Dear Monty: Five cost cutting tips for relocation companies
By Richard Montgomery
Reader Question: Historically, rising costs have been the biggest challenge in the relocation industry. We work to control and reduce costs with little tangible results. As a senior executive with one of the leading relocation providers in the industry, what is your take on the relocation industry’s ability to reduce relocation costs? Anonymous
Monty’s Answer: Your leadership role inside a relocation operation can make a difference. Vince Lombardi’s famous words, “Gentlemen, this is a football ” come to mind. The relocation industry appears to have become so sophisticated that the most basic tenets of the real estate transaction seem lost.
What is the core problem?
The roots of real estate transactions are complicated. A casual review of Employee Relocation Council (ERC) material reinforces the idea the industry has strayed from its roots and has evolved into a human resource (HR) platform. Because relocation policy is a company benefit it is assigned to HR. It follows that HR will focus on people rather than the transaction itself. Because some of the complexities of real estate are invisible to the stakeholders, much less their customers, the focus should be on the transaction.
What can you do?
If the focus was on the transaction, it could affect some of your relocation policy. It could have an impact on the information you give your relocating employees. It could change the way you look at your cost structures and fees.
The relocation industry is the real estate industry’s largest single customer. Pressure from a big customer will cause the housing industry to take notice. There are similarities here to the evolution of the auto industry in this country. It took years for the big three automakers to realize they had to change to stay in business.
Ironically, your customers are a part of the problem. They misunderstand the issue as well and focus their efforts on reducing service fees when they should be looking at policy. The relocation company reacts with internal changes to lower costs and maintain margins, but unwittingly add cost to the client. How can this be? Because the football is not the focus.
Five cost saving ideas
- Develop a strategy for ongoing inclusion of the client purchasing department. The purchasing department is the expert at driving costs down. They nod their heads and say they want good service, but at the end of the day, they choose their perception of the low-cost provider. The relocation service is different than buying nuts and bolts. The relocation industry has not done a good job demonstrating those difference to the purchasing agents.
- Reduce the local brokers referral fee. Years ago, the typical referral fee was a twenty-five percent side-of-sale fee. Most relocation referral fees today are thirty-five percent (or more). Corporations pressuring relocation companies to reduce service charges caused the relocation company to increase agent referral fees. Many well-qualified real estate agents no longer accept relocation referrals.
- Review and update your client’s relocation policy. Relocation policies often contain provisions that do little to help the customer. The driver of some of these policies is myths. An example is a rule in many relocation policies that sets a maximum price, based on appraisals, at which an employee can offer the home for sale. The myth is listing over the appraisals extend market time. Research conducted by a relocation company some years ago suggested allowing the seller-employee to exceed the estimated price policy would put more equity in the employee’s pocket more often than not.
- Incorporate new training initiatives for your relocation counselors. “ This is a football ” should be the primary focus. Why? Because here is where the all the energy of a transaction is focused. The relocation counselor often abdicates to the real estate agent which is a mistake in many cases. Understanding negotiation criteria, interpreting the correct market data, and other issues to increase counselor awareness would improve results. Your foot soldiers are your most valuable asset.
- Limit your relocation counselors active files. The theory of reducing costs by piling more files on fewer people is counterproductive. Counselors need time to review the market, think about options and strategize on every individual home. Whatever happened to the single point of contact?
Relocation companies can improve their financials and service offerings through seeking ways to reduce loss-on-sale and holding time instead of pressuring the agent referral fee, which is a small percentage number of the total costs incurred in relocation. Work this way to find the football.
“Richard Montgomery gives no nonsense real estate advice to readers most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. Send him questions at DearMonty.com.”