Affiliated Businesses and Other Dirty Real Estate Secrets

To contact us Click HERE
by Osman Parvez
If you've bought or sold real estate with one of my competitors recently, you might have been presented with a disclosure of affiliated business arrangements.   Do you know what that's about?

Dirty Secrets
I'll tell you a little secret about the real estate business.   Affiliated business in the real estate industry is BIG MONEY.

Most large real estate brokerages, including several of my competitors here in Boulder, also own title companies, mortgage brokerages, property managers, or insurance providers.    State and Federal law allows these "affiliated business arrangements" so long as they are fully disclosed.    Technically, brokers are also prohibited from steering their clients to using affiliated businesses but in practice...   guess again. 

What percentage of business do in-house service providers receive?  I bet it's close to 80%, and that's conservative.     

Trust Matters
Think about it. Clients trust their brokers to refer them to reputable service providers.   Sellers need a title company to handle escrow accounts and provide a title insurance policy.   Buyers need home owner's insurance and a mortgage.   Both frequently need the services of handymen, plumbers, and carpenters. 

Presented with the easy option of an in-house affiliated company, what do you think most people decide?   They go with the broker's recommendation and very few will shop those fees with other insurance, title, and mortgage loan companies.

Even if the rare consumer shops around,  most have little experience from which to evaluate third party service providers in a real estate transaction.   The typical consumer rarely hires the services of title companies, insurance brokers, lenders, and inspectors.  This is why they turn to their Realtor, the experienced professional, to help them make the decision.  In certain big name firms, consumers will find themselves referred to the affiliated service provider when that provider may or may not be the best choice. 

Once again, be careful who you choose to represent you in a real estate transaction.

It's Not Just Affiliated Businesses
Last year, I had a closing in North Boulder where the seller had selected a dodgy title company - as recommended by the listing agent.  My buyer was paying cash and I had never heard of this company, yet we were supposed to trust them to handle escrow services, file the appropriate closing documents, and provide a valid title insurance policy.

I checked around and they were clearly a  fly-by-night type of firm, so I insisted we switch to a reputable, independent title company.    The listing agent balked and fought me on it.  It wasn't until I threatened to terminate the contract did they relent.

Why the struggle?    In this case,  the seller was paying for a cheap title insurance policy and didn't want to cough up the additional rupees for a policy from a reputable firm.   Since it would be MY buyer on the line if something went wrong, this was unacceptable and I stood my ground.    Eventually the seller caved and agreed to our choice of title company. 

Remember,  here in Colorado,  the seller typically pays for the title insurance but the buyer is the one who gets the services from the policy.  This means the buyer needs to be comfortable with the policy they're getting.    It's really that simple.
Full Disclosure:   Silver Fern does not own ANY interest in affiliated service providers nor do we accept compensation for referrals to service providers in our transactions.   My recommendations is ALWAYS to the best service provider - consistent at delivering high quality at a competitive price, whether it's for architecture services or a mortgage loan.  My referral list has a ONE strike out policy.  There is no room for shenanigans when my reputation is on the line.  
---Note: Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.