An upstart company aims to lock in real estate agents’ and brokers’ customers with long-term contracts for future home sales and purchases.
PreList America, which opened for business less than a year ago, allows agents to enter into legally binding contracts with homeowners for future business. Under this system, homeowners agree to a 20-year contract with a real estate agent for the sale of their existing home and purchase of a new home, in exchange for a discounted commission on both transactions.
Agents who participate in this program, who are called “realty advisors,” agree to reduce their commission on the sale of a contracted client’s home by 20 percent and to give 20 percent off of the buyer-agency fee to clients who purchase a new home. Additionally, PreList America receives 9 percent of the participating agent’s sale commission and 9 percent of the agent’s purchase commission. For its share of commission, PreList America communicates with agents’ clients through real estate-related newsletters and other materials.
“This is an agent productivity tool,” said Mike Caggiano, CEO of PreList America. “Realtors have had such a tough time keeping customers,” he said, and most people don’t use the same agent for their next real estate transaction. “That’s what we’re trying to do is…take that person off the market in advance,” Caggiano said. Agents’ clients can realize cost savings, he said, while real estate agents get “something they want, which is loyalty.”
Most of the nation’s home inventory is not in play at any given time, Caggiano said, so the market for prelist contracts is huge.
“We’re going after the marketplace that isn’t selling yet but will in the future. Usually (agents) would have to wait until a person was ready to sell their home. We move that decision up to today,” he said.
So far the program is available in Florida, Illinois, Maryland, Nevada, Pennsylvania, Texas and Virginia. The contracts have not yet been legally challenged, Caggiano said, though the company has consulted with lawyers in all of the states where PreList America services are available.
Escape clauses are built into the contract, but they carry penalties. Homeowners can pay a liquidation fee equal to 2 percent of the value of their home to get out of the contract, or they can choose to sell the home themselves without the use of an agent and without the use of an Internet home-listing service. If a homeowner who is under contract dies, his or her heirs would still be bound by the contract to use the assigned agent in the event the property was sold, Caggiano said.
And agents who have clients under contract can choose to transfer or sell these contracts.
“You can reassign them if you decide to get out of the business or retire. They have value to you,” he said.
PreList America also lets agents work with local and national nonprofit groups to offer prelist contracts to the groups’ members. A portion of the PreList agent’s discounted commission in a home transaction can be shared with the nonprofit group as a donation, and the participating group member in some cases can realize tax benefits from the transaction. Under this arrangement, agents can gain access to new customers, nonprofit groups can gain a new source of contributions, and homeowners can realize commission savings on home transactions, according to PreList America.
The company’s unconventional business model has its skeptics. Some of the pushback relates to such questions from homeowners as, “What if my sister becomes a real estate agent?” but the homeowner is bound by a contract with another agent, Caggiano said. “Call us and see what we can do. We aren’t there to have anything but homeowner acceptance,” he said.
As with any new business model, the acceptance by real estate agents will undoubtedly be mixed, Caggiano indicated.
“Some are going to love it. Some are going to hate it. Some are going to wait and see,” he said.
Marketing the PreList America system is at a grassroots level these days, with company representatives contacting agents and brokers individually.
Everett Baker, broker-manager for Century 21 Commonwealth Real Estate in Lawrenceburg, Ky., said he is generally wary of companies that offer long-term contracts with home buyers and sellers.
“How do you expect a buyer or seller to hang around for 20 years (under contract)? People don’t even keep a spouse for that long anymore. I just feel like agents would be better off to spend that time and money prospecting,” he said.
Chuck Boles, a Realtor for RE/MAX Allegiance in Alexandria, Va., and a longtime friend of Alan Pyles, president of PreList America, said he sees the value in prelist contracts.
“Most Realtors, when they decide to leave real estate, just say, ‘Here’s my list of past clients. Let’s shake hands, and I’ll help (you) keep contact with them,'” Boles said.
Long-term contracts, though, can provide greater assurance for future business, no matter the market cycle, he said. “My philosophy is, everyone’s got to walk away with a smile on their face. Rather than negotiate a commission, what I’d rather do is negotiate a benefit,” he said.
Roseanna “Rosebud” Kinkead, a Realtor for Exit Realty Metro in Orlando, Fla., said she has already incorporated the pitch for a prelist contract with some of her clients.
“I just ask them, ‘Do you want me to stay in your life?'” Kinkead said.
The offer of a rebate of a tax-free donation to a charity is a strong incentive, she said.
“I work with a lot of different churches and nonprofit organizations. This (business model) hit my attention because I could give back to them. It’s a nice win-win situation,” she said.
Jeff “City” Block, a Realtor for Prudential Fox & Roach Realtors in Philadelphia, Pa., said he received a call from PreList America about the program and is still making up his mind about whether to give it a try.
“I don’t know where I’m going to go with it,” he said.
Caggiano formerly was president of TrueCareers, an online database of college graduates launched by educational lender Sallie Mae.
The founder of PreList America is Edward J. Brush, who is also chairman and founder of The Fountainhead Title Group, Maryland’s largest title company.
Fountainhead Title in April was involved in the settlement of a class-action lawsuit filed last year. The lawsuit alleged that Fountainhead and Premier Financial Co. set up a third company to channel referral fees and kickbacks from Fountainhead to Premier. The companies denied the allegations and were not found liable. In the settlement they agreed to pay $915,000, or $620 per each title company customer who was a member of the class.
Caggiano said Fountainhead is not connected to PreList America, which is an independent operation.
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