After 30+ years in the real estate industry, I find a truism that resonates with me. “The more things change, the more they stay the same.”
A case in point is our industry’s quest to create a “one-stop-shop” for consumers. It has been a highly prized Holy Grail coveted and touted by experts and category leaders since I have been in the business.
But the pragmatist in me, combined with personal experiences, has taught me to question conventional wisdom. So, I do. I have often found that conventional wisdom is just plain wrong.
Two things that I heard 30 years ago, I continue to hear today. First, consumers want a one-stop-shop real estate experience. Second, creating a one-stop-shop will work. I don’t believe either is true. They both are fallacies.
Let me explain.
In the late 80s, my first corporate PR job was with Great Western Bank, then known as Great Western Savings. Because Great Western a division of a Savings and Loan holding company, at the time it could do something FDIC-insured banks could not. Great Western could own a real estate brokerage company. It also could own an Escrow firm. Moreover, it could also be in the Insurance business. Traditional banks could not do any of these things at the time, as their regulations prevented it.
So Great Western bought an established, well-known real estate brokerage in Orange County, California: Walker & Lee Real Estate. They soon changed its name as part of its “one-stop-shop” strategy to Great Western Real Estate. You see, Walker & Lee owned an escrow firm as well. Additionally. Great Western operated an insurance arm. At the time, Great Western was one of California’s largest home mortgage lenders.
Most people don’t remember all of this, but Great Western ran a one-stop-shop. The bottom line was that it didn’t work, which should not be surprising to anyone familiar with the unique characteristics of the real estate industry.
First, you need to consider the independent nature of real estate agents. Second, consumers discovered they didn’t want a one-stop-shop because, by design, it can’t be in their best interests.
I spent a considerable amount of time getting to know many of the top producers at Walker & Lee, and they were like most agents. They had their go-to mortgage rep, and company-owned or not, they’d be damned if someone was going to tell them or their clients who they needed to use for a mortgage.
There also was this big little thing called RESPA: the Real Estate Settlement Procedures and Disclosure Act. You could not steer someone to your ancillary businesses. You had to do two things: you had to disclose your relationships to consumers upfront, and you had to give them a choice.
It’s not like Great Western didn’t try. They tried like HE double-hockey sticks to make it work.
Great Western ran promotional contests for its real estate agent sales force. One could win a Cadillac if you were the leading mortgage referring agent at Great Western Real Estate to Great Western Savings. Because of RESPA, agents had to disclose to their clients that they might win a Caddy by referring them. Agents told me that disclosure did not sit well with many clients. In the end, the highest penetration Great Western Savings was able to achieve was an agent-to-lender referral rate of less than 30 percent.
That means 7 out of 10 consumers, a vast majority, said no thank you to the idea of the one-stop-shop when it was available to them. Because here’s the thing – something that Zillow discovered and nearly every major brokerage in recent years also added — the big money is in lending. Home loans are the Holy Grail for expanding revenue. But having been both a loan officer and as a Director at Fannie Mae in DC working closely with the single-family loan division, there is the other side of the coin folks who don’t seem to talk about when the good times are rolling as they are today.
Where there are great rewards, there also is a higher risk. The mortgage business offers potentially significant risks for every firm that is working in this space today. That risk exists because when the economy turns – and it will turn because real estate is still cyclical – a lot of folks are going to get hurt. And because real estate’s Holy Grail – the one-stop-shop — requires offering mortgages, it’s not going to be a cash cow but could turn into a sieve.
More importantly, I have trouble with the ongoing claim that consumers want a one-stop-shop. All the surveys I have read over the years that address this are weak. The survey questions often paint a picture that infers a one-stop-shop that will be a perfect experience or will automatically save consumers money.
In reality, consumers are more likely to lose with a one-stop-shop model. Choice and competition are what drives costs lower. The most significant cost savings for the consumer in a real estate transaction comes from the mortgage. A lower mortgage rate can mean tens of thousands of dollars in savings over the life of the loan.
And there’s the biggest problem for the one-stop-shop model. You can’t always offer the lowest rate and fees. And savvy consumers, if they think they are being steered towards an inferior deal, will erode the trust they have in their real estate agent. This business is all about trust.
Finally, the proponents of a one-stop-shop forget this simple business truism. You can’t be the best at everything. And if you try, you will find you do poorly at most of them.
It reminds me of the old TVs that were all-in-one: they also featured a DVD player, recorder, and VHS tape system. Consumers quickly discovered that all-in-one means when something breaks, you have to send the entire system for repair.
When these units are independent, you can buy the best-in-class: the best television brand, the best brand for DVD player/recorders, and the best VHS tape system. But when they are all together, you can’t have the best of everything.
To me, these are the simple truths of why we are still talking about the one-stop-shop after 30 years. Why should consumers settle for anything but the best, or give away their ability to choose a service or product at a potentially lower cost?
The one-stop-shop assumes consumers will give away their freedom to choose. But I believe that is precisely why the one-stop-shop hasn’t worked and won’t ever become a standard for our industry. Consumers want choices.
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Kevin, I saw there were no comments here and wondered why, because this is a great post, relaying your experience and wisdom. Thanks.
Thanks Michael for you kind words. We haven’t published this in our newsletter yet, coming later this week, just our RSS Feed. I have received a couple of emails but I appreciate you being the first comment to this post!
I enjoyed the article because in 1984, I too worked for Walker & Lee and remember when we converted to Great Western. Sadly, few if any, remember either one. I also remember that that was when real estate went “high tech” and we had to make appointments to use the TRS80 MLS, otherwise we had to wait for the weekly published “book” and were amazed when we found homeowners whose interest rates were ONLY 14%!! Damn, how did they get THAT lucky!!
I too have been around long enough to know that one-stop anything is doomed to fail. Even today with google, shopping rates there is a daily ritual of distrusting even the big lenders. That’s what competition is all about; the ability to shop everything!
Not all one stop shops fail. You can look at companies like Amazon, Walmart, eBay etc… if you want to compare fintech companies look at Robinhood, JP Morgan, Chase, etc… they have their hands in everything finance related. Mortgages, banking, investing. I believe the same is possible with real estate transactions. I think it’s coming in the near future too with the advancements in AI.