During the boom, many home building executives would mutter regularly about how much they hated dealing with Realtors. Between accommodating a third party in the sales and negotiation process and having to pay an additional commission to the outside agent on the transaction, these builders saw Realtors as little more than a pesky drag on their profit margins.
“For many builders, it is a love-hate relationship with outside sales agents,” observes Alex Salutos, a former marketing director with Don Simon Homes in Madison, Wisc., who now works as a housing industry consultant. “They’re a lot like Raisin Bran. You have to go through a lot of flakes to find the golden nuggets.”
With existing- and new-home sales at record lows, though, builders and real estate agents have been discovering that they need each other after all. “I’d say Realtors have suffered right along with the builders,” says Patrick Neal, CEO and owner of Neal Communities in Lakewood Ranch, Fla. “We have to work together to get through this.”
Just as builders have gone bust in the downturn, real estate agents have also left the industry. According to the Association of Real Estate License Law Officials, the number of active real estate licensees dropped 7.5% in 2009, to fewer than 2 million. “There’s no doubt there has been collateral damage” to the realtor community, says Kevin Wilzbach, vice president of operations at HMS Marketing Services, which works with builders to list their new homes on local multiple listing services (MLS) and then forward any leads to the builder’s sales staff. “The Realtor base [operating now is composed of] true real estate professionals who want to be in that space, not people who are in it as a side business.”
Statistics from the National Association of Realtors’ annual membership survey substantiate such anecdotes. While the number of real estate agents may have fallen in 2009, NAR membership slipped less than 1% during the same time frame. More than 1.1 million Realtors belong to the NAR, which represents both residential and commercial real estate agents who belong to the association.
“We work hard at [reaching Realtors] because the professionals are still there,” says Neal, whose company employs a full-time liaison to connect with and serve the Realtor community in Southwest Florida where it builds, in addition to 22 in-house salespeople.
Of course, those Realtors are making less money these days, given today’s depressed home values and slow sales activity. In 2007, they brought home a median income of $42,600, which fell approximately 14% to $36,700 in 2008. In 2009, Realtors’ income slipped again, to $35,700. NAR members licensed as brokers did significantly better, with a median income of $49,100 in 2009, according to the association’s member survey.
They are also reworking their businesses, particularly if they specialize in new homes. (New-home sales volume tends to be one-tenth the size of the much larger existing-home market.)
During the boom, Florida Realtor Marilyn Downing, who specializes in new homes, operated three sales offices with approximately 60 agents. Her counterpart, Marie Polo, owned The Mall House, which promoted new homes to buyers via outlets in two major Florida malls.
“It was a different time, a different place,” Polo says of that period.
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It surely was. In January 2010, the two former competitors decided to partner with each other as New Homes Across Tampa Bay. They set up shop in a Keller Williams office, where they and their agents serve as the 10-person “new home team.” They work as buyer’s agents, educating consumers about new-home communities, floor plans, options, and more. “We know the builders and the products so well that we can narrow it down,” Polo says. “It saves a lot of time and confusion for buyers,” Downing says.
They say they haven’t noticed much change in builders’ attitude toward their agents. Given both women’s long-time emphasis on selling new construction, “the builders in this market have always been super-receptive to us,” Downing says. “During the boom, though, they probably didn’t need us as much.”
That has clearly changed. According to Wilzbach, whose company serves builders in Ohio and several nearby states, Realtors used to account for 20% of a builder’s prospect traffic. Today, Realtors contribute closer to 50%, he says.
He says the reason for that is twofold. “One, the market is in such turmoil that consumers are not sure of the price of a home. They are looking for the realtor and their real estate expertise to establish if this is a fair price for the home. In the past, consumers would have done their own research. … Second, pre-2006, you would have seen homeowners who purchased a new home while letting their existing home sell.” But consumers’ confidence in that simultaneous process has evaporated, Wilzbach says. As a result, “buyers are listing their home first, so they already have a Realtor, whom they bring with them when they look at new construction.”
At the same time, builders who got caught with uncomfortably high levels of standing inventory—or even just those selling an intentionally planned spec home—have turned to Realtors and the multiple listing services to get those homes sold as quickly as possible. Just look at public builder D.R. Horton, which built numerous specs this spring to maximize its sales prior to the tax credit expiration. “On a historical basis, we have focused largely on the realtor community because, as you know, advertising is a very small percent of our overall revenues, which is much lower than all the other builders,” Horton CEO Donald Tomnitz said in a recent quarterly conference call in a transcript generated by Seeking Alpha. “Frankly, we appreciate the realtors very much because they bring us a qualified buyer in most instances, and we can actually assign a success rate to that a lot easier than we can in advertising.”
To generate such Realtor-driven sales, Horton often turns to additional incentives beyond the traditional 3% commission. “There are times when we will pay more,” explained Stacy Dwyer, D.R. Horton’s treasurer, in the same call. “For running a specific commission, we may pay 4% or 5%. There are certain divisions that have a bonus structure. So if a Realtor was going to specify time periods, and sell three homes, then they would get a bonus of $500 per additional home that they close on top of the 3%.”
Much smaller builders also rely on Realtors to get their specs sold. “We need the Realtor leads for all our existing homes,” says Shelly Basso, owner of Aspen Homes in Pewaukee, Wisc., which does about 25 homes a year.
Realtors need those closings too. At Aspen, Basso says she has noticed more real estate agents previewing her spec homes prior to showing them to a client. To be successful today, “Realtors need to be a lot more educated [about the house] and need to make the house more appealing to the customer,” she believes. “They need to know how to handle all the objections.”
Those that can are likely worth the commission to a builder, according to Wilzbach. “Realtor-sponsored traffic is likely to close or convert to a sale 30% of the time. … If the builder can engage both the buyer and the Realtor, the conversion rate can be as high as 50%.”
Neal, whose father and grandfather were both real estate agents, would agree with Wilzbach regarding the value of Realtors to new-home sales. “Realtor traffic is prequalified, both financially and prequalified in terms of the product, the location, and the school district,” says the builder, who projects closing 255 homes this year, slightly more than planned.
Whether or not most builders and Realtors continue to find common ground in the recovery remains to be seen, and, despite the current benefits, few builders would advocate relying solely on Realtors as a substitute for in-house sales staff. “At a fundamental level, there is be a disconnect between an independent agent’s priorities and a builder’s,” says Saloutos. “That’s why I’m an advocate of bringing sales in-house or using agents that are captive to a builder’s properties for the seller’s side.”
Alison Rice is senior editor, online, at BUILDER magazine.
Learn more about markets featured in this article: Tampa, FL.