Home buyers want more convenience from residential firms. Last year, a survey by the Real Estate Service Providers Council found that 82 percent of buyers would strongly consider using a “one-stop shop” that provides a range of in-house services, rather than running around to different companies that individually handle sales, mortgage, and title insurance.
Real estate firms across the nation already have caught on to that consumer preference, with about two-thirds of larger companies offering mortgage and other services. Manhattan, as usual, has been slow to catch on to the national trend until now.
Two big firms Douglas Elliman and the Corcoran Group have begun to start offering mortgage services. Other companies may be considering starting them up soon. The trend has drawn concern, however, from some in the mortgage industry, who warn that the arrangement may lead to potential conflicts of interest.
“It s always best for consumers to have a disinterested party,” providing mortgage services, said Richard Russell, president of Richland Equity Resources, a mortgage specialist. “For the consumers, it doesn t give them all the options available to them.”
Firms who have started providing mortgage services disagree, noting that consumers are free to go elsewhere and citing convenience as the reason why they probably won t. Corcoran is currently in the process of launching a mortgage division, with chief executive Pamela Liebman recently saying the division will be a part of Cendant Mortgage. She said the mortgage division has been working out kinks involved with lending to co-ops.
Douglas Elliman has also begun offering mortgage services. A Long Island-based mortgage company started by chief executive Dottie Herman two and a half years ago began operating in Manhattan this summer. The firm, Preferred Empire Mortgage Co., currently has around 25 mortgage brokers in offices on 42nd Street, a number that will increase to around 60, according to Macia Kaufman, the company s chief operating officer. The mortgage company will also have between one and five mortgage brokers in each of Elliman s nine offices in Manhattan.
On Long Island, the mortgage business has been very successful, said Kaufman, a 20-year industry veteran, drawing in 44 percent of the buyers who use Prudential brokers.
Herman said it s the added convenience that has attracted buyers to use the mortgage service, and that the idea is long overdue in Manhattan, where people are generally very pressed for time. “Consumers are busy, and if they feel comfortable, they would just as soon get some of the services from us,” she said. “We re trying to make it easier for people.” She said Manhattan is behind the curve, but that things are starting to change. “It s been happening in Florida and California and elsewhere for a while. New York is the last holdout. It s been slower.”
Kaufman said her company is able to speed up the home buying process considerably. “In many cases, we can issue a commitment letter at the initial meeting,” she said. As far as choices, “we bring to buyers all the different banks that are out there.”
Kaufman said Preferred has the best of both worlds, because it is owned by Prudential but still generates some 60 percent of its business outside the company. “Being closely held, we re more accountable,” she said. “On the other hand, this has to run as its own business.”
She emphasized that buyers using Prudential don t have to use her company at all and that there is full disclosure about Preferred s relationship with Prudential. “Nobody has to use us we have to show there is a value,” she said. “We earn our business.”
While the overall relationship is a positive one, Kaufman does acknowledge that situations can get tense when a real estate agent wants a deal done and calls up complaining to top brass like Herman when Preferred turns down a deal. “You have to explain bad deals that can t be done,” she said.
Other companies have different arrangements. Kaufman said she sees some mortgage companies paying “a tremendous amount of money to get exclusive relationships, or to do a joint venture.”
Firms like Manhattan Mortgage Co. have exclusive relationships with real estate firms, paying to list its services on the Web site of Halstead, for example. Kaufman claims that in such arrangements, there is often “lack of continuity” for buyers if affiliations change.
She gave the example of Daniel Gale, a Long Island residential firm, which recently entered into an agreement with Wells Fargo, after using IPI for its mortgage services. In addition, smaller firms often try to start up mortgage services, too, often with varying success.
Mortgage broker Russell said small firms often need to make as much as possible for each transaction. “It usually doesn t work,” he said. “It takes a while to get expertise and build up contacts with lenders.”
Overall, the trend towards residential firms having mortgage affiliates won t have a major effect on traditional mortgage lenders, said Steve Schnall, chief executive of the New York Mortgage Company in Manhattan. “It might cut into business a little,” he said. “But there is a lot of business out there.” In contrast with Kaufman s figures, he said the highest amount of business he s heard a mortgage affiliate capturing from its parent company is 25 percent of buyers. He said the national average is closer to 11 percent.
“There is basically no economic incentive for the real estate agent” to provide referrals, he said. “Some of them resent doing it. They are independent contractors, and some of them have long-standing relationships with [mortgage brokers] who have been an integral part of their success.”
Schnall said some companies have sought ways to provide incentives to agents to increase business.
One way agents can be paid without violating RESPA [Real Estate Settlement Procedures Act], the rules which govern closings, is by taking part in the mortgage origination process. “But you actually have to do the work,” said Schnall. “And not only do you have to do the work, you have to be good at it to compete. It s hard enough to be good at one thing, and it really hasn t caught on.”
Schnall said that while residential firms throughout the country have added mortgage services, Manhattan may be slower to implement the changes for good reason. “There might be economic reasons why the trend hasn t take root here,” he said. “You really have to be focused. You re dealing with more complicated entities like co-ops, and you ve got sophisticated buyers in Manhattan.” Schnall also notes that in the mortgage industry as a whole in Manhattan, there have been few meaningful entrants into the business in the last ten years. “It s a tough market to crack,” he said.