THE BUILDER/REALTOR RELATIONSHIP IS A NATURAL ALLIANCE, but it can be a prickly one, too. Many Realtors prefer the cash-and-carry-on convenience of selling existing homes rather than having to wait five to eight months for their commission while a house gets built. Realtors, acting as the buyer's agent, are usually unfamiliar with the building process. That knowledge gap undermines the builders when they commiserate with buyers about construction issues, which can seem overwhelming. Resentments also have bubbled up between builder salespeople and outside real estate agents who earn a commission for seemingly very little effort. To avoid all that, savvy builders have learned to structure the rewards in a way that fosters good will between both parties.
Turning Heads Builders are cultivating their relationships with real estate agents as carefully as they do with their customers. Indeed, at Atlanta-based Beazer Homes the two are viewed as one and the same. “To me, our general Realtors are our repeat customers,” says Marilyn Gardner, vice president of marketing for Beazer. “Someone buys a different home every 10 to 12 years. A Realtor can bring us four, five, and six customers per year, so we definitely want to make [him or her] happy.” In fact, in any of the builder's divisions, outside real estate sales less than 60 percent or 70 percent raise a red flag. In some of its markets, the numbers are as high as 80 percent to 90 percent.
Bad blood between builders and real estate agents can be avoided with a proactive marketing campaign based on communication, trust, and fair compensation, Gardner says. Beazer, for example, identifies four or five Realtor offices that do the most business around a given community. The builder targets not only the top producers in those offices but also new agents who haven't yet established their route, then invites them to meetings in the model homes. Realtors are wooed monthly, whether they are taken food and flyers or faxed specs on inventory homes.
One of Gardner's new-home counselors built a thriving business from scratch by toting treats, with her business card attached, to real estate offices every month. “She took in a basket of Nature Valley granola bars on St. Patrick's Day because they were green,” Gardner says. “Every single month, she was in there with something reflective of a special day. They looked forward to it; they knew her name and where she sold.” Another strategy that's worked is to host evening wine and cheese parties for Realtors and their spouses at brand-new communities. Gardner says the top producers are more likely to attend evening events than lunches, which sometimes attract only the hungry.
Most important, Beazer lures real estate agents with a respectable 3 percent commission and the promise of full service to their customers, which for many agents balances out the wait for their money. “As with all good business relationships, they become friends with our sales counselors and know who they can trust to take care of their customers and keep them informed,” Gardner says. “Some want us to take care of the whole transaction; others want to be very involved in design selections and new-home orientation. It's all about being responsive—‘How do you want it done?'” Buyers get access to a customized Web site where they can track the progress of their home. Recently, the builder also added a password-protected portal on the company Web site that lets Realtors check on their customers and receive news of division openings, commissions they'll earn, estimated closing dates, and bonus incentives offered at certain times of the year.
Most builders are licensed brokers in the states in which they operate, giving them the opportunity to get their homes on the multiple listing service quickly, pick up on marketing trends, and see how well the competition is selling. Even so, builders such as the Drees Co., in Fort Mitchell, Ky., actively court Realtors, traveling to brokerage offices around town to talk up new products and special promotions. Jack Miller, senior vice president of marketing at Drees, says they're the best source for relocation traffic. “We're such a big believer in the real estate industry that we hold sales contests just for Realtors,” he says.
Since 1996, the builder has been offering cruises to agents who sell a certain number of homes. To celebrate its 75th anniversary last year, Drees took agents who sold four houses within the year to Spain, Italy, and Malta. This year, agents who sell two homes will be rewarded with a free trip to the Bahamas. “A few of our own sales people go, too, based on how many of their sales are through Realtors,” Miller says. “It generally works out that our people who have the most Realtor sales are also the ones who have the most sales overall.”
Balancing Act Issues of control and money are often at the heart of sales battles. Some builders eliminate conflicts of interest between their own associates and outside Realtors by prescribing a different set of roles and rewards and by strictly following the protocol outlined in their local HBA's builder-broker code.
For example, Realtors who work with Monterey Homes in Tucson, Ariz., a division of Meritage Corp., are required to register the buyer in person at the sales office, an alliance that's binding for 30 days. “We explain to the customer that because this particular Realtor registered him he needs to honor the registration,” says Jeff Grobstein, president of Monterey and president of Meritage's active adult communities in Arizona. “If a dispute arises between the buyer and the Realtor, they must work it out and provide a document showing they've resolved the issue. Most of the time, Realtors don't want to burn bridges. If a dispute arises, they'll back off.”
The builder delivered 500 homes last year and this year anticipates more than 800 closings. Co-brokered sales vary by community, with a 55 percent average in Tucson and a 30 percent average in the active adult community in Green Valley. “There aren't as many Realtors in the Green Valley area, and the buyers shop a larger area and take longer to make decisions,” Grobstein explains. “A Realtor isn't going to put up with that.”
