Branching out
Texas brokerages break out of the traditional real estate mold to offer customers related services and one-stop-shopping.

Read more about branching out.

by Bridget McCrea  Joe Shaffer gets more than his fair share of puzzled looks when telling new recruits that they not only need a real estate license to work for his brokerage,
but they also must be mortgage loan originators. Most baffled, says this president of ERA Shaffer Stewart Real Estate in Austin, are the “old school” agents who for years have dedicated themselves only to listing and selling.

“The newer agents see the potential, but those who have been in the business a long time don’t,” says Shaffer, whose firm has three locations and 50 agents. “What some don’t realize is that customers want a professional who can assist them through the entire transaction—not just selling or finding them a home.”

But when Shaffer proffers up the financial incentive that comes from taking the transaction to a new level, even older agents’ ears prick up. He says agents can increase their annual earnings by augmenting their traditional services, just as long as they handle a minimum of six steps in the mortgage process, per RESPA requirements.

“It’s not chump change,” says Shaffer, who often hears when outlining those six steps (attend closing, for example, and follow up during the lending process) to new agents, “Oh, I already do all of that for my customers.” Monetary rewards aside, Shaffer says adding more depth to his firm’s services has helped agents maintain control of the transaction. Instead of watching a customer walk out the door to find a lender, agents play a larger role in the homebuying process.

That is, if the homebuyer so desires. “We encourage buyers to look at other lenders and examine their good-faith estimates to make sure they’re getting a good deal,” says Shaffer. “The last thing that we want is for them to feel we’ve pushed them into something they didn’t want or didn’t need.”

Out of the box
Operating in a competitive environment well known for its razor-thin margins, many brokerages strive to become a “one-stop shop” for consumers during the homebuying or selling process. Whether that means offering mortgage, title, or insurance services; adding a home-warranty division; or providing light home-remodeling assistance in exchange for a fee, the ancillary services are keeping customers close at hand while raising compensation for both the individual agent and the brokerage.

Most who have taken the step say the learning curve and investment were well worth the additional revenue raised as a result. Shaffer, for example, was already in the mortgage business when he founded his firm with partner Shawn Stewart in 2000. Because the equipment required to run a mortgage office is similar to that of a real estate office, he says, there was no additional cost involved.

To get Dallas-based Ebby Halliday, REALTORS® into the one-stop-shop mindset, Mary Frances Burleson, president, says the firm formed joint ventures with mortgage and insurance professionals who were already experienced in their respective fields. With 28 offices and 1,200 agents, Ebby Halliday launched Home Team Mortgage in 1995 and Home Team Insurance in August 2003. By 2000, Ebby Halliday was processing its own mortgage loans, and still relies on its joint venture partner to manage the insurance side.

Burleson says two key factors drove the company to look outside traditional real estate boundaries: the desire to better service clients and the additional revenues that such services generate. “The bottom line in this business is very thin, but the cost of doing business is high—and keeps getting higher,” says Burleson. “Maintaining great service, facilities, and a desirable commission structure takes a lot of money.”

The regulatory environment in Texas hasn’t made things any easier, says Burleson, particularly when it comes to homeowners insurance. By adding insurance services to the mix last year, she says the brokerage was able to entrench itself in an industry plagued by issues like terrorist attacks, mold, and weather-related disasters.

“We wanted to do everything possible to make sure clients could obtain insurance, and that they wouldn’t sign a contract and find out 60 days later that their insurance company was canceling their policy,” says Burleson. “We needed to be on the firing line for our clients, learning about the latest advances in insurance and, eventually, making additional money
for the brokerage.”

Robert Cook had similar goals in mind when he began offering mortgage services in 1995. As owner of Robert D. Cook Properties in Houston, Cook handles the loan origination for his four-agent office, which is “aligned” with a mortgage company that takes care of the processing and other aspects of the loan. The brokerage earns about a half-point on the mortgage, says Cook, and must also adhere to RESPA’s six-step requirement in order to receive that compensation.

A former homebuilder, Cook also offers light remodeling to customers in exchange for a fee. He subcontracts the work out to painters, carpet layers, and plumbers in the area, and charges customers a flat fee for the work. In exchange, Cook says he “keeps the client close” and saves them the time and energy involved with looking elsewhere for those services.

