Consumers Demand Core Services

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Busy lifestyles mandate brokers to have it all

By Eugene L. Meyer

RISMEDIA, August 21, 2007–Whatever you do, do not call them ancillary services. That’s so old market. Title and property or casualty insurance, home warranties, mortgage lending, and appraisals are all now considered core services, more and more as central to real estate brokerage success as the home sale itself.

Especially in a time of slowing sales, and thus declining sales commissions, brokers are increasingly relying on these other services to boost their bottom lines. Put another way, the fringe benefits are now a key part of the pay package. 

“We don’t call it ancillary services anymore. They’re core services to the real estate transaction,” says J. Lennox Scott, CEO and chairman of John J. Scott Real Estate, with 143 offices and 4,700 agents in the Pacific Northwest.  “Ancillary gave a connotation that it’s an add-on, an outside type of service.”

Brokers say the shift to provide all services under one roof is essentially consumer-driven. “More are trying to do this one-stop shop full service for their clients,” says David Sobel, vice president of sales for Home Warranty of America. “Fifteen years ago, the consumer’s expectation was, ‘Hey, sell my house.’ Now the expectation is: ‘Sell my house, get me a good loan, figure out how to get it closed with the title company, get it all done for me—I’m busy.’ So brokers have had to focus on providing all these core services to help the consumer out and make the transaction smooth, fast and easy.”

Mortgage Leads but New Money Makers on the Rise

Brokers say the biggest money makers in this once ancillary field are mortgage lending and title insurance. But the mortgage business has recently taken a hit, with ballooning foreclosures on sub-prime loans leading to tighter borrowing requirements and fewer loans to buyers with low credit ratings. 

This has put a premium on finding new revenue sources. Thus, to the usual array of core products, brokers are now also adding “concierge service,” where the firm’s client relationship extends beyond settlement to include even help with utility hookups and landscaping contracts. 

“These additional operations can provide substantial revenue to an existing brokerage. And somebody is going to provide those services. Why not with the same entity that established the relationship?” says Ronald J. Peltier, president and CEO of HomeServices of America, a Minneapolis-based company that began more than 50 years ago strictly in sales but now is the country’s second largest brokerage-owned settlement services provider.

In the early 1980s, Edina Realty, from which HomeServices sprung, branched out into mortgages, and shortly after that, into title and casualty insurance. It has evolved into a holding company with a much broader reach encompassing 20 brands from Florida to California, with 21,000 agents and sales of more than $60 million. 

“We’ve acquired 28 companies and we’re in 19 states operating under 20 brands,” says Peltier. “Our vision is to be in the top 60 to 70 markets in America, everyone operating under their own local brand providing these key services.”  The brokerage is still “the core,” Peltier says, “but we clearly see a time when as we grow our mortgage and title operations can be 50 percent. Now, they’re probably 25 to 30 percent.

Complying with RESPA

But revenue from real estate sales-related services are not a given. “One thing that can never be taken for granted,” notes Peltier, is that consumers will automatically use a broker’s core services. “We have to earn their business based on service and delivering what the customer wants.”

However, Peltier says, “there’s very, very strong economics if done legitimately, with proper structures and being compliant with RESPA,” the Real Estate Settlement Procedures Act,” a consumer protection law enacted in 1974.

In part to help brokers follow the laws and regulations in expanding their core services, the National Association of Realtors this April launched its Real Estate Services Program. “As the market changes and margins are going much lower, to survive you have to get into real estate services,” said Joe Ventrone, NAR’s managing director of regulatory and industry relations.

Thus, he says, the association is filling a need with brochures and seminars on RESPA.  “We had one in Maryland this spring and 400 people signed up,” he says. Future seminars are to be held in Ohio, Pennsylvania, New York and California.  The program will also soon be offering RESPA audits to member firms, to evaluate a firm’s compliance with the law. 

“We’re going to be looking at [other] things we can do in the title area, educating companies that don’t have title services on how they can,” Ventrone said.

Early Adopters

Pittsburgh-based Howard Hanna Real Estate also ventured early beyond basic sales into full-service brokerages selling the other products integral to the transaction.

“They’ve been part and parcel of our core company services for forty years,” says Howard “Hoddy” Hanna III, chairman and CEO of the firm. His sister, Helen Hanna Casey, is president of the company, which opened an appraisal division in 1967, then moved into the mortgage and title business in 1980-1981 and into property insurance in 1983. The firm’s slogan: “We’ve thought of everything.”

“As time has gone on, the public—buyers and sellers—like that one-stop shopping concept a lot,” said Hanna. “They want the agent to continue to be the quarterback in the transaction and make it all happen. They don’t want to stop in the middle of buying a house and ask, ‘Well, who should lend me money?’ Most don’t know what title insurance is. By bundling our services we’re able to give them efficiencies, and also the best pricing. That resonates very, very well with the public.”

Not only with buyers, but also with sellers. “They like it all being done from the point of sale, so they know their transaction is going to close,” Hanna says.

Hanna’s services are in-house, and all subsidiary companies bear the family name, except one conceived at a California bar during the 1981 Super Bowl when the Pittsburgh Steelers beat the then Los Angeles Rams. 

“A major title company in Pittsburgh was Lawyer’s Title,” Hanna recalls. “We said we need a clever name like that. There’s Barrister’s Scotch, with colors green and gold, which ours are. I saw a bottle on the bar, said let’s have a glass of that.” Thus, the family-owned empire, with 119 offices in four states, came to encompass Howard Hanna Mortgage, Howard Hanna Insurance, Howard Hanna Appraisal—and Barrister’s Title.

Why not use independent companies instead?  “I guess we felt we could do it better ourselves,” Hanna says. And the family-owned business, which also includes a land company developing 400 lots a year, may not be through adding services.

“We’re looking all the time,” said Hanna, whose father started the business in 1957.  “We talk about starting an engineering company and doing surveys. I think property home inspections might be too much of a reach, and there would be a conflict there, doing home inspections on a property you are selling.”

The Partnership Model

While some brokerages prefer to keep all core services in-house, others form strategic partnerships with other firms—or acquire other brokerages and add core services to each. 

“Our strategy has been to acquire well-established real estate operations with local leadership,” Peltier says, “and where they didn’t have expert operations in mortgage and title and casualty insurance, we would work diligently to put those in play and effectively operative a full-service company.”

Home Warranty of America, based in Buffalo Grove, Illinois, a northwestern Chicago suburb, now conducts business in 49 states and supplies warranties to such major brands as Keller-Williams, Exit Realty, Realty Executive and Help-U-Sell.

Most of its business is in selling warranties directly to consumers, but, HWA’s Sobel says, its partnerships are growing. “We work with any independent agent or office and also have partnerships with small, large and medium-sized real estate companies,” he says. “The other benefit these agents and brokers receive is it’s a nice valued added. It gives both buyers and sellers peace of mind, that there’s a product to protect all parties in the transactions.” 

Sobel says his business grew 35 percent last year and he expects it to do as well in 2007.  “You look at the industry right now, a lot of brokers are down, transactions are down, a lot of ancillary providers are struggling,” he says. “In every sector, there are always people losing business. And in a down market, there’s always someone at least who is increasing business, doing something different. We’re fortunate to be growing.”

As other large lenders, such Wells Fargo and Countrywide, have entered the field, Bank of America has in the past two years become active as a core service provider. It currently has partnerships with 250 real estate brokerages, according to Mike Bradshaw, senior vice-president for realtor-builder mortgage services.

In smaller markets, Bank of America has desk rental arrangements with local brokers. Through its Web site, Bank of America also directs consumers to its “preferred owner-broker partners,” Bradshaw said. “In return, we hope to get their mortgage business.”

As an incentive, Bank of America gives consumers buying through its broker partners an average closing cost reduction of $500, Bradshaw says. To reduce what Bradshaw calls “the intimidation factor” for entry-level buyers, Bank of America has “just eliminated closing costs and agreed to take a reduced margin.”

The Bank of America didn’t rush into the market, Bradshaw says. “We were waiting until we could get the stars aligned and bring all the services to our partners.  If you’re a real estate broker, you don’t want to have a partner that jeopardizes your own relationship” with the client.

“We’ve found that the real estate community likes to partner with a strong brand, and Bank of America provides that,” he adds. “It certainly adds a lot of value to your own [real estate] company.”  

The banking giant has also added programs targeting different sectors, such as “community commitment” low-interest loans for low- and moderate-income buyers, along with other programs “designed to help various segments of the community,” such as teachers and doctors.

“The current market hasn’t affected us at all,” Bradshaw says. “We’re growing due to product development.”  And, judging from brokers’ need to become more competitive by offering what are now considered “core” products, the one-stop full-service shopping trend appears to be a key ingredient to market success.   
     
The Full-Service Sale
Percentage of Power Brokers Utilizing the Following Core Services

Service  % of Respondents In-house  Outsourced
Mortgage  53%                     30%         23%
Title          42%                      21%         21%
Home Warranty 47%             5%        42%
Inspection  26.7%                   .7%       26%

Source: Based on the Top 500 Brokerages ranked in RISMedia’s 19th Annual Power Broker Report & Survey

Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.

RISMedia welcomes your questions and comments. Please send them to realestatemagazinefeedback@rismedia.com.

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