Editor’s note: This special four-part series will explore who controls the average real estate transaction, who or what is challenging and changing that central role and how it impacts the industry and consumers. (See Part 1: Realtors have the power, Part 2: Battle is on for real estate consumer and Part 3: Web pushes realty agents out of spotlight.)
Lenders have spent hundreds of millions of dollars trying to get closer to the point of sale in real estate purchases, but at the end of the day, they still must deal with the real estate agent to gain access to the consumer.
“On the resale transaction, the real estate agent still controls the point of sale. That hasn’t changed,” said Pat Stone, vice chairman of Metrocities Mortgage. “The resale still belongs to the agent. I don’t see that changing.”
That doesn’t mean lenders haven’t attempted to change it. The rewards for shifting that balance have the potential to be great. It’s a widely held belief, after all, that whoever controls the point of sale will ultimately drive the entire transaction. That’s a valuable position to hold.
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Witness, for example, the debate over whether banks should be able to enter real estate brokerage and property management. The U.S. Office of the Comptroller of Currency adopted a rule earlier this year that would exempt national banking institutions from all state real estate lending laws.
The National Association of Realtors has opposed the rule, saying it would be bad for consumers and real estate. The group also has claimed it would allow banks to enter the real estate business, a development they, not surprisingly, strongly oppose.
The American Bankers Association, on the other hand, favors the rule.
The debate may be clouded with other rhetoric, but the underlying question centers on who controls the real estate transaction.
Most large banks have attempted to access the consumer through a variety of channels, often by leveraging their brand, rather than relying upon referrals from real estate agents. Many have branches throughout the country where consumers can go to apply for mortgages. Or consumers can apply for loans directly on the lender’s Web sites.
But banks also put effort into their wholesale channels, since mortgage brokers are more likely to have direct relationships with agents who refer clients to them. And many have gone even further in trying to reach the homebuyer at the source by partnering with brokerages to form a joint venture mortgage company that’s housed in the brokerage.
In the world of joint ventures, Bank of America is a fairly new player, but the banking giant is actively partnering with brokerages across the country. It announced earlier this month, for example, a joint partnership with RE/MAX Greater Atlanta.
But Carter Murdoch, SVP of the bank’s real estate partnership group, said that and the bank’s other partnerships are unique in the industry. That’s because they are more of a true partnership, he said, and emphasize the relationship with the agents as well as with the brokers.
As part of that, the bank will generate leads for the brokerages, though Murdoch wouldn’t yet reveal how it plans to do that. It also offers a range of financial services to RE/MAX agents across the country, from free checking to evaluations of investment portfolios, Murdoch said. The premise is to have agents realize the extra value in having Bank of America on board.
Having that agent support, Murdoch said, is key to making those partnerships successful. If agents don’t buy into the idea, they won’t refer their home buyers to the in-house mortgage company. That leaves the partnership with less than desirable capture rates.
As much as lenders may want to get closer to the homebuyer, they know they must still work with real estate agents.
“The reality is that we see very little change in the agent-centric model,” Murdoch said.
Agents are indeed one of the primary keys to a partnership’s success, said Chuck DelGrande, managing director and head of the real estate sector for Presidio Merchant Partners. DelGrande, who helps put together these types of joint ventures, said partnerships must be systemic and integrated and have the support of agents and the branch manager.
When that happens, he said, companies get higher penetration rates, including those in the 40s, 50s and even 60s.
“Agent buy-in, the agent delivery of the relationship is the first true lynchpin of success,” DelGrande said.
Joint partnerships and bundling of services are becoming increasingly common with the title and escrow industries as well, DelGrande said. They allow the ancillary service providers to get closer to home buyers while providing agents with the chance to continue playing quarterback of the entire real estate transaction.
Some companies have reached out to home buyers through distinctive products. ABN AMRO, for example, has focused on OneFee, which bundles all the costs a consumer might face at closing and guarantees it.
Bob Sullivan, first VP of OneFee Services, sees the product as one way of getting closer to the point of sale because it makes the lender stand out in consumers’ minds.
“Market research has shown that the general consumer is challenged and afraid of the mortgage process,” Sullivan said. “We rank substantially lower in the financial services food chain as far as customer services satisfaction.”
Consumers can apply directly for a one-fee mortgage on the company’s Web site, and some do. More and more are recognizing the product and asking for it, Sullivan said. ABN AMRO does not have any direct efforts to promote its brand to real estate agents, instead focusing on promoting its product through its wholesale channels. That, in turn, gets the brand through to both the consumers and agents.
Agents remain the center of the real estate transaction, Sullivan said, so having them on board with the one-fee concept is important.
Still others have invested money in programs that are available on a real estate agent’s computer. That way, Stone said, real estate agents can show consumers the loans a particular lender has available. He declined to specify which handful of lenders have come out with such products.
Of those who have, a few have gained traction in reaching the consumer through that channel, he said. The reasoning behind such moves is simple -getting closer to the point of purchase is important, but the agent is still key to the transaction. Most people still go to an agent before they talk with a lender, he said. They are the ones with a strong local presence.
“It think it’s dreaming if bankers think they’re going to prequalify people and drive the process,” Stone said. “It’s natural for a person looking to buy a home to start with a Realtor. You want a Realtor’s market knowledge to buy a home.”
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