September 26, 1997

JLS being 'proactive' with Costco deal

By TOM KELLY
The Real Estate Advisor

Remember location, location, location? The three most important words in real estate have been substituted by numbers, numbers, numbers. The recent alignment of Costco, our ubiquitous Issaquah-based retail chain, with AmeriNet Financial Systems, which handles on-line mortgage operations from its headquarters in Denver, was a smooth move for both companies.

When you think about it, what was there to lose? If a fraction of the 15 million Costco customers nationwide -- 1.2 million in this state alone -- close a housing deal using the Costco "affinity" system, both companies will bank new revenue -- Costco from higher membership fees and AmeriNet from loan origination fees.

And, if the home-loan game doesn't work in the warehouse, Costco continues to sell huge packs of tuna, monster pickle jars and very acceptable take-home entrees. AmeriNet would continue its search for huge member organizations that may need a group discount.

What, exactly, is "affinity" selling? In its basic form, the word means "fondness, alliance or bond." In actual sales and services, it is the grouping of companies to present products at one time. A simple form would be the postcard you receive from a real estate agent explaining services. It usually contains the logo of another industry service -- perhaps a title company and an escrow firm. Thus, the three have formed an "affinity" group to market and secure business.

Of course, any company that enters into an affinity relationship with a chain like Costco inherits a huge customer base. However, the idea is not easily digestible for everybody.

The folks who are wondering if this is all worthwhile are some of the John L. Scott Real Estate agents who will be asked to hold these deals together for about two-thirds of their typical commission.

Here's how the setup works: If you want to buy a house, you telephone a special Costco number which links you to a Scott agent and to the AmeriNet menu of loans. If the home is sold and the loan made through this association, the customer receives a significant discount -- perhaps $4,700 on a $200,000 home sale.

The concept did not go over well when Scott agents met with their company executives recently at the Meydenbauer Center.

"You could say it was a blood bath," said one veteran agent, requesting anonymity. "None of the agents or brokers were polled or in anyway contacted before this thing came down.

"It's certainly not money out of Lennox (Scott's) pocket," the agent said. "It's the people out there in the trenches who are going to get the brunt of this. I'm not talking about just lost commissions. What about agents from other companies when they are asked if they got the best deal they could for their customer?"

Scott has exclusive dibbs on the Costco referrals in the Northwest. Washington will get the first shot at the new setup before its rolled out to Oregon, Montana and Idaho. Lennox Scott, company president, said the new network already has generated 100 new leads without any marketing.

"This is a new concept and we chose to be proactive rather than reactive," Scott said. "We are in a transition period now. When our agents see the advantage from the additional referrals, they'll understand why we chose to be proactive."

It's not surprising that Scott's was the company to sign on with Costco. For seven years, Scott has envisioned an all-encompassing real estate center with prepackaged services (appraisal, title and inspection). One of his goals is to streamline the process of buying a house so the deal can close within five working days.

Two years ago, when Washington Mutual Bank began a program for grant loan approval in one day, Scott struck a deal to have WaMu loan officers in selected John L. Scott real estate offices.

That move gave Washington Mutual an indirect affiliation with the two largest realty companies in the region.

Several Windermere Real Estate offices already had had loan reps from Stonemark Mortgage Services for about a year. Stonemark brokers a majority of its business to Washington Mutual.

Scott is no stranger to the rigors and competitive profit margins of the home-loan game. He was part owner of The Mortgage Company, a residential loan brokerage once located within selected John L. Scott realty offices. He abandoned the two-year experiment with the mortgage division about three years ago and said association with Washington Mutual was simply "a better fit for the company."

"We have been looking toward something like this since 1994," Scott said. "There have been so many events take place within the industry with affinity groups, but we didn't see us getting involved in something as big as this quite as fast.

"The opportunity just presented itself and we founding ourselves having to make a decision. It has taken the vision of market presence to a whole new level."

And, it's laying the first brick in the new housing industry. You can bet several bricks will be added before they are set in mortar.

Previous columns:

• Home businesses are changing our homes, 09-19-1997
• Area housing market: how hot is it?, 09-12-1997
• First-time buyers need creativity, 09-05-1997
• Don't expect mortgage rates to move much, 08-15-1997
• How wired will real estate get?, 08-08-1997
• Taking a look at The Street of Dreams, 08-01-1997
• What to do about that vacation home, 07-25-1997
• Vacation homes and taxes can be a confusing combination, 07-11-1997