Never waste a good crisis. In this challenging economic environment, many are adopting that mantra to make overdue changes to their business practices—changes that might not be possible in a thriving economy. Exploring new solutions is always a good thing, as long as we are mindful not to “throw the baby out with the bath water” when experimenting with new approaches.
One such experiment undertaken by some relocation management companies (RMCs) for their real estate assignments is the “agent-direct” referral model, eliminating or minimizing the involvement of real estate relocation departments. The reasons cited are greater efficiency by eliminating a layer of communication and leveraging Internet technology; lower costs for clients by removing the “up-charge” of many relocation departments; and helping brokers’ profitability by eliminating the costs of a relocation department.
At first glance, these claims seem logical, but there are many misconceptions—even among seasoned relocation management professionals—about the economics of real estate brokerages and their relocation departments, about the services provided by those departments, and about the role that license law plays in a brokerage operation.
In the agent-direct model, there is an assumption that simply developing a profile database of agents who have performed well in the past (probably because they were trained, hand-selected, and held accountable by a relocation department) and training them in RMC practices and standards will deliver the same result without the layer of a relocation department. However, while some relocation departments are more proficient than others, the majority typically perform multiple tasks behind the scenes that RMCs sometimes assume are being handled by the agent, so they often underestimate the value added by the department.
Ironically, the opportunity to pursue an agent-direct model is not new. For more than 30 years, RMCs have been able to work with individual agents associated with 100 percent firms that have no relocation department. The fact that most RMCs are still working predominantly with traditional real estate companies and their relocation departments speaks to the value that exists.
Regardless, given the two options available to RMCs of working with a relocation department that provides local “managed care,” or working directly with agents, it is important to examine the differences in order to make informed decisions.
The Optimal Relocation Experience: People Versus Process
In the agent-direct model, the needs assessment is likely to begin with the RMC or national real estate service company consultant. Using a thorough but consistent format, questions will be asked about the home currently owned, as well as the transferring employee’s destination needs in identifying temporary living, permanent housing, schools, and other family issues. The consultant will determine the work location and desired commute time, thereby narrowing down a geographic area. This information will be used to search a database of previously screened agents.
The type of information likely to be included in the agent database would be years of experience, conversion ratios, service area(s), familiarity with relocation, and types of certifications. The agent will need to complete training for use of the company’s Internet-based client platform. Some companies will require background checks. Searchable by geographic area and acceptable conversion ratios, the database software will assign agents to transferees.
The needs assessment, procedures, direction, and a referral agreement will be given to the selected agent(s) by the referring RMC, and a schedule likely will be set with the agent to provide a Broker’s Market Analysis (BMA), update reports, and eventually report the sale and/or purchase of real estate.
The agent will be responsible for managing all details of the process. For a homesale, the BMA and listing agreement will be sent directly to the consultant by the agent. When utilities are no longer the responsibility of the transferee, the agent will be required to arrange for a change in service and pay bills. If repairs or improvements are needed, they will use their personal list of suppliers for carpet, paint, plumbing, electrical, and will coordinate all expenses and final documentation needed to close the sale of the home. In the case of a buyer client, the agent will need to be aware of policy nuances with regard to lenders, inspections, and equity advances. He or she will need to be informed of homes that may not meet company policy guidelines for resale in the future. The agent will be accountable for a well-defined process, and the RMC will have to follow up to ensure that all steps are completed because automation alone will not suffice.
Conversely, let us review a similar scenario in which the agent’s involvement is initiated and monitored by a local relocation director and staff closer to the transaction. The RMC will use the transferee’s homesale and destination location to identify the qualified real estate brokerages within those geographic areas to which the initiation will be sent.
On a homesale, the real estate relocation department coordinator likely will have access to the local MLS, enabling them to pull property history prior to their initial call. This allows the coordinator to demonstrate area knowledge to the transferee and build confidence in his or her ability to select the right agent. For homefinding, someone familiar with the destination is able to ask more specific questions that often will result in a much more thorough, personalized needs assessment and a clearer picture for purposes of agent selection.
Concerning agent selection, most relocation departments also will have a database of previously screened and trained agents. Similar information analyzed in an agent-direct model also is maintained and used by many relocation directors. In addition to a general qualifying database, however, the relocation department has the advantage of local, real-time knowledge through MLS access and related market trend reports of the best performing agents within a county, city, and even down to the specific neighborhood or desired school district.
Technology has enabled agent selection based on metrics, the agent’s training history, and other factors for several years now. The difference in what is available to an RMC using an agent-direct model versus a relocation department, however, lies in the information that cannot be quantified in a database. Will RMC consultants work enough with the same agents to know personality nuances that might present an “oil and water” combination with a particular transferee? Are agents too busy with their own sphere of influence or with a daughter’s impending wedding to focus on the assignment? Have they had recent personal or financial difficulties that might make them a better choice in a few months? What is their specific experience with a particular price point or micro-market that could make a significant difference?
Even in a large firm, the relocation director will be able to tap the local sales manager to help make the right agent selection and, if a client’s plans change or an agent takes ill, the relocation department will see that a qualified agent is put in place without missing a beat, rather than relying on the agent to make a reassignment.
The growing number of RMCs with proprietary certification and technology tracking platforms has created the need for an in-house agent “help desk” in many brokerages; i.e., the relocation department. In the real world, it is possible that an individual agent may see the same forms, the same policies, update schedules, log-ins, and the like only a handful of times each year. The relocation department’s ability to oversee each RMC’s process, track due dates, update the outdated forms, and review the BMAs (with access to the local MLS) to ensure accurate pricing prior to submission, is invaluable. These oversight responsibilities will fall to the RMC counselor in most cases in the absence of relocation department involvement.
Should corporate clients also be concerned about the financial ability of an individual agent to carry utility, repairs, and improvement expenses for 60 days or more? How much will an agent be willing to invest in a client or transaction if the payoff is far down the line? Brokerages most certainly are better equipped to make timely vendor payments and be out-of-pocket while waiting for reimbursement. Who has greater buying power when it comes to winterizing, landscaping, carpet, and paint? Relocation departments are more likely able to negotiate volume discounts, confirm that vendors entering corporate inventory properties are bonded and insured, and deliver peace of mind and real cost savings to the client as a result.
Critical to the success of a negotiated homesale contract is the coordination of proprietary addendums and relocation disclosures that must accompany the contract, followed by the coordination of closing estimates and expenses. Only experience can keep this portion of the transaction from running amok. Not all sales associates are adept at administrative tasks and reports and, even when the agent has an assistant, that individual must be trained in transaction features unique to relocation.
There are many areas in which the managed care offered by relocation directors and departments can make the true difference in a smooth relocation transaction, such as:
- calming an agent who has been running with a client for seven months and is losing patience;
- filling in to assist a transferee when an emergency call makes the agent unavailable;
- troubleshooting with a relocation issue the agent has not experienced before and that also may be beyond the expertise of his or her manager;
- Tracking inbound referrals to avoid committing duplicate referral fees that could put the RMCs revenue at risk; and
- providing the basic relocation training and ongoing updates that often are the foundation on which RMC training programs are based.
In addition, relocation departments often are called on to invest time, talent, and resources to coordinate group moves while busy agents would be hard-pressed to take time away from other business to devote weekends to bus tours, stocking destination area libraries, and preparing presentations.
These and other relocation department services provide for a seamless relocation experience for transferees, RMCs, and, ultimately, the corporate client; in today’s economic climate, the role of the relocation director has been expanded to cover the reduced resources of many RMCs. Removing this “layer” in the name of efficiency may in fact be detrimental to the desired outcome.
It is unlikely that relocation directors will step in to provide this level of support when they have no accountability for the referral and no department income, particularly when they have other business that does respect and reward their time and experience.
Brokerage Interference
There is another assumption in the agent-direct model that, because agents are independent contractors who are on straight commission, they can just as easily be accountable to an outside RMC as to their own brokerage relocation department, but there are legal, licensing, liability, and business management issues that need to be considered here, too.
In nearly all states, license law provides that the agent has an independent contractor agreement with the brokerage and thus serves as a “sub-agent” of that brokerage. The broker thereby accepts liability for that agent’s actions and typically is unwilling to cede control of that agent to an outside entity who does not have that same liability. The relocation department, however, represents the brokerage company’s interests, as well as those of the RMC.
Real estate law also stipulates that transactions are with the real estate company and broker of record and that the agent operates under that broker’s license. Also, in all except 100 percent brokerages, every commission is shared by the company and agent, with the referral fee paid “off the top” and, therefore, coming out of both pockets.
As a result, most non-100 percent brokerages prohibit an agent from obligating the company for a referral fee without the broker’s permission. Likewise, most would be unwilling to sign a blanket agreement to pay referral fees on all transactions from a particular RMC without some type of protective provisions, given that no relocation department oversight exists.
