Buyers and sellers always have a choice when deciding where and when to close on the purchase or sale of a home. Home builders, Realtors, sellers, or real estate companies can not compel a buyer or seller to use the services of a particular title company.
Coldwell Banker Burnet is being sued for providing incentives to its agents to refer their clients to affiliated Burnet Title for high-priced title and closing services without full disclosure. The class action law suite was filed in Hennepin District Court last week.
Real estate companies often offer what they call affiliated services. Agents must disclose to consumers that there is a relationship between the real estate company and the title company or the real estate company and the mortgage company.
Real estate companies large and small like to offer one stop shopping as a convenience to consumers because studies indicate that consumers are demanding it. As a Realtor I am often asked to recommend lenders and closing services. I usually recommend three of each. In most cases my clients do not want to research these services and rely on my experience.
The truth is real estate agents do not get kick backs from lenders or from title companies, at least not legally. Real estate companies need these services as an additional source of revenue. The only way to get consumers to use the services is by influencing agents to recommend them.
Here is where I will tread carefully so that I do not end up getting sued. I have been affiliated with a couple of real estate companies and network with agents from most local real estate companies. The way it works from an agent’s point of view is that we are constantly told that the title company owned by our real estate company provides the very best service and should be recommended to our clients.
The real estate company does every thing possible to reduce the agents work load for using an in-house title company, and sometimes even makes sure the agent gets paid at the table instead of having to wait for a check. Awards, and certificates are given to agents each month for referring business to the affiliated businesses. None have any monetary value because that is illegal.
Representative from both title and mortgage companies attend weekly sales meetings held for the agents and talk up there products and services. These practices are wide spread. There is money to be made by providing mortgage and title services and the competition is fierce. Having access to thousands of agents is the only way these companies have of getting business so they spend their marketing dollars constantly marketing to agents.
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Can you give us readers a list of every person/organization that stands to make money off of a real estate transaction? It sounds like there are a lot of people involved (!).
Thanks!
–Steve
Steve – I will write such a post for Saturday, good topic. Lets understand that home buyers and sellers do need services that cost money. The lenders, closers, Realtors all make money. Just like when I go to the store to buy food,there are several industries that make money, everyone from the patroleum industry, to the people who produce cardboard. In the real estate industry there are some clear examples of people spending money that they don’t need to, I will try to speak to those.
Hi T – You knew I wouldn’t be able to keep my opinions to myself on this one.
You know “Big Red” holds my license. I have lots of reasons for choosing them as my broker, but I’ll save that for another time.
I can tell you Big Red’s agents do not get paid at the closing table because there was a lawsuit in early 2006 against another broker for that practice..nor are there certificates or rewards I recieve for referring my clients to Big Red’s affiliate companies. Big Red does get referral’s from me to their affilitiate companies, but not always.
Here’s the litmus test. My fiduciary responsiblity remains with my clients, not with Big Red. It’s my job to look out for my client’s very best interest and to make sure if I refer a service, whether it’s title, mortgage or anything else, that it’s on the up-and-up, and in my client’s best interest. I *always* encourage my client’s to get at least two, if not three estimates to make sure they are getting the best deal. Of course, some clients heed this advice, and some don’t.
Lisa – I know you take great care of your clients and I thing big red has a great title company and am considering using them. My comments are based on my own experiences at a real estate company and the experiences of other agents that I know. thanks for commenting. it has been my observation that big red dots all i’s and crosses the t’s.
“Real estate companies need these services as an additional source of revenue.”
Wow, Teresa, that’s a telling statement. Why do real estate companies need these revenues and why do they deserve them? Don’t title agents and mortgage brokers need these revenues, too? Don’t they deserve the fruits of their own hard labor?
First, the studies that show that consumers want One Stop Shopping in real estate were all bought and paid for by Affiliated Business Advocates like RESPRO. I have a blog topic on just that subject at http://www.realestateethics.blogspot.com The data was obtained from AfBA’s and the questions were skewed. If you just ask a consumer, “Do you want One Stop Shopping?” of course they’ll answer yes. If you tell them first that they are likely to spend several hundred dollars more and that the only convenience is to the Realtor, they might have another opinion.
My title company has tried for years to come and tell agents like yourself at your company about our services, products and prices and we were told to go away. Same at Big Red (one Manager there told me that their agents only use Edina Title). The brokers and managers (most of whom get huge bonuses based on their capture rate) who are supposed to be supervising you, are instead encouraging you to put blinders on when its time to conduct due diligence about other title companies. That’s wrong.
My company has better automation and we’ve been around for 15 years with better prices, same title policy and fabulous closers. My company could have saved your clients hundreds of dollars per closing, but I can’t get in the door to tell you about it. Only Burnet Title can.
I don’t blame agents, I blame the brokers for using their position of authority to disseminate self serving propaganda instead of using the opportunity to provide a real education to their agents.
Agents should never “sell” anything to their clients, they should only advise them. You shouldn’t be preparing for objections to using your in-house title, instead you should be looking for ways to avoid even the appearance of impropriety.
If you were to find out that all your clients paid $300 too much for identical closing and title insurance because of misinformation from your broker, what would you do?
Excellent blog post.
A couple points of clarification.
1. The new Burnet lawsuit focuses on the undisclosed benefits that Burnet Realty gets for steering their clients into Burnet Title. Is it a breach of fiduciary duty for a real estate broker (not agent in this case) to receive undisclosed benefits in exchange for steering them to their in-house title company? In order to get class certification, they need to focus on something that is common to all – in this case they focus on the disclosure statement. Some of the conduct in question is the bonuses that managers get, the very large preferred vendor fee that Burnet Title’s very expensive underwriter paid to Burnet’s parent to be their underwriter and other unsavory conduct. If this case is won, damages could be forfeiture of all real estate commissions earned where clients were “advised” to use their in-house firm. There’s a LOT at stake.
2. The surveys that show consumers want One Stop Shopping are tainted, as are most surveys conducted by self interested parties. Had the survey first educated consumers to the pitfalls of One Stop Shopping I’m sure the survey would have had different results. For example, One Stop Shopping eliminates competition, causes prices to go up, removes the impartiality that is needed to properly examine title and is a terrible example of self dealing on the part of fiduciaries. If consumers knew the problems, they certainly would have answered differently when asked “Do you like one stop shopping in real estate?”
3. Although agents claim that they get nothing of value for referring to Big Red or other title companies, the truth is very different. When your commission split is determined by your broker, when your manager gets huge bonuses based on how much business you send to Big Red, and those same brokers and managers determine how much floor time or referrals you get, I think that there is “something of value” you get for referring them business. Brokers exist to supervise their agents. When they use that authority to lock out other title companies and abuse it to sell agents on only their in-house title company services, I think that constitutes a serious licensing violation and abuse of authority too.
I didn’t know about the manager bonuses. When I was with the blue company they used to do a very nice holiday party for agents and title paid for it all. Now I am with Keller Williams and I often use Edina title. No worries about conflict of interest.