Costco Cos., one of the nation’s largest retailers, has combined forces with a major Washington, D.C.-area realty firm to offer consumers substantial discounts when they buy or sell a house. Similar discounts will soon be available in California.
In a venture scheduled to start early next year, special “executive” members of the wholesale club Costco will be able to receive rebates amounting to as much as 30% of their agent’s commission, now typically 6% of the sales price, if they go through Costco and use an agent from Long & Foster Real Estate Inc., Washington’s largest realty company.
The program has been available for several months in a few Western states--including Washington, Arizona and Colorado--where Costco has teamed up with local real estate brokerages. The firm has said it plans to introduce the discounts in some California markets early next year.
The agreement with Long & Foster could have a widespread impact on real estate transactions, whether or not consumers use the new Costco program. Some agents privately acknowledge that the agreement will lead to lower commissions, as consumers use the promise of rebates to negotiate reduced fees with agents who may not want to or may not be able to participate in the Costco plan.
As one Long & Foster agent said, “This will lead to more negotiations on commissions, but don’t quote me on that.”
Long & Foster’s agreement with Costco is part of a slow but growing trend in the industry in which consumers get rebates or discounts by buying or selling houses through third-party organizations. These arrangements, called affinity deals, have been around for about five years, an outgrowth of the popular affinity credit card business.
Affinity deals have been offered to members of the AFL-CIO, American Medical Assn. and USAA, a company that provides insurance and other financial services to military officers. Corporations, such as UAL Corp.'s United Airlines, also offer affinity arrangements to their employees and customers, such as members of a frequent-flier program.
Under affinity programs, consumers interested in buying or selling a house call the appropriate organization and are referred to a toll-free number, where a special relocation consultant links up the consumer with a local realty firm.
Rebates (or in the case of frequent-flier programs, air mileage credits) vary, depending on the third-party organization and the price of the house. Under USAA’s program, for example, members get $200 back for a transaction that ranges from $50,000 to $99,999. A $1,000 rebate is given for any purchase or sale worth $250,000 or more.
Despite the reduced commissions, many realty firms and agents like affinity agreements because they are an easy way to get new customers. That’s one of the chief reasons Long & Foster joined forces with Costco, which has 15- million member households nationwide.
“Everybody I talk to belongs to Costco,” said Long & Foster’s president, P. Wesley Foster Jr. “We hope it will bring in a lot of new business.”
Foster sought out Costco as soon as he learned of its program, launched a few months ago in Washington state.
“I felt that we better jump on it because we didn’t want anybody else offering it,” Foster said. “It will hurt our bottom line and the agents’ bottom line, but hopefully it will bring in enough new business to make up for it.” If not, he added, “then we’ll opt out of the program.”
Under the program, Costco members will have to increase their annual membership fee to $100 from $35 to become executive members in order to take advantage of the new realty services. These also will include rebates on mortgages (nearly 1% of the loan amount). Costco will not get a financial percentage from any of its members’ transactions, although it will benefit from the extra $65 fee members must pay.
Meanwhile, for getting the Costco business, Long & Foster has agreed to reduce commissions by 35%. About 20% of that sum will go to the relocation firm handling the referrals--AmeriNet Financial Systems Inc. in Colorado--and the remaining amount will go to the consumer.
Thus, according to an AmeriNet spokesman, when a Costco executive member sells a $200,000 house, the listing Long & Foster agent would get a commission of $2,600 instead of the usual $4,000. (A typical commission is 6%, with half going to the listing agent and half to the agent representing the buyer. Each agent sends some of his or her commission to the employing realty firm, often ending up with about 2% of the sales price.) The $1,400 that the agent is giving up would be split between AmeriNet, which would receive about $280, and the seller, who would get about $1,120 about 60 days after settlement.