When agents receive business that they did not generate personally from an individual buyer or seller, they feel a sense of accountability to the source of business for high performance, which benefits the end-user corporate transferee and corporate client. An in-house relocation department has even greater leverage based on the amount of business it generates to a single agent from multiple sources and its ties to the agent’s manager and other company-generated business.
Unless a RMC has a tremendous volume of business in a particular area, a discrepancy exists with respect to volume (how much business any one RMC can give any one agent so that the RMC becomes a top priority to that agent) versus choice (having a large enough pool of agents to truly match transferees to the right professional).
Most RMC executives would strongly object to an outsider telling their employees what to do and committing RMC company revenue in the process, yet that is exactly what the agent-direct model requires of the brokerage.
Agents are the principal asset of a brokerage. Concerns are raised when an outside business entity attempts to establish a direct relationship and loyalty. Ultimately, what prevents the RMC from establishing its own brokerage with those assets? Would that type of interference with its employees be tolerated by the RMC?
A Cost Savings?
The agent-direct model purports to save the client and the brokerage money, but is that really the case?
It is true that, in many brokerage companies, when a referral fee is charged an additional “up-charge” (often 5 percent) is added to cover relocation department operating costs but, in recent years of 38 and 40 percent referral fees, even that is not universally the case because many good agents will not accept referrals with a 43 percent or 45 percent price tag. In the agent-direct model, the fee seems to be hovering between 40 and 48 percent, so the reality is that there is no savings to the client and no financial advantage to the agent.
Even if this additional fee to the RMC is justified because it is handling duties previously administered by the relocation department, there is some question as to whether that margin will cover the RMC’s costs if it performs all of the same services as a relocation department and, if not, will the client be the one experiencing the shortfall when monitoring does not occur that could generate better financial results?
Is it really logical that a RMC thousands of miles from the brokerage can exercise the same kind of oversight as an onsite relocation department? Does the practice of moving the dollars around really produce a better outcome, or in fact, an inferior one that could potentially cost the client? And does this model even benefit the RMC, which takes on more responsibility for no additional margin?
Finally, the stakes are high for the RMC if service delivery suffers. A corporate transferee expects a high level of hand-holding and “managed care” when agreeing to uproot his or her family, and the selection and monitoring of the real estate agent’s performance is critical to an efficient, cost-effective outcome. If the lack of local control impairs the result, an entire account could be jeopardized, which is very different than is the case with a single “discretionary move” individual.
The other argument is that eliminating the relocation department saves the brokerage dollars. At present, many of these departments have evolved into “business development” arms of the company with responsibility for Internet leads, REO business, and target-audience marketing to local consumers, in addition to traditional relocation business. Often, those other types of business are more profitable, so most brokers would find it impractical to close those departments.
The agent-direct model could be compared to the movement that began years ago in which corporations began to outsource the administration of employee relocation. Have costs been lowered and have service and transferee satisfaction escalated since? The answer to that, at a minimum, is debatable.
What Truly Matters?
Successful relocation transactions are a factor of both process and people. Processes can be automated, but just as having the right people in the right location is what workforce mobility is all about, the same is true of having the right people in place closest to the front line of the transferee’s relocation experience.
Ultimately, the corporate client’s view of relocation is influenced by the satisfaction levels of its transferring employees manifested by their ratings of the mobility process and people, their on-the-job productivity, and their loyalty to the employer, coupled with bottom-line costs (not fees, but overall relocation program costs).
While it is wise and reasonable to always evaluate whether there is a better way to achieve this end result, doing so merits a thoughtful assessment of everything that contributes to that result.
What should be happening is a healthy and constructive dialogue among the parties—the clients, the RMCs, and the real estate relocation departments—to fully understand each other’s business practices and economic models.
There is no doubt some solutions could be identified that would enhance efficiencies and savings for all parties without compromising the essence of effective workforce mobility, creating a “wow” transferee experience.
Pamela J. O’Connor, SCRP, is president/ CEO of Leading Real Estate Companies of the World®, Chicago, Illinois, and Worldwide ERC® Secretary/Treasurer. She can be reached at +1 312 424 0400 or poconnor@leadingre.com.
Sue Carey, SCRP, GMS, is 2010 president of the Relocation Directors Council®, and vice president, relocation for CENTURY 21 Kreuser & Seiler, Ltd., Libertyville, Illinois. She can be reached at +1 847 367 1171 ext 233 or sue.carey@century21.com.