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: