Vinnie

Corporate Relocation Issues:
Are Transferees Getting the Best Possible Agent for the Job

excerpted with permission, from Mobility Magazine, a publication of the Employee Relocation Council

The highly charged topic of relocation referral fees is showing no signs of fading away. The issue peppers virtually every real estate industry publication I monitor, and it is a frequent focus of discourse in real estate forums on the Internet. Referral fee problems also were a session topic at ERC’s most recent National Relocation Conference.

Also of note is an April meeting of a task force of state real estate commissioners in St. Louis, MO, during the spring Board meeting of the Association of Real Estate License Law Officials (ARELLO). The task force considered drafting proposals for state legislation in response to the growing number of complaints about referral fee practices. The task force has recommended the following position statement: "ARELLO disapproves of the demand for after-the-fact referral fees, and suggests that such demands may be violative of already existing contracts." I believe the misuse of referral fees is the biggest real estate issue in the relocation industry today.

To see how excessive and after-the-fact fees are impacting transferees, one need look no further than what happened with household goods shipping following deregulation of the trucking industry in the United States.

After deregulation in 1980, the market was flooded with deep-discount companies offering to move transferees at a fraction of the price charged by established, reputable providers. Many corporations and relocation companies jumped at the chance to reduce costs.

After several years, most of the deep-discounters had been forced out of the mainstream relocation market or raised rates to support higher quality service.

What happened? Too many families got burned - and it impacted employers’ bottom lines. Trucks were not showing up on time. Packing was sloppy. Items considered priceless by transferees frequently were lost or damaged. Relocation industry decision-makers learned that shopping for price actually was more expensive than shopping for value and service.

Today, the economics of relocation referral fee abuses are causing many relocation companies and transferees unknowingly to use marginal real estate service providers. And the immediate impacts on transferring families-and long-term impacts on corporate costs-are mirroring the household goods shipping fiasco.

The trend is occurring because some policymakers seem not to fully understand the economics of the complete relocation process, especially in relation to commission-based services.

The impact of this lack of knowledge goes far beyond creating a chance at fair profit for all service providers. At its base, the fee problem challenges the core philosophy that the goal of any effective relocation policy is providing the transferring family the most professional assistance possible – while remaining aligned with the mission of the employer.

I am hearing of increasing numbers of incidents where transferees are not being assisted by the real estate agent who is best able to quickly sell their home at maximum value. Or, just as bad, agents are not helping transferees buy a home that meets the family’s needs and can be effectively marketed if there is a subsequent transfer.

For a relocation to be cost-effective for the employer, the transferring family must be satisfied with the relocation experience and the home must be kept out of inventory – or better yet, sold more quickly than the market average. The only way to ensure such objectives are met is to use experienced real estate agents who fully understand the relocation process, such as agents holding ERC’s Certified Relocation Professional (CRP) designation.

When a real estate relocation division, relocation management company, or corporation tracks on a last-minute referral fee as a transaction nears closing – or charges excessively high referral fees – the industry’s top agents are forced to rethink the business decision of accepting relocation work as a specialization. Commissioned salespeople are motivated by earning commission dollars. Reducing commissions is not the way to increase motivation and performance. That is why our relocation company keeps referral fees below the market average and never charges a fee when the agent has earned the transferee’s business without our assistance.

It is worth repeating: Relocation real estate costs are reduced through timely sales and satisfied transferees. Costs are not reduced by demotivating the people selected to accomplish those goals.

If top agents are not rethinking participation in the business on their own accord, then there is a good chance that they are being forced out by referral fee economics at the office level. Here is why: Virtually all top experienced agents in the market today are on 100 percent commission splits or on splits of 90:10, 80:20, or at least 70:30, with the agent receiving the largest percentage of the commission. These agents are paying all their own business expenses or paying up to 30 percent of their commission earnings to their brokerage to cover all or a portion of such expenses.

When a brokerage facing already tight profit margins is obligated to pay a hefty referral fee to a relocation management company or corporate employer, there is huge pressure on that brokerage’s management to maximize the return on such a referral by forwarding it to a lower-tier agent – an inexperienced or marginal producer who is on a split closer to 50:50. This arrangement gives such an agent opportunity to gain experience, motivates the agent to stick with the business through a long developmental curve, and helps keep the brokerage profitable.

Some offices with traditional commission splits even have a standard policy of offering lower splits on all relocation referrals. No matter what commission split the agent normally receives, relocation referral commissions are split 60:40 or even 50:50. When this is the policy, it just is not worth it for top agents to accept such business.

Here is an example based on a total commission of $9,000 on a $150,000 sale. That commission normally is first split equally between the listing and selling brokerages. That puts $4,500 into each office. A 40 percent relocation company referral fee immediately takes $1,800 off the agent’s portion, leaving $2,700. An agent on a 60:40 split ends up with $1,620. Offices aligned with certain franchises also levy a transaction fee, typically around 6 percent. That puts the agent’s reimbursement at $1,523. And typically, the office’s relocation director also adds a markup to the referral fee. Already, the relocation company is earning more from the real estate transaction than the agent who did all the work (It is the same complaint that has been heard from many of the industry’s top van line drivers.). All this must be viewed within the context that the average real estate agent sells eight homes a year.

For inexperienced or marginal agents responsible for few of their expenses, $1,500 is not such a bad paycheck. For top-producing, full-time agents, who sell closer to 24 homes a year, this payout will not even cover two weeks of expenses.

Agents in maximum-commission offices typically are not impacted by the scenario outlined above, but they still are getting hit. Agents paying their own way cannot accept work that does not even cover their expenses, which include marketing, insurance, transportation, technological tools, education, multiple listing services, signs, business cards, stationary, and every other business need.

Unfortunately, the top agents turning away from these no-win referral fee economics are the same agents who have been earning the CRP designation and devoting time, effort, and dollars to staying abreast of the latest trends throughout the relocation industry. Statistics show that agents with the CRP designation are among the top earners in the field. Unfortunately, this statistic is starting to be viewed strictly as a reflection of the caliber of agent achieving the designation – rather than a comment on what the designation represents to an agent’ relocation career.

Abusive relocation referral fee practices send a clear message to the industry: The agent’s role in the relocation process is just not that important. Is that the right message to be sending?

Jeff Scislow is a respected expert in the field of real estate. He has hosted numerous expert panels, and is a sought after speaker at real estate and financial management seminars. His articles have appeared in local and national publications such as Today's REALTOR®, the widely distributed publication of the National Association of Realtors. The article appearing on this page, is the abridged version recently published in Today's REALTOR®.

This article has been excerpted with permission from Jeff

Corporate Relocation companies and many of their Corporate Clients have found it child's play to extort large chunks of cash
from the real estate industry's commissions. How so? Because the real estate industry is allowing it. Agents and brokers are
knowingly having their pockets picked while they look the other way by agreeing to pay unearned fees (called referral fees)
simply in exchange for the right to do business with a corporate employee EVEN WHEN THE RELOCATION COMPANY
AND/OR CORPORATION DID NOT REFER THE EMPLOYEE!

I strongly object to relocation companies wanting a single nickel of my commission when they had nothing to do with my
introduction to a particular client or prospect. If they refer me business I'll gladly pay a reasonable referral fee. But for them to
ask for a fee otherwise, watch out.

Each time an agent agrees to pay an unearned, so-called "referral fee" then the Corporate Relocation companies will certainly
ask for it again. In fact, this is what has been happening around the country. Even worse, the Relocation Companies are finding
it so easy that they have raised the amount of their "extortion fee" from what was once a common 25 percent, to as high as 40
percent; all in less than two years! Why? Because some agents simply pay it!

This is impacting the level and quality of service that a Seller receives.
Jeff firmly believes that he is far better off to "walk away" from any business
which will require him to pay a referral fee.
I differ with him in this one respect.....

I am willing to pay the referral fee to any licensed relocation organization who actual refers the business. My position, in contrast to Jeff's , is merely that it is to the detriment of the Transferee to be "forced" to use a particular agent or company by the relocation firm, who is thinking NOT of the transferees best interests, but rather fearing that they may not get a fee out of another agent. This is ridiculous in that we pay out thousands of dollars in relocation referral fees every year.

Jeff wrote the following letter to several home sellers in his area to inform them
about what was going on both within the industry and surrounding their particular house sale.

Dear Mr. & Mrs. Seller,

I truly appreciate your contacting me with respect to helping you with the sale of your home. As I mentioned on the phone, I will be unable to work with
you due to your employer's current arrangement with the Relocation Company they've selected to assist in your move.

Under that arrangement, I, the real estate agent, am being asked to help subsidize the expenses of your relocation by turning over 35 percent of my
earned commission from the sale of your home to the Relocation Company your employer has selected. They call this a "referral fee."

What the relocation company (and perhaps your employer) fails to realize is that this hurts the employee. It hurts you.

Most folks, like yourselves, want to hire the best agent they can. They've been told by the relocation company that the costs of selling their home are
being picked up by their employer. That is not 100% true. They are also being told that this "referral fee" is normal in the industry. That is simply not
true.

Most agents are refusing to pay any fee whatsoever to a relocation company that did not actually refer the employee to the real estate agent. And the
good agents are flat out saying "NO".

So if the good agents are not participating in this "referral program", that leaves the 'not-so-good' agents who may. This is where you, the transferring
employee, may get hurt. Let's take a close look at how this program may personally affect you.

First of all, an agent who accepts your listing has agreed to kickback to the relocation company more money than is normally spent on marketing ANY
LISTING. So how much are they going to spend on selling your home?

Second, if your home fails to sell as a result of poor or incomplete marketing, you'll receive the company buy-out which is normally a sizeable amount
less than what your home could sell for if properly marketed.

Third, if you take the company buy-out because your home fails to sell you may be giving up a cash bonus that you would have received if the home
had sold prior to you having to sell to the company.

Fourth, if your home ends up being bought by the company, it is usually re-sold at less than market value in order to "get it out of inventory quickly".
This in-turn hurts your neighbors by hurting neighborhood values.

Fifth, and probably most important to you, is the longer your home is "for sale", the longer your family and loved ones are separated.

Now if you're like most transferring employees you're probably a bit surprised and a bit upset at what your learning in my letter. Don't lose heart. Many
employees have taken these very arguments I've mentioned in this letter and brought them up with their human resources department and/or relocation
company and have gotten excellent results.

In fact, these transferring employees have had this unearned "referral fee" simply thrown out and have been allowed to select an agent of their choice;
an agent who would be motivated and excited to help you and not afraid to spend what it takes to succeed in getting your home sold quickly and for
the most money possible.

If you agree with my position for not being able to take your listing and would like one of the best agents in town to help you, then consider having a
discussion with your contacts regarding these unearned "referral fees". I'd love to help you.

Sincerely,
Jeff Scislow, CRS
RE/MAX Results