By Joseph F. Schuler Jr.. When more than 90% of home buyers make improvements within a year of purchase, the decision to work with those who broker the sales is a no-brainer. And with existing homes selling at record pace -- 5.47 million projected for 2002 vs. 5.29 million in 2001 -- and research showing that almost three-quarters of new and existing home buyers plan, at purchase, to make improvements, the value of this lead source is clear.
Other developments bolster the point. Leading real estate agencies -- including Prudential Fox and Roach; Century 21; and Crye-Leike, Realtors, among others -- have developed online services and systems that provide the referrals agents have offered, word of mouth, for years. Contractors using these links -- particularly links that qualify customers -- report a boom in business.
The real estate agent-remodeler connection works the other way, too. Tenhulzen Corp., an established Redmond, Wash., contractor, has formed a real estate division to market and sell properties that in the past would have been only remodeled by the company. It also provides homeowners with a "sell option" should they decide remodeling won't satisfy their needs or wouldn't be wise when considering resale value.
No secret: Agents work for you
Hanley-Wood's Housing Continuum Report (see Inside Story, January 2003, page 94) reveals that every new or existing home sale offers a chance for remodeling business. Because many home buyers rely on real estate agents for referrals, ties to real estate agents are the most direct route to those leads.
Bryan Whittington of Bethesda, Md., knows the value of these connections. Whittington works in the hot real estate market of suburban Washington, D.C. After a 15-year career in construction, including time with W.C. and A.N. Miller's custom home division, he launched Whittington Design/Build in June 2000 on jobs referred by the W.C. and A.N. Miller real estate agency.
Real estate agents say that with home values rising and demand for existing housing high, there's a real need for the services of remodelers who ballpark, or estimate remodeling costs within a range, giving homeowners an idea of what it takes to improve and yet stay within a reasonable value for the neighborhood.
People want to live in older neighborhoods, says Sue Hill of W.C. and A.N. Miller's Washington, D.C., office. The houses there need remodeling, and people have money to spend. "Sometimes the only way they can get what they want is to buy and renovate," she says. "But they want to know up front what they're getting into."
Clearly, agents have the ear of potential buyers, but they have little expertise on the costs of remodeling. When they need that expertise, they need it fast. "Because they are out selling and selling for commission, they need quick answers," Whittington says. "They need someone to feed them information to help someone purchasing a property. If you can facilitate that process, they'll count on you."
"It's a service that in the last few years has become increasingly important to us," says Hill.
Whittington says he wouldn't normally ballpark, but he makes clear to potential home buyers that they're getting an estimate, within a range. He says he doesn't get much business directly from pre-sale consultations for Hill. But by making those appointments, he maintains a relationship with her and then wins other business she refers. In the past year, Hill gave Whittington four leads that turned into jobs. Overall, agent referrals make up half his $2.6 million business.
Watch out for free consulting
Tim Pleune of Boa Construction, Denver, says it's important to answer agents' calls. Although deals collapse, you can make prospects remember you and build ties with agents by letting them know you handled visits professionally. Pleune recommends speaking before local real estate boards. "Introduce yourself and be funny and let them know you do these pre-purchase walkthroughs," he says.
The walkthroughs can be more successful if they're lined up with contingency inspections, because then buyers are deeper into the purchase process and are better prospects, Pleune says.
He's found, however, that working with the selling homeowner instead of the buying homeowner is a waste of time, because frequently, those homeowners hear only bad news: "Bathrooms cost a lot, kitchens cost a lot, and you need all of it," Pleune says. So he doesn't consult with those selling homes.
However, Bernie Gump of The Burnell Group, Fort Wayne, Ind., a real estate agent who liquidated his remodeling division to focus on property management, says agents had been an incredible lead source for small, two-day jobs -- typically handyman repairs -- that need to be done prior to closings. He learned to be willing to wait for payment until the real estate closings.
The benefit of working with real estate agents isn't always immediate work from pre-sale consultations, but doing those consultations builds a relationship with an agent, which leads to other work.
Tenhulzen Remodeling has found that quick feasibility visits, pre-sale, rarely turn into projects. The company uses a $150 consulting fee to protect itself from being overused as a resource.
Hill says such fees shouldn't turn off buyers or agents, as long as the information they receive is valuable.
Tenhulzen, who is a licensed agent himself, says working with agents to get remodeling work does pay, and the firm gets 100 referrals a year from agencies' "concierge" lists. It closes about 35 of those jobs. Tenhulzen says he doesn't know the effect his running the company's real estate division will have on those referrals. But his presence allows the company a softer way to close a remodeling sale, because he can systematically compare moving-related costs to a remodel.
"It's easy to sell, it's a soft close," says Tenhulzen. "We offer everything. It makes me look less like a salesperson selling remodeling and more like a consultant."
The fact that a home was remodeled by Tenhulzen Remodeling is usually noted in listing service write-ups, so the company plans to capitalize on its reputation, marketing its brand as valuable to home sales.
Click here for a contractor
Real estate companies have long recognized the value of the connections agents provide. But until lately they haven't used those connections to build contractor referral services. These services, the agencies realize, build customers for life.
According to C.F. Moore, director of Crye-Leike Home Services of Memphis, Tenn., the National Association of Realtors says although 80% of clients using agents are satisfied, less than 20% refer agents to others. So real estate agents really need to maintain ties to homeowners. Providing links to local contractors is part of the package.
Ellen Roche, NAR research vice president, says agents have always provided links between buyers and services, but these days, more are looking to formalize these links and make them part of their business plans.
There are many reasons a formal program benefits real estate agents. Margins on these services often are larger than on the typical 6% real estate transaction (3% of sale proceeds to buyer's agent, 3% to seller's agent). And these margins typically come from the total price of the job. Margins range from 10% to 18%. Also, agents don't want to be liable for services they refer clients to, or for services that might affect transaction outcomes. Formalized systems give them more control over the companies they refer.
In June 2001, Crye-Leike, which as the third largest independent real estate agency in the country logs more than 20,000 real estate transactions a year, rolled out its Home Services division (www.crye-leike.com/home services). It provides the 18,000 customers in its database with referrals to 700 vendors, including 25 remodelers. All of the vendors come from agent referrals, although vendors can apply to join the network. In its first seven months of operation, Crye-Leike Home Services received 112 requests for remodelers from customers in its first three markets -- Memphis, Chattanooga, and Nashville.
A service rep assigned to each customer keeps records of requested services, and keeps agents informed via e-mail about the work done to each house.
Agents can enroll anyone they want in the program. Vendors are required to carry appropriate insurances and licenses and must maintain a 98% satisfaction rating, logging no more than two complaints out of every 100 clients served. They're also required to plan for the growth the system guarantees. "One of the biggest problems we've had is that we've buried some of the vendors," Moore says. "They've gotten so many referrals, they can't keep up."
Terry Knight of Knight Home Services, Arlington, Tenn., is a good example. He has tripled his customer base through the service and has had to hire five employees to handle the work the system has generated for what used to be a one-man operation.
The service funds itself through a transaction fee, based on the total cost of a job. Moore declined to disclose his fee. A similar service, Prudential Fox and Roach's HomeEssentials, which has partnered with HomeNet Solutions to provide homeowners reliable contractor connections, has fees ranging up to 10% of job cost.
Whether such services will replace direct agent-remodeler relationships remains to be seen. Like other companies using the Internet to connect contractors and homeowners, they're learning, the hard way, what works. Home-Link Services of Shelton, Conn., which provides more than 170 brokers with software for these services, is reorganizing after filing recently for Chapter 11 bankruptcy protection. The company plans to continue operating during the reorganization in hopes of emerging as a stronger business.
But once agencies work the kinks out of providing these services, they could serve as yet another strong source of real estate agency-generated remodeling leads. With these additional lead sources, remodelers should have plenty of business to choose from, particularly in markets where real estate is setting a blistering sales pace. All the more reason to stay close to those who help buy and sell homes.
How to Win Leads From Real Estate Agents
Give agents instant access. Give agents your cell phone or pager numbers so they can reach you when their deals require immediate action.
Be realistic. Tell agents up front when or if you can respond to their questions. Time is important when an agent has buyers with questions about what's needed to improve the house within their budget.
Remember where your bread is buttered. Remodelers who work with agents say it's important to be honest and take care of clients, but it's wise to remember you're working as the agent's advocate.
Nurture your reputation. Nurturing relationships with agents is a matter of nurturing your own reputation for performance and quality, says Tim Pleune of Boa Construction. "They want to refer a builder who won't let them down."
Make yourself invaluable. Armed with reputation and know-how, go into pre-sale visits as the expert. Angle less to win the work than to present your opinion on what can be done within budget and neighborhood home values.
Feed them. Agents like to eat, says Sue Hill of W.C .and A.N. Miller. She says most agencies would be open to quick visits from remodelers who bring coffee and doughnuts and who brief brokers on their services. "I'm always open to new sources of anything," she says. Likewise, it pays to reciprocate, and feed agents in other ways, providing them leads of people preparing to buy or sell homes.