The ins and outs and roundabouts of real estate incentives
Incentives! That's the key word in today's highly competitive real estate brokerage business. Individual broker firms, as well as national franchise organizations and networks, are vying for a larger share of the market by offering consumers special incentives to purchase a home through their brokers and salespeople.Skip to next paragraph
Subscribe Today to the Monitor
Some firms offer special services that naturally complement their home-marketing function. These could include a home-protection (warranty) coverage plan or other home-related insurance programs, or a computerized information system.
Other firms offer a commission rate lower than the prevailing rate in the local market; or a ``guaranteed sale'' plan for owners interested in listing their home.
One of the most controversial of current incentives is the offering of substantial discounts on a wide variety of products to consumers who buy their home through a particular firm or franchise organization. Despite some legal and ethical snares, this practice is growing in most major markets throughout the country.
It all started two years ago when Coldwell Banker, owned by Sears, started to promote a ``Home Buyer's Savings Program.'' The basic idea was to offer discounts on selected Sears retail-store products to people who bought a home from a Coldwell Banker salesperson.
Many states objected to the plan, with some officials pointing out that it was not allowable under their state license laws. However, during the first year, Sears attorneys convinced 25 states to accept the plan. Today 31 states have ruled in favor of the program, one has approved it with restrictions, and two have generally approved it, but appeals are pending.
Some other broker networks and franchises are trying to meet this new incentive competition by lining up their own discount program -- making deals with various retail chains and service organizations.
Other broker groups and firms resist the entire concept. As one broker describes it as ``a Mickey Mouse promotional technique that degrades the professional role of brokers. It's a gimmick that should stay in the merchandising world of used cars and vacuum cleaners.''
Coldwell Banker officials and members vigorously defend their discount program. To give it even more sizzle, they recently increased the discount range from between 10 and 25 percent to between 15 and 30 percent (off regular nonsale prices of stipulated items). They also increased the number of discountable products to about a hundred items, ranging from garden tools to snow blowers to household furniture.
``The program seems to work for us,'' says Tim B. Hickey, a broker associate with Coldwell Banker. ``Consumers spark up to the discount idea. I think such promotions are good for the entire brokerage industry. It stimulates business.''
Some brokers still believe the ``prospect pulling power'' of any incentive program is minimal at most, feeling that the best and only incentive needed is competent, professional real estate service
Organized real estate is taking a particularly close look at ``product discount'' incentive programs. For the National Association of Realtors, the practice is being studied by its professional standards committee, which is charged with interpreting the association's code of ethics.
From a consumer's viewpoint, this type of promotional program may appear to be very attractive and legitimate and an opportunity to pick up needed items at substantial savings. Those savings might be considered a reduction in the broker's real estate commission.