Real estate agents often will take less commission for a high-end custom home, so builders should consider working closely with them.
J. Bradley Simons is vice president of finance for Magleby Construction, which builds high-end estate homes, remodels and commercial projects in Utah and was the 2007 NAHB Custom Home Builder of the Year. Simons' work in the building industry includes 32 years as a licensed Realtor and 29 years in sales, management and ownership of production, custom and estate home building companies. He serves as a member of the NAHB national board of directors and is a past chair of the NAHB Custom Builder's Committee. He is a frequent guest lecturer and educator on building industry best practices.
Custom home builders that partner with real estate agents can increase their chances of selling more homes.
It seemed like a simple thing; a no-brainer, really. The National Association of Realtors, in an effort to improve Realtor and builder relations, offered to add a builder member to its national board of directors if the National Association of Home Builders would reciprocate by adding one Realtor to its national board. When brought forth on the NAHB Board floor, the motion went down in flames. After 12 years serving as a national director on the NAHB board and being a real estate agent for 32 years, this did not surprise me.
The NAHB board consists of thousands of directors, so the NAR offer was not voted down for fear of adding a swing vote, or that the Realtor vote might make a huge difference in difficult decisions. Rather, it goes much deeper than this. The proposal’s failure rose from the gorge of dislike and distrust that exists between builders and Realtors; a gorge that prevents, in many cases, powerful partnerships from working together to increase mutual success.
As president of a regional home building firm, we sought out Realtors, marketed to them, offered them incentives and budgeted for commissions on 50 percent of our sales. Next to model homes it was our largest marketing investment. Some Realtors were actively involved in the transactions, while others were helicopter agents, dropping in, not knowing what was going on and making things worse than they had to be. When 150 sales a year come from real estate agents, you learn to cope. For a production builder, real estate agents can be the lifeblood of referrals and sales.
Bridging the gorge
How can high-end custom and estate home builders find a way to tap the resource of the real estate community, bridging the gorge of mistrust to increase their market share? Regardless of the potential, how can a custom or estate home builder pay an agent a 3 percent commission on a $2 million home when the builder might be making 6 to 10 percent gross on the project?
In a recent study of Utah real estate agents conducted as part of an MBA program at Westminster College, 88 percent of respondents indicated they are willing to work on high-priced new homes for 1.5 percent or less. Forty percent indicated they would provide a referral to a custom or estate home builder on a $2 million home for 0.5 percent. This is only $10,000! Can builders afford $10,000? You bet they can.
As builders, we first must understand the business of today’s real estate agent. During the past few years, many good, hard-working agents have worked on short sales and foreclosed properties on which they are paid less than in the past and work 10 times as hard. Many agents are receiving only 1 percent net commissions after bank reductions and paying short-sale negotiators. In the same survey, 96.8 percent of responding agents indicated they are working much harder on a given sale than in the past.
Now is our chance to develop relationships and educate real estate agents to the opportunities in the custom and estate homes market. Let’s face it; we don’t have the time or the money to hire an in-house sales team, but there is one just outside the door looking for opportunities to increase his or her income. For the most part, these agents are highly professional real estate experts that can become independent third-party recommendation for your company. During the past 10 years, the NAR increased its educational emphasis. Custom and estate home builders can take advantage of this professionalism, increase their sales and even survive the experience.
For custom and estate home builders the biggest challenge will be sifting through the hundreds of agents to find those who really have connections in the high-end market, but it can be worth a search. In the survey, 90 percent of the respondents indicated they will refer a builder because of the builder’s reputation, past projects or a personal relationship with the real estate agent. Almost 47 percent indicate a personal relationship as a key requirement for referrals. Focusing on developing relationships and exposing agents to your projects is not as difficult as we think. To get you going in the right direction, I’ve shared some simple ideas below:
1. Hold open houses at your finished products. You may be doing this already for your trade contractors, architects and designers, so adding real estate agents is easy. You still have a sifting problem, however; so you don’t want to invite everyone. Ask around, find out who is selling high-end homes, who are the biggest producers in your marketplace. Invite these agents. Find a very productive agency and invite the entire team.
2. Make arrangements to attend a sales meeting at a local real estate office. Train agents how to work with high-end builders.
3. Invite a real estate office to tour your office or homes under construction.
4. Have a plan for how you compensate agents for referrals. Be specific in terms of:
a. What level of involvement you expect.
b. How you keep them in the loop. Even if just a referral, the agent’s reputation is hinging on a successful customer-builder relationship.
c. When they get paid.
d. Whether they get paid on the final price or the original estimated price.
5. Educate real estate agents about your product and your processes. You will have a much better experience if you make them part of your team rather than begrudgingly welcoming the additional sale. An agent that understands the process in detail is much less likely to do something you don’t like.
6. Get testimonials from agents you’ve worked with. Use these in simple agent promotional materials. Be a name dropper when talking with agents; let them know those agents that work with you and refer to you.
7. Don’t forget about the new hotshot. Many times new agents may not have the experience, but they compensate with powerful energy and a new set of connections with the younger crowd. Finding a few of these energetic agents as part of your agent marketing can open doors to new opportunities.
8. Be grateful for their referral. Send them a thank-you in addition to the commission. It does not have to be much, just a kind gesture.
Bridging the gorge between builders and real estate agents doesn’t have to be difficult. Sift through the masses to find the best, treat them well, help them see that this is better money for their time than working short sales and foreclosures, and show appreciation. For builders that can accomplish this goal, the results will grow their business. Beyond additional referrals sales, I am convinced that a group of real estate agents saying good things about you will result in noncommissioned sales, too.