Relocation Companies – Friend or Foe?

Back in the day, most REALTORS LOVED relocation companies because lots of companies used them to relocate lots of employees (mostly executives).

I knew several agents whose entire businesses were working with incoming and outgoing referrals exclusively with Relocation companies. This was their livelihood, and they didn’t mind paying the high referral fees because the volume of referrals more than compensated for the fractional commissions.

I knew one agent in Brentwood who sold the same house 6 times in 6 years to executives from the same company. I’ve wondered ever since why that company didn’t just buy the house and “Furnish Housing” for the executives . . . but there was plenty of money flowing, so they weren’t thinking frugally.

Then something happened . . . Money started getting tight . . . and the economy slid . . . and these companies changed their ways. They figured out that instead of moving their executives all about the country, they could let them work from home . . . or could keep them in one city longer . . . or best yet . . . they could lay off a bunch of them.

As the number of relocating executives shrunk, so did the referrals through relocation companies. The agents who had all their eggs in that basket suddenly found themselves scrambling for business. They had to learn to generate leads on their own . . . or STARVE.

Relocation companies all but disappeared from my field of vision when the economy tanked. In fact, I completely forgot they even existed. Occasionally, a reminder would pop into view in the form of an “after the fact” attempt of a relocation company to collect a referral fee from the commission on a sale of one of my agents AFTER the agent had already been working with the client.

Thankfully, the state of Tennessee has the “Broker act” which prohibits “After the fact demands for referral fees and specifically makes it illegal for a relocation to withhold benefits from the relocating employee in the event the REALTOR refuses to pay the referral fee.

I never lost one of those arguments, because our statutory law protects us . . . but that doesn’t stop them from trying because they bank on the fact that the majority of TN Real estate sales people are not aware of this statute. My bet is that these companies successfully “Extort” referral fess of 38% (or more) on a daily basis from mis/uninformed agents.

By now, you can probably cipher that I’m not a big fan of the relocation companies of today. I think they are dinosaurs and offer little (if any) VALUE to ANYONE in a real estate transaction. In fact, I believe they are often DETRIMENTAL to a smooth process.

A series of recent transaction involving relocation companies has resulted in the forming of my “TOP 10” reasons, I think relocation companies are FOE and NOT friend.

10. They “help” the relocating employee by providing their “Network Partner” for every step of the process (Movers, Lenders, title Companies), and they make a slice of money from everyone in the chain . . . The problem? These vendors are often not the best for the employee.

9. The REALTOR who relies on referrals from the Relocation Company becomes a dependent of that company . . . and even though not officially employed by them is relinquishing control of the primary function of anyone in business – Generating a steady flow of leads.

8. The relocation company treats all relocating employees the same even though they’re different from each other. Not all people have the same needs or expectations of service.

7. The relocation company doesn’t know the LOCAL market and neighborhoods and businesses and ways of doing business locally. Their requirements are “Broad Stroke” so as to (hopefully) cover all bases in all cities. This is impossible because Laws and Best Business Practices vary even between some adjacent “burbs” . . . One size and way does NOT fit ALL.

6. The LENDERS are typically not local – They are large Mortgage Companies that (again) only have the knowledge of the local real estate market that they can glean from the internet through sites like Zillow and Trulia. This can create HUGE problems when it comes to “Valuation” of the property. They often use appraisers who have little knowledge of the local market and impose “guidelines” for appraising that restrict the appraiser’s ability to determine Market Value – In an appreciating market, THIS is excruciating because it’s crashing deals.

5. The Lenders UNDERWRITERS are machines with (again) no local knowledge. We have many stories of underwriters making last minute decisions that crash real estate transaction within days of the closing date . . . things like “Adjusting the appraisal DOWN 20%” (that really happened) . . . and they are untouchable and unyielding when the local REALTORS attempt to resolve

4. “Buy-outs” are rare and when they do happen are seldom financially viable because the Relocation company is focused more on profit for their coffers than the best interest of the client.

3. Agents and services are “Assigned” – not referred . . . “Quality and fit” of the REALTOR can have random success VS the Local REALTOR finding and screening a local REALTOR in the area of destination.

2. Each layer of servicing adds complexity and increases potential for delays and dropped balls. KISS is a better approach

1. COMPENSATION – Whether anyone wants to acknowledge this or not, the relocation company negotiates a SIGNIFICANT portion of the pay from EVERY one of the service providers. The last deal I saw, the REALTOR fee was to be 38% of the commission . . . the REALTOR then pays a split to their firm (20% in my firm), so that REALTOR is actually only making 42% of the commission . . . Take Income tax out for Uncle Sam, and the REALTOR is making a whopping 25%ish of the gross commission. This begs the question: Would “top Tier” real estate agents and vendors be willing to work for 25% of their pay? I think not. The top agents and vendors are generating their own business and don’t NEED relocation company referrals.

BOTTOM LINE: What’s best for the client (Relocating employee)?

I believe what’s best is for that client to get the best of EVERYTHING . . . and the best way to get that is to work with a LOCAL REALTOR who will refer ALL of the supporting vendors ALL of whom KNOW the LOCAL way.

Suggestion to the relocating employees . . . consider negotiating a Relocating “Bonus” in their pay that covers their costs associated with moving thereby giving them complete control over who serves them (With the LOCAL REALTOR “Quarterbacking” the whole move 🙂

 

Published by Barry Owen

Strategist-CEO of Pareto Realty Real estate sales Professional Inviter-Facilitator-Practicer of Open Space Technology Opening safe space for people & organizations to self-organize around issues & opportunities BarryOwen.US Invite-Listen-Love

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