Paula Hess is a freelance writer for REALTOR® Magazine.
Cementing Partnerships in New Construction
In a rebounding new-home market, here’s how you can forge relationships with developers, builders, and buyers.
September 16, 2015
When housing demand was soaring a decade ago, home builders in many regions, including the Phoenix metro market, could simply plant a flag in the ground and prospective buyers would camp outside a development, waiting to enter a lottery for a chance to buy a new home. The red-hot demand marginalized sales agents, and builders thought they could go it alone.
Those days are gone.
"Our cheese was moved," says Tammie Smoot, regional sales manager for Builders Digital Experience, an Austin, Texas–based company that provides builders with online marketing and digital solutions to connect home builders and buyers, referring to the housing crisis that, among other things, dried up lending for spec homes and new construction.
Find out how agents can address common issues when inquiring about a newly constructed home on behalf of buyers here.
Indeed, builders were on the bleeding edge of the subsequent crisis, and according to U.S. Census data, the number of housing units under construction nosedived from 780,900 in 2008 to 495,400 units in 2009. Projects were abandoned in various stages of completion, lending dried up for builders and buyers alike, and some builders contracted their services to banks to complete unfinished subdivisions on a contract basis.
Amid the strong recovery in the resale housing market, new single-family home sales over the 12 months ending in July increased sharply—up 25.8 percent over the prior year. Nevertheless, the 507,000 new homes sold during that period remain below the annual 50-year average of 660,000. Another positive sign: Single-family permits in July were reported at an annualized rate of 679,000 units, according to Census data—still below 2008 levels, but trending upward.
Builders Offering You Tools of the Trade
As new-home construction regains momentum, the builder community is regrouping and is increasingly recognizing the value of creating connections with real estate agents. "We have common goals," says Smoot, who is also a past chair of the National Association of Home Builders’ Professional Women in Homebuilding committee. "The agent and the builder both want to sell homes. Both want repeat business. Sometimes we forget we are partners in this."
MLSs Get in the Game
Builders have traditionally been reluctant to post their listings and sales prices on the MLS because lot size, location, upgrades, and creeping construction costs make it hard to lock in price. Some practitioners, such as Chris Ryder, broker-owner of R&R Realty Inc. in Juno Beach, Fla., tend to be skeptical about the data that builders do provide to the MLS, noting that new-home listings may, in fact, be teaser listings—not for a specific property or parcel ID. Consequently, the $600,000 property that your buyer covets may become a $650,000 property due to "unavailability" or an undisclosed lot premium, he says. He further cautions that the agent’s commission may be based on the contract price, not the final price with upgrades.
Builders Update, an Austin, Texas–based new-home inventory source, hopes to improve the availability of builders’ listings and reduce their ambiguity on behalf of real estate agents. According to CEO Bill Gaul, his company—which recently signed an agreement with My Florida Regional MLS to provide listings and floor plans for 2,800 new homes in central Florida—is breaking new ground in terms of the services it provides to agents.
Builders Update provides agents with an updated, time-stamped XML data feed of searchable, geotargeted listings from builders. Each listing is tied to a specific address, not a development or neighborhood, says Gaul. If an agent finds a home suitable for his or her buyers, the agent preregisters them, which triggers an e-mail to the buyers. If the buyers agree, the builder then receives an e-mail to establish the commission rights, explains Gaul. "If those buyers go to another home in the development or anywhere in the metro area by that same builder, within the time period set by the builder, the commission relationship has been established," Gaul explains. "Builders using this service must sign a code of ethics that guarantees a commission if the agent preregisters his or her buyer and the builder accepts the preregistration. Our allegiance is to the agents."
Today, the relationship between builders, developers, and agents is more symbiotic, accruing to the benefit of all participants. Builders are reaching out to agents, offering training, sharing website materials, putting on seminars, and even posting information to MLSs. Agents who invest the time to learn about a builder’s inventory and how to sell new homes are poised to reap the rewards. "We know this market ebbs and flows, that agents carry prospects with them," says David Smith, division president for AV Homes, one of the largest builders in Central Florida. "Not all buyers are going to find us on our website." That's why this builder and developer of traditional communities and those for the 55-plus demographic in Florida, Arizona, and North Carolina decided to boost agent participation by creating its Real Estate Agent Certification Program, an educational initiative that helps agents serve new-home buyers.