But not all clients want such a cozy relationship with their real estate agents, as Cook has found out. Some are wary of handing over personal financial information and prefer to deal directly with the mortgage lender. “When working with these guarded types, I usually acquiesce on that point and back off. Most people understand the fiduciary confidentiality that comes with being a broker, however, and are very comfortable with it.”

Innovative additions
When Julie Greenwood and Linda King wanted to break out of the traditional real estate business model, they looked first at mortgage and title services but didn’t find what they were seeking. Instead, these co-owners of Greenwood King Properties in Houston mobilized an eight-person team and spent a year planning what would become The Lobby.

Open since 2003, The Lobby is an upscale, 20,000-square-foot walk-in facility where homebuyers and sellers can access information about surrounding neighborhoods, market activity and comparable sales, nearby entertainment, shopping and other amenities. “This is a place where anyone can walk in and get everything they need to buy or sell both new and existing residential properties,” says Greenwood.

By Greenwood’s estimates, The Lobby nets five or six walk-in customers every weekend, and also generates business through the firm’s 140 agents, who work in three offices. It also works as a recruiting and public-relations tool, says Greenwood, who often hears “I want to be with this company” after potential recruits gaze upon the facility’s 52-inch flat-screen plasma monitor, café tables, conference room, and plasma-map tables, where homebuyers can use advanced software to locate homes for sale.

Getting agents to trek from their Heights and Voss offices, the latter of which is 10 miles away, to use The Lobby has been “somewhat of an educational experience,” according to Greenwood, who has created PowerPoint presentations for those agents, showing the facility’s various functions. “We’ve let them know that this is a ‘wow’ space in which to meet with customers,” says Greenwood. “Once the customer gets there, sees the facility and the agent’s presentation, the agent will probably get the business.”

Greenwood, who admits that her firm took a different route in choosing to branch out into an ancillary service, says the key to success is to stay true to your successful business model and select a product or service that will benefit agents, customers, and the company itself.

“At this point in our company’s life, we felt this would provide more benefit than, say, a mortgage or title company,” says Greenwood. “I’m not saying we’ll never go down that road, but for now we’re pretty happy with the route we took.”

Putting it all together
In 1993, Gary Yarbrough took a leap of faith and became a mortgage broker. Formerly with RE/MAX, Yarbrough, who today is regional director and president of Realty Executives of Texas, added title to the mix in 1996, and today reels in about 80% of his firm’s profits through affiliated services.

“That really says it all,” says Yarbrough, whose firm has 24 offices and 240 agents. “Through increased profits, we’ve also become more competitive in offering agents higher splits and lower office overhead.”

With loan officers in each of its 24 locations and a central mortgage-processing operation in Southlake, the firm’s 240 agents can offer a “complete package” while also maintaining close relationships with clients, says Yarbrough. “We pride ourselves on being able to help a customer find a home, finance the home and close the home,” says Yarbrough, who claims that the barriers to entry for mortgage are fairly low, while title can be more challenging.

“With the new automated underwriting systems, a broker can get into the mortgage business for $10,000, a time investment, and a mortgage broker’s license,” says Yarbrough. “Title can cost about $100,000 plus $10,000 a month to update the title records for your respective county.”

The payoff comes in the form of a strong team that can put together deals that might otherwise fall apart had they involved three or four different service providers, says Yarbrough, whose firm recently began offering home-warranty policies to customers. Up next will be insurance and repair services, both of which will be in place by 2005, he says.

To brokers looking to branch out into related services, Yarbrough says the key is to do your homework first, research the opportunity, and make sure you have the infrastructure in place (i.e., the equipment and human capital) to run it properly. “You only have one chance to make a first impression in this industry,” he adds, “so make sure you know what you’re getting into.”

Shaffer, who is looking to add title services to his firm’s mix within the next six months, says brokers and agents need only look to their customer base for cues on what services to offer and when. “If the consumer wants more, we have to give them more,” says Shaffer. “Offering financing and related services fits the hand of the real estate agent like a glove.”

Bridget McCrea is a writer and former real estate agent in Dunedin, Florida. Her book, The Real Estate Agent’s Field Guide—Essential Insider Advice for Surviving in a Competitive Market, was published this year by AMACOM Books.

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