One sign early this year that the housing market may finally be turning a corner was evidence that builders had pulled back from offering brokers bonuses to deliver buyers. This practice, while not widespread nationwide, has been one way builders in certain metros have attempted to draw customers to their neighborhoods. But its effectiveness as a motivational tool is another matter, say real estate agents.
A year ago, Sivage Homes’ Jamie Pirrello, in a Builder blog, observed that several competitors in San Antonio—including D.R. Horton, Centex, and Fieldstone—were offering brokers higher-than-normal commissions and cash bonuses from $1,000 to $5,000 per buyer. A reader, responding to that blog, wrote “[s]ome builders in Houston have been offering bonuses as high as $25,000.”
As late as last December, another Texas- based builder, who asked not to be named, told Builder that some local brokers seemed more focused on compensation than their clients’ best interests. He claimed one agency, to whom he had refused to pay commission, “tried to kill a deal” between his company and a customer on a $350,000 home. The builder ended up paying the commission “just to get the Realtor off of my back,” but not before his attorney sent the broker a cease and desist letter.
Builder couldn’t corroborate the builder’s story because he didn’t identify the broker in question. But calls to agencies in three markets found that Multiple Listing Service ads promoting bonuses or higher commissions have tailed off significantly since last fall. These brokers also insist that bonuses play little role in determining what homes they’ll show, regardless of builders’ perceptions to the contrary.
Cameron DeAngelo, who runs All Vegas Valley Realty in Las Vegas, has seen bonuses advertised ranging from $500 to 1 percent of the closing price. But she responds “absolutely not” when asked if her agency ever steers clients to homes because bonuses are available. “If I ever caught one of my agents doing that, they’d be down the road.”
Barbara del Amo of The del Amo Group in San Antonio says “the last thing I think about” when matching a customer to a house “is the commission I’m getting.” And besides, she notes, bigger bonuses usually come with strings attached. “It will be Jan. 15, and [builders will] offer $5,000 if they can close the house at the end of the month, when the chances of doing that in this market are like winning the lottery.” She’s much more influenced by builders that offer incentives to their buyers.
Bonuses can also be double-edged, says Steve Goddard, a 35-year industry veteran who manages RE/MAX Marquee Partners in Manhattan Beach, Calif., and is president of the California Association of Realtors. He explains that Realtors are “obligated” to report extra compensation to buyers, who in turn might demand price or fee reductions.
He concedes, however, that the first house some brokers show customers might be the one from a builder offering a bonus. But as the economy improves and unsold inventories shrink, bonuses are a moot issue, says Goddard, as builders become less inclined to sell through brokers. “You can bet on that.”