The program, which includes a half-day seminar covering the tools necessary to be successful at selling AV Homes' properties, has a dedicated website for agents with downloadable marketing materials, price sheets, and videos. "We try to ensure that they are well trained in what we’re offering and how we build and sell homes," Smith explains. Practitioners who attend the half-day seminar earn a certificate and the right to post on their website that they are an AV Homes–certified agent.
While builder-paid commissions typically mirror the range paid in a given market’s existing-sales arena, when inventory is tight, commissions may be low—as low as 1 percent. However, AV pays agents an increasingly higher commission amount based on the number of completed sales—a specified percentage for the first two sales, more on the third and fourth, and even more on subsequent sales.
Finding Inroads to the Builder Community
When the market hit a full stop in 2008, real estate agent Kathy Phillips was working with Coldwell Banker Residential Brokerage in Atlanta. The new-home division of Coldwell Banker received the exclusive opportunity to handle new-home foreclosures for a major bank, and Phillips was asked to assist in marketing these new homes in various stages of completion, some of which required builder services to finish. "That’s how I got my entrée to new construction," says Phillips, who parlayed that experience into her current position as an on-site sales associate for The Georgia Club, an upscale country club community located near the University of Georgia, with a variety of home choices and eight neighborhoods ranging in price from the low $300,000s to more than $1 million.
Phillips' experience with foreclosures gave her the impression that there was a pent-up demand for new homes, so she sought another opportunity in new construction. Phillips left her Coldwell Banker office for The Georgia Club, where she appreciates the stability of regular hours, minimal travel, salary, and benefits.
Some builders choose not to set up on-site offices and instead partner with local agents. Sandra Mathewson, ABR, SRES, a sales associate with RE/MAX 4000 in Grand Junction, Colo., has teamed up with such an agent in her brokerage. He represents new home communities, and she hosts his open houses at the model homes on weekends. If a buyer is ready to purchase, she assists on his behalf. If a buyer is not ready to purchase, she tries to establish a relationship so that she can represent the buyer in the future.
Mathewson has held a real estate license since 1984. She has also been a project manager for a south Florida Indian tribe, overseeing the construction of a community center and new homes, as well as project manager with Alamo Rental Car, where she completed construction projects at various U.S. airports. She received training in concrete, roofing, estimates, and all aspects of construction before becoming a licensed building inspector. "I know the three sides: construction, builder, and resale. I use that when I speak to builders," she says. She also downloads floor plans and examines blueprints before working an open house.
After each successful new-home transaction, she praises the builder on her blog. "I closed on a home in March, and the very day it closed, I took a photo and wrote a blog post about what my buyer liked about that home. I talked about the builder, so other builders see that I talk positively about these projects and I give them exposure."
Managing New-Home Buyer Expectations
Lana Butsky, CIPS, broker-owner of Neapolitan Realty LLC in Naples, Fla., cultivated a relationship with RBC Bank USA and Royal Bank of Canada, a specialty lender for Canadians in the United States. This afforded Butsky and participating builders a niche opportunity for collaboration and mutual referral opportunities. Canadian buyers need someone to walk them through the U.S. purchase process, especially for the financing and mortgage approval duration, Butsky says, because in Canada, the entire process spans only four to five days.
The new-home sales process in the U.S. became protracted in recent years when lending for individual builders of spec homes evaporated. Though spec building did begin to pick up again this spring, for the most part, homes are not standing empty awaiting occupancy. They are in various stages of completion—so buyers must wait to be able to move in. Agents generally walk the buyer through the selection process with a clear understanding of what the standard features are and what will require upgrades.
Phillips notes that construction costs often creep up between the time buyers purchase a home and the time they move in. Her role involves helping them understand the price increase. "Builders do not put fluff in their price," she explains. And while most will not budge on price, "you can ask for upgrades, a paved driveway instead of asphalt, or closing costs to be paid by the builder," she adds. "You have to be creative."
You also have to get yourself out to the sites. "Get in your car and drive," says Butsky. "You have to attend all the builder grand openings. You meet people at these events, and you partner and keep in touch." She routinely drives out to unfinished projects to learn how they are progressing, lamenting the nails her tires have picked up on these visits. "But when you have all this knowledge, you can take your buyer by the hand and say, 'This is a place that I think will make you feel right at home.'"
Updated: August 17, 2018