Ed Krafchow hates to think of himself as a control freak, but he doesn’t like real estate partnerships that aren’t split evenly between the two companies involved. A 50/50 partnership is the way to go.
“That’s what we think works,” said Krafchow, president of Prudential California, Nevada and Texas Realty, which provides mortgage services through an affiliated business arrangement with JP Morgan Chase.
Krafchow made his comments during an Inman News audio conference on “Innovative real estate partnerships” that examined partnerships between brokerages and other companies, such as mortgage and title. He was joined by Chuck DelGrande, managing director of Presidio Merchant Partners; Sherry Chris, president of Real Living Network Services, and Wissy Wendt, SVP of affiliated services for Long Realty Co.
Wendt said her Arizona-based company has been able to achieve such high capture rates – 36 percent on the mortgage side; 66 percent for title – largely because those partnerships operate almost as if they were wholly owned companies rather than joint ventures. It all boils down to control.
“That’s really the pinch point in partnerships,” Wendt said.
If a potential partner wanted to retain a major amount of control, she said, that could set the partnership up for failure.
But having an equal split was just one of several suggestions the four offered as tips to having a successful partnership. Everyone involved also must be committed to the partnership – no matter the actual structure.
“It’s not just about profitability, it’s about customer service,” Krafchow said. “Where I’ve seen significant failure is when the president agrees and nobody else agrees or worse yet when other people agree and the president doesn’t agree.”
The two companies also must be in sync with each other culturally for the partnership to succeed. Several speakers mentioned that loan officers with their brokerage’s mortgage company, for example, are just as much part of the family as the real estate agents.
All those efforts can help boost capture rates and overall profits of partnerships. DelGrande, who focuses on putting together such arrangements, said brokers should first understand the value of their realty business, and then determine what percentage of their revenues comes from ancillary services.
DelGrande suggests that brokerages diversify their revenues by having at least 10 percent of their revenues and 25 percent of profits from services other than direct real estate sales. Wendt said Long earns 36 percent of its net income from mortgage, insurance, home warranty and title services. Ancillary services make up about 22 percent of Real Living’s net revenue, and the capture rate hovers around 16 percent, Chris said.
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For Krafchow’s company, the net profit from ancillary services is in the 15 to 20 percent range. Krafchow said he has mixed feelings about increasing the percentage his brokerage earns from ancillary services – he’s concerned about becoming a mortgage company with a real estate company on the side.
“I want to be a Realtor first with mortgage and title and all the other ancillary products connected to it,” Krafchow said.
It’s all about finding a balance, Chris said. Her brokerage makes more money on a mortgage and title transaction that it does a real estate transaction, but that doesn’t mean the company should pursue higher capture rates at any cost. If the brokerage achieved 100 percent capture rate, but lost 75 percent of its agents “then we’re certainly no further ahead,” she said.
The panelists also mentioned other challenges, including finding enough qualified loan or title officers and ensuring the partnership complies with the Real Estate Settlement Procedures Act. Krafchow suggested running the proposed partnership by RESPA attorneys, adding that partnering with large, well-established companies usually means they have an intimate knowledge of the applicable laws.
Still, the panelists concluded, seeking out such real estate partnerships is increasingly important as more companies vie for that coveted position of being the customer’s first point of contact.
“If we don’t have these integrated services, if we don’t figure out a way to be innovative on the Internet and attempt to become of the first point of contact again, we’re going to slip even further,” Wendt said.
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