For decades I’ve said that real estate agents and home builders are essentially in the same business of selling real estate, but that they often miss opportunities for mutually rewarding collaboration. Today, rapidly changing events in the industry are providing opportunities to create long-term relationships that can result in high commission dollars and increased sales.
Analyzing the challenges from a real estate agent’s perspective is Saul Klein, an international speaker, educator, futurist, trainer, and technology pioneer. Upon graduating from the United States Naval Academy and serving six years as a naval officer, Klein began his career as a salesperson/manager for the resale division of a residential developer in California, where he observed the differences between on-site builder sales and resales and the potential to bring the two together.
Here’s how Saul and I suggest builders and agents—working in tandem—can capitalize on these disruptive challenges to create timely opportunities.
Three Major Disruptors
1. Lack of inventory
As a result of the hot home-sales market, there’s a lack of resale listings almost everywhere. Home builders, by nature, provide “homes to sell” to help fill that void. A real estate agent can tap into that supply by either presenting potential buyers to a home builder or by becoming an expert in home builders and new-home sales.
From Machiavelli to Churchill to today’s political world, it’s been said, “Never waste a good crisis.” Right now, lawsuits filed against the National Association of Realtors (NAR), including a Department of Justice (DOJ) antitrust suit are changing the status quo quickly and with great impact.
The DOJ case and proposed settlement involves a series of alleged violations regarding commission arrangements and consumer disclosure requirements—an issue the industry has been grappling with for decades.
The most significant of those violations involves what I call “parachute and backdoor sales.” If you’re not familiar with these terms, they refer to outside agent sales that aren’t properly registered and are determined to be the “procuring cause”—defined as the continued and uninterrupted series of actions of an agent that ultimately result in the sale of a property—of a home sale.
- Sales Strategy: Exercise Caution When It Comes to Co-Op Sales
- Outsourcing Your Sales
- Are Co-op Sales Worth It?
While NAR and various states may define the terms of "procuring cause" differently, what’s important is how home builders define that relationship with real estate agents in the markets where they build. For example:
- By setting a policy defining procuring cause and having the agent personally accompany their prospective buyer to the builder’s sales office on their first visit—or at the least, requiring that the builder be notified before the first visit, such as via a web registration of a potential buyer sent by an agent.
- By making the local real estate agent community aware of your policy, either with individual agents and/or via state or local NAR chapters in the locales where you build homes.
- By rephrasing certain questions on home builder registration forms. Many builder guest registration forms include the question, “Are you working with an agent?” with a blank space to fill in Yes or No, which often begs the question: “Should I be?” Instead, consider phrasing the question as “Accompanied and registered by a Realtor/Broker?” with a Yes/No checkbox, which—even if it begs the same question—will provide you with more information about an agent's presence in the process. (If you'd like a more detailed example of how this can be presented, please email me using the email address below and the subject line: “Pro Builder Article – Guaranteed Commission Program.”)
Another part of the DOJ settlement is that an agent can no longer tell a buyer that they represent them for free. Some buyer’s agents use such persuasive statements to entice new-home shoppers to employ their services, claiming buyers need them as “protection” from a builder’s sales tactics and to help the buyer obtain better financing and options/upgrades pricing than what the builder offers. Some agents even promise they can lower the overall sale price of a new home. But all of those promises are based on the premise that the builder will agree to a co-op sale that reimburses the agent for those "services," even if none of them are actually delivered.
3. Leveraging technology
In 1995, Bill Gates predicted that the future of putting your house on the market would include being able to describe it fully and include photos, video, floor plans, etc., on a digital platform, and that, as a result, the whole system of real estate agencies and commissions would be changed by the principals having direct access to so much information.
As inefficiencies are eliminated ... the job of a real estate agent will be dramatically different from what it is today.
But long before that, Klein “the futurist” pointed out how technology would remove friction from the transaction. Today, billions of dollars are flooding into real estate technology, changing both residential sales and lending. Work and effort that once took an extraordinary amount of time is now simply done with the push of a button, allowing home builders and real estate agents to list and sell more homes in less time and with far less administrative effort.
As such, the job description of real estate agents within the next five years will be dramatically different from what it is today, Klein believes. Compensation, commissions, and the independent contractor relationship will all change. Brokerage firms and home builders with enough capital are moving to an in-house employment model that provides benefits as well as essential compensation, plus significant commission dollars. As a result, he and I predict more disciplined, self-starting entrepreneurs will take advantage of every opportunity to conclude more transactions and generate greater return on investment on their time and other resources.
Differentiating Between Resales and New-Home Sales
Klein and I also agree that for agents to tap into home builder sales opportunities and to mitigate disconnects, it’s important for agents to understand the differences between resales and new-home sales.
- Real estate agents who identify home builders in their marketplace, trust the builder’s reputation, and bring their homebuyers to the sales table will generate profitable transactions. When in sync about prospect registration, procuring cause, and terms for commission payments, a relationship that starts with a handshake can provide an abundance of inventory. Meanwhile, home builders with a sales representative for a model home complex provide opportunities for time-efficient, smooth transactions and significant commissions.
- Home builders collectively provide hundreds of thousands, if not millions, of sales commission dollars to agents who see the value in creating and training specific sales teams to represent new-home sellers and managing their sales and marketing campaigns.
However, individual resales involve a significant amount of work just to get the listing and do all of the paperwork, showings, etc., to broker a sale—all for half of the overall sales commission—while new homes are all about the sale.
For a builder to outsource to a real estate agent, it’s important to renegotiate the listing side because, for most builders, the listing transaction is an administrative function with unnecessary cost. The object is for agent and builder to create a win-win long-lasting relationship based upon sales volume over time. When that happens, a “listing agreement” for each individual transaction isn’t necessary because the relationship itself provides an abundance of listings.
When the interaction between real estate agents and home builders is clearly defined and understood, long-term, win-win, mutually rewarding, and profitable relationships will result.