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Ancillary Companies - Are they a liability?

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

Native Idahoan and Boise Idaho Real Estate specialist serving Boise, Meridian Eagle, Nampa, Caldwell and the surrounding Treasure valley area of southwest Idaho. Specializing in residential, investment, land and commercial real estate. Search thousands of MLS listings at Boise Homes for sale and learn all about Idaho by visiting Search Idaho Homes

Comment balloon 37 commentsGeorge Tallabas • March 28 2007 05:29AM

Comments

I have always thought this would come back a bite someone.  Fortunately our office is JUST a real estate office and I don't have to worry about those issues.
Posted by Richard Parr, Home Security Specialist - Greater New Orleans, Louisiana (ADT Security Services) about 12 years ago
Good morning George....  I like the idea of providing my customers w/ multiple names even though my company insists on using one - - and at times this has become a sticky issue. 
Posted by Heather Saul (Weichert Realtors Hoey Group) about 12 years ago
Thanks Richard....Smart move of your company!
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
Thanks Heather....Very smart thinking.  I believe this is walking on thin ice.  I hope all is well.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
HI George-The largest regional company in our area is 'one stop shopping' and I haven't heard anything positive about that experience, after the fact. It sounds good on paper, but in real estate, the WalMart setup just isn't going to cut it.  We refuse to add an onsite lender for the very reasons you outline.  Let all agents have their own preferred lists and let all providers have a fair shot, so clients can truly shop!
Posted by Leigh Brown, CEO, Dream Maker - Charlotte, NC (Leigh Brown & Associates, RE/MAX Executive) about 12 years ago
You are right Leigh and I think these companies are not thinking about all the possibilities of liability.  It would only take one real unhappy client to bring the house down!  Have a great day my friend.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago

Hi George -

I am affiliated with one of those "full service real estate companies" They have lenders, insurance, title insurance, moving and attorneys they work with. And get this a credit card. More and more companies here are becoming "full service companies". The company strongly suggests you use their companies and affiliates. 

I always disclose to each and everyone of my clients all the companies we are affiliated with. I always recommend 3 names of service companies and not one of them are related to my company.

The way I look at it, I'm not an insurance salesman, mortgage lender, or credit card salesman. I'm a REALTOR. I sell houses, its what I'm licensed to do. I do not steer and will not loose my license over it.

It will be interesting on how this turns out. I'm sure a lot of companies will be watching the case as it goes through the courts. Could have a major impact on a lot of companies.

Sandra

 

 

Posted by Sandra Cummings, Real Estate Agent, Guilford Connecticut (William Raveis Real Estate) about 12 years ago

We have ancilllary companies at my company but I have my own trusted relationships with others.  I really don't see the demand for one stop shopping.  We get told that the market studies show that most people want and enjoy the one stop shopping experience.  I must be seeing a whole different set of people. 

If there were some huge benefit to the consumer, I'd recommend them.  But I don't see it.  By pointing out the availability of our in house services and then not recommending them, I think people seem to trust me more.

Posted by Tim Maitski, Truth, Excellence and a Good Deal (Atlanta Communities Real Estate Brokerage) about 12 years ago
Sandra....I hope all continues well for you.  I hope you can see the potential for danger.  Good luck
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
Thank you Tim.  Like I mentioned to Leigh, it would only take one unhappy client to bring the house down. You are a sharp businessman.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago

George, my friend:

I do recognize the potential for danger, which is why I always disclose and never uses those companies.

Sandra

 

Posted by Sandra Cummings, Real Estate Agent, Guilford Connecticut (William Raveis Real Estate) about 12 years ago
Thank you Sandra....I hope you have a wonderful day.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
George, I agree with you and the rest.  Tim makes a very valid point about the way these one-stop-shops are presented...as if consumers have been asking for them.  I've not met one person yet who has shouted with glee that "Yes!  He finally found an office where he could sign his purchase contract, order his title work, apply for a mortgage and buy his insurance...all under one roof."  This practice benefits only one party..the one providing all those services.  I will do as the rest of you and keep providing several names to all my customers. 
Posted by Maggie Dokic | Miami, FL | 305.81.HOUSE (46873), GREEN, CDPE, SFR, Pinecrest | Palmetto Bay | (eXp Realty LLC) about 12 years ago

George,

Have you read about the Coldwell Banker Burnett class action in Minnesota?  Apparently Coldwell Banker feels that consumers are demanding "one-stop shopping", which is fine, as long as you are not ripping people off.  It will be interesting to see where that litigation goes.

Posted by Stefan Scholl, Northern Michigan Real Estate (Buyer's Broker of Northern Michigan, LLC) about 12 years ago
Maggie...thanks Maggie...I appreciate your input.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
Hi Stefan...no I have not hear about the class action in Minnesota.  It will be interesting to see where it goes.  "Steering" is a huge concern for me.  It would only take one very unhappy consumer to bring the "One Stop" shop down.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago

I agree..., I especially question those who actively work in multiple fields... especially the ones that announce it. 

I don't think people understand the complexity of license law and how it applies to these conglomerations...

as a mortgage broker I have to fill out a Good Faith Estimate Providers Relationship Form on EVERY loan detailing who we might be doing business with... in our case it is the company that we use to pull credit and the only reason we have to disclose them is that's the company we use over and over throughout the year!

 

Posted by David A. Podgursky PA, THE PODGURSKY GROUP - Make the Right Move! (THE PODGURSKY GROUP @ Re/Max Direct) about 12 years ago
Thanks David...We need to realize how dangerous "Steering" customers can be even if we don't think we are doing it.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago

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.  

Posted by Terry Lynch (LAR Notary and Closing Services) about 12 years ago
Thanks Terry....I feel that if we still give multiple choices and have an indemnificaiton agreement stating they have chosen a company at thier own free will it is still much better than doing nothing.  Have a great day.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
I see my wife beat me to the comments.  Yes our company has waded into all areas of service within the last few years... I call their campaign the BRAINWASHING of THE MASSES when they travel around to each office attempting to sell the agents on this great concept.  Personally I don't like it and refuse to push the propaganda, actually stopped attending our weekly office meeting because I got tired of hearing the same old story as they continually try to convince agents to publicize the "benefits".
Posted by No Longer Active (Real Estate) about 12 years ago

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. 

Posted by Mark Pilatowski (myClosingSPACE) about 12 years ago
Dan...smart move my friend.  If recommended office related companies isn't steering I don't know what is.  Take good care Dan.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
Thanks Mark, We shall see where this all lands.  As I have stated, it will only take one very unhappy customer to bring down a profitable real estate company. It may work smoothly for years but anything can happen.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
Multiple names is always a good idea. I want to help the consumer, not corner them. If my partner is the best, then he will get the business. If it doesn't work...at least I gave my clients some other options.
Posted by Sean Carroll, Real Estate Speaker and "Expert" Coach (The Get Off Your A$$ Academy) about 12 years ago
Thanks Sean...you are correct.  Have a great day
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
George- I just wanted to say that you are the "feature" king.
Posted by SEO Expert: Michael George, Real Estate and Law Firm SEO about 12 years ago
LOL Karen....will you be my Queen??? Ha Ha!
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago

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? 

 

 

Posted by Terry McDonald The McDonald Group, Brokers NC/ SC (TerryMcDonaldRealEstate.com, LLC) about 12 years ago

"Steering" is encouraging a protected group to purchase is a specific location.

Posted by Douglas Hostetler (Tower Auction & Realty) about 12 years ago
Thanks Terry...I appreciate your feeback
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
Hmmmm Douglas???
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago
Steering the home inspection is a big temptation. I admire the Realtor who lets the buyer choose their own Inspector.
Posted by John McKenna (InfraredClass.com) about 12 years ago
A topic near and dear to my heart.  I have had an ownership interest in a re office but refused to also have an ownership interest in the title or mortgage companies.  I felt so strongly about it that I pulled my money out.  I will recommend any title or mortgage co except for the companies that have the same ownership as my KW office.  I know I am not a team player but I have problems with it.
Posted by Teresa Boardman (Boardman Realty) about 12 years ago

John - True, Thanks

Teresa - Thank you and good luck to you

Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago

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.

Posted by Larry H Morris, Larry Morris, NMLS 150073 (Evergreen Home Loans) about 12 years ago
Thank you Larry...I appreciate your feedback.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) about 12 years ago

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