A New Wrinkle

Consumers Shop for Chicken and Mortgages--at the Same Place

May 1, 1996

At 62 BJ's Wholesale Club grocery superstores along the East Coast, people are shopping for 50-roll packs of toilet paper, 10-pound packs of chicken, and discount real estate services, including mortgages. Mortgages? Yes.

The program is the brainchild of Danbury, Conn.-based sister companies PHH Mortgage Services and PHH Relocation.

PHH sells its services to the 3 million BJ's customers both through articles in BJ's member newsletter and through in-store displays. Shoppers can visit an information kiosk surrounded by a white picket fence, where they find flyers that invite them to call a toll-free number for information. There are benefits and drawbacks for REALTORS®: They'll get potential, prequalified buyers, but they may have to pay for referrals.

PHH takes the calls at a national service center and questions would-be homebuyers about their housing needs and financial background. Calls are then transferred to either the mortgage or the real estate service center.

PHH tracks the customers' actions, including whether the real estate salesperson sends homebuyers back to the mortgage company for financing. In the first six months that PHH offered the program, more than 2,000 potential customers called the company to hear about cash-back real estate commission discounts of $200 to $2,000 and mortgage loan discounts. About 20 percent of those callers ended up buying or selling a home with PHH's help, says PHH's Lou Alhage, client services manager for PHH Relocation.

What Does It Add to or Subtract From Your Pocket?

How do real estate brokers feel about the program? Some say PHH is pulling customers away from local real estate companies and selling them back to other salespeople, since PHH collects a referral fee from salespeople who assist the buyers and sellers in the program.

The size of the referral fee can also become an obstacle. "Consumers always want the best buy, but if you charge too much in referral fees, there's going to be a dilution and a breakdown in the delivery of services. The best salespeople won't want to pay a 30 percent or 40 percent referral fee for the business," says Elizabeth Archibald, director of development for Windermere, Cronin & Caplan Realty Group Inc., Portland, Ore.

Some salespeople with experience serving PHH's group customers, however, say the business is worth the fees. "Some of the referral fees can be high at times, but I never complain, because it's business I wouldn't have had, and usually it's business that comes back to me tenfold," says Denise Kempton, a salesperson with Long & Foster Real Estate Inc., Centreville, Md.

Moreover, it's quick business, she says, because PHH filters out the lookey-Lous before it sends the referrals: "Ninety-five percent to 97 percent of all those who come through that program are ready to act."

The Ties That Bind: People Will Remain Loyal

Kempton likes the PHH program so much that when she realized one longtime prospect was eligible for a similar PHH program (affiliated with an insurance company), she encouraged him to take advantage of it, even though it meant paying a referral fee to PHH for a customer she already had.

Impressed with Kempton's willingness to reduce her income to improve his service, the buyer sent her four other buyers who also used the same program.

But real estate practitioners point out another flaw. Retailing is a great idea, they say, but it's important for consumers to realize they're always going to be referred to a salesperson affiliated with PHH's real estate brokers network. If the best salesperson in an area belongs to another franchise or an independent company, that individual isn't likely to be chosen over the local PHH affiliate when the referrals get passed out.<

If the BJ's experiment works, more practitioners could find themselves facing similar decisions about accepting business from PHH and others who may copy the program if it's successful.

But others say the retail trend won't have a big effect on real estate salespeople for two reasons, according to Patrick Reilly, director of member and board services of New York State Association ofREALTORS® in Albany. First, the program's discounts are illegal in about a half dozen states, including New York, where rebates paid directly to buyers or sellers are considered kickbacks.

Second, retailing has already been done, and it hasn't affected the market dramatically. "It's not any different from the kiosks that salespeople have in shopping centers," says Sylvia Ehrlich, director of Westchester Relocation Services, a division of Randolph Properties, Westchester County, New York. "If people have ties with a local real estate company, they're going to maintain them."

NOTE:The payment of fees by one settlement service provider to another for the referral of customers is regulated by state and federal law. Before paying or accepting referral fees, you should consult with your attorney.

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