Build a New-Home Niche

Homebuilders need you now. That’s what practitioners who specialize in new-home sales say about the market of 2002.

March 1, 2002

New construction typically accounts for about 15 percent of annual home sales, according to NAR Research. But the market has been so good for so long that many developers felt they didn’t need licensed salespeople to sell their units, says James Kinney, president of Rubloff Residential Properties in Chicago. Now they’re retrenching and once again seeking out traditional brokers to represent them.

“We’re moving from a buyers’ market to a sellers’ market,” says Ralph Roberts, president of Ralph R. Roberts Real Estate in Warren, Mich. “That means a lot of builders are going to be stuck with product they can’t sell or can’t sell in a timely manner.”

Even so, there’s a lot of competition out there. To help you capture builder business, we talked with several practitioners who sell new homes. All stressed the importance of establishing relationships with a few key builders.

“There’s a lot of time and marketing money involved in working with builders,” says Teri Herrera, a salesperson with John L. Scott Real Estate in Bellevue, Wash. “In many cases, selling a new home is a 16- to 24-month process. So be careful about whom you work with.”

The main thing to consider is track record. “I’d be less inclined to work with new builders, because you don’t know how committed the subcontractors are,” says Herrera. “It can be devastating from a marketing standpoint if subcontractors walk off the job and construction or closing dates are delayed.”

Remember, your reputation is on the line. “When developers list their products with you,” says Kinney, “they’re borrowing your reputation. The fact that you represent a project gives it credibility.”

Marc Fleisher, a salesperson with Long & Foster Real Estate in Washington, D.C., estimates he has developed relationships with half a dozen builders, “all people whose product I knew.”

Learn more about builders in your area by visiting homes they’ve built, talking with lenders and homebuyers they’ve worked with, and asking about their involvement with professional organizations, such as the National Association of Home Builders (nahb.com). To find out if they’ve had complaints filed against them or been the subject of lawsuits or investigations, inquire at your local Better Business Bureau or your state attorney general’s office of consumer affairs.

The builder isn’t the only one who needs to pass muster. You need a basic understanding of construction terms and concepts in order to judge the quality and viability of projects that are in the planning stages.

You should be able to look at plans, for example, and know whether the joists are too far apart or the plumbing hardware is substandard, says Kinney.

If you don’t already have basic construction know-how, read up on the subject, take a class at a community college, or spend time shadowing a builder you trust. Don’t be afraid to ask questions. You’ll impress the builder with your desire to gain expertise.

Next, you need to market your services to builders. One way to get a foot in the door is through land sale.

“If I know a piece of land is going to become available, I start dialing the builders in my Top Producer database,” says David D’Ausilio, a salesperson with RE/MAX Heritage Realty in Southport, Conn. “When the first one bites, I have the person sign a buyer agency agreement and present the offer. If it’s unacceptable or we can’t come to terms, I keep going down the list.”

Commissions on land sales vary but often are somewhat higher than for houses, says Roberts. The land, however, is only the beginning. The true prize for a salesperson is the opportunity to list whatever is built on the site. “It’s understood that they’ll list the house with me, or they’ll never get another deal from me,” says Fleisher.

In some cases, you can collect three separate commissions—one for the sale of the land to a developer, one for the sale of the lots to a builder, and one for the sale of the houses built on the lots.

In time, salespeople often become trusted advisers to the builders with whom they work. Builders are typically great at building houses but not great at marketing them, says Herrera. Most know that and want advice on what to build in a given neighborhood.

“They don’t build without my input,” agrees Fleisher. “I advise on everything from architectural styles to building and roofing materials to determining the highest price we can expect for a house in this neighborhood.”

Marketing new construction can be tricky, because it generally involves selling a house that isn’t completed or, in some cases, even begun. It takes a special skill to help buyers visualize a house from a blueprint.

The most common solution is to show buyers either an artist’s rendering of the project or examples of what the builder has done in the past. Some practitioners are creating special Web sites to showcase the work of particular builder clients. Another increasingly popular tool is virtual computer tours. Using the tours, you can create a 3-D image of the house, the land, the driveway, the flowers and everything else, says Herrera.

Because new projects often require more marketing than a regular listing, it’s important to get the developer to agree upfront to a marketing plan and budget, says Kinney. “You must spell out the costs, who’s going to pay for what, and what they’re going to get for the money.”

The marketing budget isn’t the only cost that should be spelled out upfront. Make sure you also agree in writing on what you’ll be paid. And don’t be surprised if builders drive a hard bargain. New-home sales tend not to be as lucrative as resales. Even when you’re handling both sides of the transaction, “the commissions typically aren’t the same,” says Fleisher.

New construction is typically thought of as an add-on business. Practitioners who work with builders say it accounts for 20 percent to 25 percent of their volume.

“It’s a great niche market,” says Kinney, “but you wouldn’t want to focus on it exclusively,” because, more than resales, new-home sales are affected by fluctuations in interest rates and the economy.

Robert Sharoff is an architectural writer for The New York Times, Washington Post, Chicago Tribune, and Chicago Magazine. With photographer William Zbaren, he has produced books highlighting the architecture of Detroit and St. Louis. He is a former senior editor with REALTOR® Magazine.

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