCarr Financial is actually Countrywide, Countrywide outside of MCCarr gives much better service and marginally better rates.
All they do is have the buyers sign an "affiliated company" disclousre at closing--
And we have lenders in our office-- Home Banc, and I am sure they pay part of the rent. I don't use them, but I really want my buyers at My preferred lender, where closings go smoothly, professionally and minimum of hassle. Soon I will offer my clients an affiliated company disclosure, andthelender will offer my team's buyer's incentives if they use them as oiur Preferred Lender.
Comments and thoughts welcome... any AR folk doing this now?
"Steering" is encouraging a protected group to purchase is a specific location.
John - True, Thanks
Teresa - Thank you and good luck to you
We have a lot of companies in ORegon that have in house lenders and one in particular who has it all. They've even branded it "The Buyer's Advantage". They say that there is no pressure but boy they sure put up a smoke screen when options are discussed.
My opinion as a lender is taht there is no Realtor rule saying taht you have to give out 3 names, you just can't steer someone. You can give a strong recommendation based on past experience.