Affiliates vs. Affiliations – Advantage Broker or Customer?
Surveys consistently show that the vast majority of home buyers and sellers prefer one-stop shopping for their real estate transactions. The big brokerages promote this heavily as an advantage only they can bring to the customer. Is that true?
One-stop shopping is the tie-in of the many ancillary services a buyer or seller may need to complete their transaction. In California, this would typically include escrow, title, home warranty and home financing services to name a few. These service providers, collectively, generate many billions of dollars of income nationally every year. In order to capitalize on this gold mine, many larger brokerages have formed their own separate companies to provide these services. These are called affiliates and, if you have ever worked for or done business with a large brokerage, you may be familiar with the concept. In fact, the use of affiliate services was probably promoted heavily to you in part because they represent a sizeable source of income for large brokerages, particularly given the downturn in real estate sales over the past five years.
Although the Real Estate Settlement and Procedures Act (RESPA) prohibits any brokerage from requiring their agents to use, or from forcing their clients to use, one or more of their affiliates, you can be sure they promote them to their agents on a regular basis. As an agent formerly with a large firm, I can tell you that we were reminded pretty much every week of the importance to the broker’s financial success, and therefore ours, of supporting the company’s partnering profit centers.
On the surface, this big brokerage one-stop shopping seems reasonable and convenient, which is why so many people like it. However, as a consumer, there are several things to be aware of. For starters, are you getting the best pricing? Of equal importance, are you getting the highest level of expertise, professionalism and service?
As a smaller, independent brokerage, we are under no pressure to use affiliates (as we have no financial relationships with ancillary service providers). We work with many, some being associated with the larger brokerages while many others are independent. The important distinction is this – Our clients still enjoy one-stop shopping. But, rather than having affiliates, we have affiliations.
What’s the difference between affiliates and affiliations? A lot, actually. Because there is no pressure for us as agents to use a “partner” company’s services, nor is there a temptation for us as brokers to promote one service provider over another because it would be beneficial to our profitability, our agents are free to shop and use any ancillary service provider of their and their client’s choosing. Absent the pressure to recommend the guy who shares the anchor suite or the table at the management retreats, we are left only to recommend the companies providing the best value and greatest competence. Having affiliations versus affiliates removes bias, and the client benefits.
This is not to say that big brokerage affiliates are inferior. To the contrary, there are some we actually prefer, especially when it comes to lenders. One of our favorite mortgage brokers works for a big brokerage affiliate, and we recommend him regularly to our buyer clients. Rather, it’s the total freedom to advise our clients honestly and without prejudice about the choices they have, based on the experiences we have had and the relationships we have built over our many years of representing home buyers and sellers. They are relationships measured by performance, by both cost and benefit to our clients, not by potential benefit to our corporate bottom line.
If you are a seller interviewing agents to list your home or a buyer interviewing agents to represent you in your purchase, you undoubtedly consider all aspects of that agent’s capabilities and strike a balance between cost, quality and experience. Similarly, you should do the same when agreeing to the various other service providers who will be assisting in your transaction. One-stop shopping is an enormous convenience, and a great one-stop shopping experience can be delivered to you by any agent regardless of the size of their company or the nature of their third-party relationships.
But, often, you may find that the choices offered by the agents who are unshackled of affiliates but who simply have solid, tested affiliations are far greater. A broker’s own escrow company may be the best thing since sliced bread – or not. It’s not that affiliates are bad, but that affiliations are what matter. In the end, it should always, only be about what is best for you, the client.