Has home buying become a bit like taking a trip to the mall, with buyers shopping for a house and a mortgage at a real estate office, then loading up on title work and insurance on the way out the door?
Some in the industry say the day of the one-stop shop has arrived.
More and more real estate companies have embraced the concept of "full service," forming joint ventures or separate companies to handle needs beyond merely finding a house. Brokers are placing lenders inside their offices to help customers with mortgages -- and to try to capture a greater share of that business.
"It's a natural thing for real estate companies to want to get into," said D. R. Grempler, president of Towson-based Coldwell Banker Grempler Realty Inc. "In order for real estate companies to survive, they've looked for additional revenue through other services, mortgage companies, title and insurance."
Also triggering what amounts to an evolution in home buying are consumers' demands for a quicker, more streamlined process, according to Robert H. Elrod, president of the National Association of Realtors.
Large real estate companies are banking on those demands. Since December, Long & Foster Real Estate Inc., O'Conor, Piper & Flynn and Prudential Preferred Properties -- three of the top four real estate brokers in the Baltimore market -- have created new mortgage or title companies.
And two weeks ago, Coldwell Banker Corp. and a subsidiary of PNC Bank Corp. announced the creation of a mortgage company that will offer loans through Coldwell Banker offices. Coldwell Banker Grempler -- the main local franchise and the third-largest real estate company in the Baltimore area -- will continue to use its own company, Freestate Mortgage Inc.
But some consumer groups and mortgage bankers fear in-house arrangements could become a bit too cozy. If real estate brokers benefit by keeping business in-house, they might steer clients to affiliates rather than to lenders with better deals.
These groups have taken steps to tighten rules governing relationships between real estate companies and their affiliates, trying to keep in-house lenders from gaining an unfair advantage. The Consumer Federation of America complains that current rules encourage "one-stop pickpocketing" -- because many clients aren't aware of their right to choose their own mortgage lender, title company and insurance policy.
A lot is at stake for independent mortgage, title and insurance companies that count on real estate agents' referrals. If in-house services begin capturing most of their affiliated real estate company's business, that would leave outside companies competing for a smaller share of the pie. In that case, lenders said, competition could intensify even more than it has already -- with this year's drop-off refinance business. Companies would most likely react by expanding their services or target territories or beef up promotional efforts.
The four major Baltimore-area real estate companies control about two-thirds of the home resale market, but only a small fraction of the mortgage, title and insurance businesses.
In these days of heated competition both for agents and customers, with profits shrinking in the buying and selling of homes, real estate company officials say they're merely taking a logical step by diversifying. Profits have shrunk as higher and higher commission splits for agents have become the norm. Agents who once took 50 percent of the commission on sales now get average splits of 65 and 70 percent.
"The margin of profit in real estate companies is diminishing daily," said Carole Greenwald-Ryan, president of Prudential Preferred Properties. "This is another opportunity to make up for the deficit."
She said she hopes to station Real Estate Mortgage Advantage loan officers in all Prudential offices in the Baltimore Metropolitan region by the end of the year, at the earliest.
"If you look through the industry, you see a definite trend toward providing the one-stop type service," said John Gladhill, the new company's president. "It has been a growing concept, and a number of companies are doing it" or considering it.
The one-stop shop worked for the Combses. Competitive rates convinced O'Conor client Kevin Combs to use the company's mortgage unit as well. The systems analyst and his wife, Daphne, also a systems analyst, bought a four-bedroom split-level home in Columbia in June, first shopping around for the best rate.
"We'd done our homework up front, and they just happened to come up with a good deal, with no points involved," Mr. Combs said. "The convenience of having everything there is really nice. We didn't have to make lot of phone calls and do lot of footwork."
But convenience is worth only so much, he added. "How much are you willing to pay for convenience?"
In many cases, real estate agents refer clients to the in-house services. But they are free to refer clients to outside companies with whom they've built good working relationships. To a large degree, the real estate companies hope that the mere presence of a lender will attract homebuyers while they are in the office talking to an agent.
But the "full service" concept has sparked intense debate tTC between lenders and real estate brokers, as the U.S. Department of Housing and Urban Development considers changes to the Real Estate Settlement Procedures Act.
It is now illegal for companies to offer financial incentives to independent real estate agents for referring clients to affiliates. The Clinton administration has proposed banning referral bonuses as well for employees, such as managers or brokers. HUD is accepting comments through Sept. 19.
The Mortgage Bankers Association of America supports the proposal. But the group disagrees with an exemption that would allow managerial employees with no regular contact with the public to get bonuses, if they are not directly linked to one-on-one referrals.
"We don't mind anybody opening any company if the success is determined by the market," said Brian Chappelle, the group's staff vice president for government affairs. "If they want to open a mortgage company subsidiary or a title company, that's all well and good, and let the marketplace decide." But current regulations, and even some proposed changes, remain unclear, leaving too much open to interpretation, he said.
Heads of real estate companies maintain that tighter rules infringe on free enterprise rights. In-house services, they say, must compete for business like any other company.
James P. O'Conor, chairman of O'Conor, Piper & Flynn, said, "If your rates aren't competitive, customers won't use it."
NEW APPROACHES
Prudential Preferred Properties: On June 1, the company launched Real Estate Mortgage Advantage, a mortgage broker that originates loans and sells them to investors.
Long & Foster Real Estate Inc.: Prosperity Mortgage, owned by Long & Foster for 10 years, entered into a joint venture in December with Norwest Mortgage, the nation's third-largest loan originator, to expand loan products and gain access to more refined systems.
"The customer does not have to go to one place to select a house and another to get a loan," said Bob Kerlin, a branch sales manager in Fairfax, Va. "And if a person is having a problem buying a home, we have got three different pieces of the business here trying to help that person. We've got a team working for them."
O'Conor, Piper & Flynn: The company, which a year and a half ago started O'Conor, Piper & Flynn Mortgage Services Inc., a wholly owned mortgage company, added O'Conor, Piper & Flynn Title Services Inc. and O'Conor, Piper & Flynn Insurance Services Inc. early this year. Loan officers underwrite, process and sell loans from OPF real estate offices.
Coldwell Banker Corp.: With a subsidiary of PNC Bank Corp., the company announced two weeks ago the creation of a joint venture to sell mortgage services to Coldwell Banker customers. The agreement will not apply to the Coldwell Banker Grempler franchise. The former Grempler Realty started its own company, Freestate Mortgage Inc., 26 years ago. At one time, real estate agents took loan applications, but now full-time loan originators work in the real estate offices. Another franchise, Coldwell Banker Home Realty Professionals in Anne Arundel County, would consider bringing in the PNC subsidiary, President Gary Kaukonen said.