Spend $100, and save $2,000 or more Costco rebate program might shake some home-buying traditions

Nation's Housing

September 07, 1997|By Kenneth R. Harney

ONE OF the country's largest retailers is about to unveil a novel program that offers consumers substantial cash rebates off real estate brokerage commissions and mortgage rates and fees.

The program will provide such big discounts for participants -- averaging more than $6,000 on the sale, purchase and mortgage financing of homes in the $225,000 to $250,000 range -- that it could force other large corporations to create competing arrangements for their own customers.

In the process, it could also begin to shake up the traditional relationships among homebuyers, real estate agents and lenders.

Rather than the realty agent functioning as the initial referral point for mortgage and settlement services, huge corporate membership or "affinity" groups could supplant them to become key orchestrators of cut-rate, wholesale-priced services for home sellers and buyers.

The soon-to-be-announced program will come from Costco Inc., a Seattle-based retailer best known for its giant discount merchandise warehouses. Known as Price Club in some areas, the company has more than 15 million dues-paying members nationwide and annual sales of $22 billion.

Its main competitors are Wal-Mart's Sam's Club, Home Depot, J. C. Penney and Sears.

Beginning this month in its home state of Washington, Costco plans to offer consumers who currently pay $35 a year for membership a second level of participation -- "executive" membership, at an annual cost of $100.

Executive members will gain access to a variety of financial products, from discount auto insurance coverage to home real estate-related services.

The real estate and mortgage package, administered by a Denver-based financial services firm, Amerinet Inc., will work like this: A Costco executive card member who plans to sell his or her home, or buy a new one, will call Costco on an 800 number. Costco will then refer him or her to its national transactions center, run by Amerinet from Denver. The transactions center will put the member in touch with a real estate brokerage firm participating in the program. As conditions of participating, according to one company source, realty firms must have been selected by Costco as being among the top two or three in sales performance and reputation in their markets and must agree to cut their standard brokerage commission rates by 35 percent.

Since pre-qualified, active buyers and sellers will be delivered in large numbers to participating brokers at no marketing expense to themselves, many large real estate firms are likely to accept the cut-rate arrangement.

For its kickoff in Washington state, Costco has chosen Seattle-based John L. Scott Co. to handle all referrals in Oregon, Montana, Idaho and Washington. Scott, with 1996 sales volume of $3.2 billion, is the 11th largest realty brokerage in the country, according to the industry newsletter Real Trends.

The net commission rebate to the seller of a $175,000 home under the Costco program would total $1,500. On a $225,000 home, the seller would get back $2,025. On a $350,000 house the rebate would be $3,300, and on a $400,000 home it would be $3,825.

A check for the rebate amount will be sent to the seller within 14 to 30 days after the sale closing, according to an Amerinet official.

If the seller buys a replacement home through the program, the same rebate schedule would apply, effectively doubling the potential discount check to the consumer.

Participants who also need mortgage financing -- or simply wish to refinance an existing loan -- will receive a separate form of rebate: a refund of nearly nine-tenths of 1 percent of the loan amount. That comes to $1,350 on a $150,000 loan, $1,800 on a $200,000 mortgage, $2,700 on a $300,000 loan and $3,600 on a $400,000 loan.

The mortgage financing component will use Amerinet's existing computerized loan facility, which features mortgage quotes from 45 lenders -- including 14 of the 15 largest mortgage originators in the country -- and more than 20,000 separate loan products. All the rate quotes will be at "wholesale" pricing, plus a uniform 1 1/2 -point fee (a point equals 1 percent of the loan amount).

By pricing all loans with identical brokerage fees, the computerized loan search provides a "lender neutral" evaluation tool for the applicant, according to Costco. There are no other "junk" fees, add-ons or commissions in the deal.

Costco President and CEO James Sinegal says his firm will receive "virtually nothing" directly from the real estate affinity program but will gain revenues through the higher membership charge and new members attracted by the discount services package.

"We are looking for ways to add value to being a Costco member, that's our focus," Sinegal said in an interview.

Saving $2,000 to $6,000 on a real estate transaction for the cost of a $100 membership that also offers other discounts "is the sort of value we think will be very interesting" to existing members, according to Sinegal.

After the Washington state rollout of the realty program this month, followed by Arizona in the fall, additional states will be added nationwide during the coming year.

Pub Date: 9/07/97

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