Company president is convinced that
commission cutting is the wave of the future.
But when?

BY CHRIS DE REZA
REFT STAFF REPORTER

Paul Yalnezian, president of Right Home in Glendale, Calif., likes flying his Cessna and looking down from 9,000 feet.

Flying helps clear his head and he enjoys viewing the landscape speckled with homes that he helped sell.

Yalnezian, 45, has made a name for himself in some quarters of California for being an outspoken critic of the current business model used to sell homes.

The Realtor lists. The broker originates. The lender provides the funding. Also, they all collect fees and commissions.

Yalnezian is building a new business model to bypass the current system, cut commissions and discount the process of buying a home, which typically extracts as much as 6 percent to 7 percent from the homebuyer's pockets.

Yalnezian believes he can do it better, cheaper as a real estate agent and lender, and still bring in enough volume to keep his business viable.

The typical commissions charged to home sellers in Right Home offices, where employees are salaried, is about 3 percent, but can be as low as 1.5 percent. If a Right Home office can't make the sale, the seller pays 4 percent and the house is placed on the multiple listing service. The buyer pays the closing costs. Yalnezian also can broker mortgages, as well as act as an in-house mortgage banker. Right Home also uses in-house closing services.

Currently, most of the loans are brokered, but Yalnezian is hoping to partner with a larger lender and expand his business. For the business to be completely successful and have an impact on the industry, he needs economies of scale, he said.

Glendale is nestled between the San Fernando Valley and the San Gabriel Valley. The community is a stone's throw away from Hollywood and in close proximity to million-dollar homes.

Yalnezian has never been accused of being shy. He used to shoot emails to investor friends who supported the Internet-based real estate services discount craze. Two of the companies he targeted are now out of business.

"I feel like half of the people in banking want to ask questions abut my model, and the other half want to scalp me," Yalnezian said.

He was born in Cyprus and schooled in Great Britain before coming to the United States. His time in Britain instilled a righteous trait that only the British have, he said. He speaks Italian, Arabic, French and Armenian, and has his own local cable talk show, where he espouses his "assembly line" real estate finance company.

As a child, he lived in Beirut, where his father was a leather smith. His mother was a housewife who joined him in the United States.

But California lenders and brokers don't watch his show. They don't even care that he has one or how interesting his background may be. They want to know if there is any validity to his claims that his business model will change the mortgage and real estate industries.

Most lenders disagree that now is the time for a broad change in the fees and commission structure.

"Most Realtors are independent contractors and are somewhat hard to control," said Stephen Renock, president and chief executive officer of Cuna Mutual Mortgage Corp., Madison, Wis. "We have heard of some mortgage companies entering into agreements with Realtors, but haven't seen anybody we know generate good volume from it," he said.

Bruce Norman, president of First Mortgage Corp., Diamond Bar, Calif., said similar models to Yalnezian's have been tried before. He said about 14 people are involved in the average home transaction, and it's difficult to consolidate it into a bundled operation.

"The trick is to take this kind of thing and scale it out, but some have stumbled with that type of model," Norman said. "But Paul is a real sharp guy, and very honest. If anybody can make it work, he can."

But the model will eventually evolve over time, especially in areas of high commissions in the 6 to 7 percent range, based on consumer behavior, lenders said. The multitude of information available on the Internet will help bring about the change.

Models will eventually emerge to streamline the process from real estate broker to mortgage banker, lenders said. Right Home is turning a profit after less than two years, which suggests the company has found a niche market.

One model for bundling services that has been successful has been developed by Cendant Mortgage, Mt. Laurel, N.J. The company is owned by Cendant Corp., which also owns Century 21 and Coldwell Banker. Cendant's real estate division is remarkably strong with a hand in the sale of one in every four homes sold.

Yalnezian was a real estate broker after getting into real estate business in 1990. He first started his mortgage career in reverse mortgages, but ended up becoming an independent broker after the market declined and the reverse mortgage business slumped.

Right Home's president is convinced that commission cutting is the wave of the future. But when?

Real Estate Finance Today is the weekly newspaper
of the Mortgage Bankers Association of America

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