Once a buyer is registered, Monterey's sales reps take charge of subsequent paperwork, copying it to the real estate agents for their records. That way, Grobstein says, the Realtors don't have to stay by their client's side for the next several months. They can get on with other business while receiving a commission if the buyer signs a contract. Realtors get a 3 percent commission on the house's base price, less buyer discounts, and as an added incentive receive half of the money at the start of construction. They're also allowed to take a full advance, provided they sign an agreement to pay it back if the buyer cancels. By comparison, Monterey's own agents are paid a commission on every buyer they service, whether it was initiated by them or by an independent Realtor. Their slightly lower fee structure is predetermined by local real estate conditions and a community's sales pace.
With their rewards secure, Monterey's sales team reaches out to the Puma County real estate community—some 4,500 strong —with mass e-mail campaigns, Realtor appreciation dinners, and wine and cheese receptions to sneak preview new communities. “Realtors are an important part of our business,” Grobstein says, “and we want to keep fostering [that relationship]. It's ultimately a positive thing.”
Other builders have found that working with a builder-broker service is a fast track to networking while minimizing management headaches. Town & Country Homes, in Lombard, Ill., lets a builder services group in each of its Chicago and Minnesota markets handle listings, fees, and administrative paperwork and enforce the rules. A coordinator in the organization assigns the listing to a firm that's close to the new community. In contrast, its Florida division does very little outreach to Realtors.
“In Florida, Realtors are familiar with us because they drive by our sites and know we're there,” explains Scott Seyfarth, executive vice president in charge of sales. “We're in the business of selling a product, not in the business of representing someone else's interest. But we want to make sure we're represented to the real estate brokerage community in our major markets of Chicago and Minnesota. It raises the professionalism up a notch because you have a company involved that is communicating directly with the brokerage population of their peers.”
Whereas real estate agents are paid a 2 percent commission (Seyfarth says if you run inflation on homes over the last couple of years, the cut is as fair as it's ever been), the builder's reps are paid a lump sum for every transaction they're directly involved with, whether or not it was Realtor-initiated. Their fee varies by community and by how well they perform against the standards Town & Country has established. Seyfarth says the two separate roles and fee structures are designed to head off turf wars. If Realtors and builder reps, some of whom have their own real estate licenses, were competing for the buyer, “you can imagine how the treatment of everyone involved in the transaction might change.”
Core Competencies Given the real estate boom across much of the nation, builders have had it pretty easy working with outside agents. Still, many builders also hire or retain their own licensed Realtors to retain control while fostering a sales team that holds up through thick and thin. Legend Homes in Hillsboro, Ore., operates Legend Homes Real Estate Services, which currently contracts with 16 Realtors who act as the seller's agents—two in each community. “We have more control over the agents and can educate them far better than we can resale agents,” says Scott Paskill, director of sales for Legend Homes, which closed on 300 homes in Oregon and Washington last year. “They live and breathe our process,” he continues. “The problem with outside firms is that they're out to take buyers you're paying advertising money for.” To keep the agents from competing against each other, Legend pays them 1 percent on all transactions in a community.
Robin Taylor, a Realtor at Stonewater, a community of 352 condos and townhouses at Hillsboro's Orenco Station, likes the setup because “you have a little umbrella underneath you. Marketing does a fabulous job of getting qualified people through the front door,” she says. Another plus is Legend's pro-education policies—it paid for a portion of her MIRM (Member of the Instite of Residential Marketing) education and sent her to Las Vegas to receive the award. Taylor has been at Stonewater for three out of the five years she has worked at Legend. “I'm able to be the expert [on] the entire area because it's my primary focus,” she says.
McMillin Homes in National City, Calif., which delivered 2,000 homes last year, holds its real estate cards more closely. It employs 300 registered agents in 10 offices around San Diego and in Bakersfield, Calif. “Right now, market times are good, but we've found that your best team-work is done if you value the relationship through the good and bad times,” says Sandy Perlotti, McMillin's senior vice president of marketing.
So McMillin spends its money on consumer advertising and on compensating in-house agents. Those who bring in a buyer and are present when the contract is signed are entitled to a 3 percent commission, compared to the 1 percent fee outside Realtors receive. “We do that because we very much foster teamwork within our own company,” Perlotti says. “We rely on them during difficult times.” Two-thirds of McMillin's homes currently sell without an agent. And of the remaining one-third, 66 percent of the sales are generated in-house. Still, unaccompanied buyers get referred to the company's Realtors for help in selling their existing home, a potential win for both parties.
Many builders have thrived by partnering with real estate agents to sell their homes. Roughly 63 percent of consumers who purchase a new home use a buyer's agent, according to a recent study by the National Association of Realtors (NAR). Builders depend on this professional group to juice up sales, and they have worked hard in recent years to keep the relationship on a firm footing. It seems to be working: Realtor share of new-home sales has taken an upturn in recent years. Though the number isn't tracked precisely, NAR spokesperson Walter Molony estimates that growth has been “in single digits percentage-wise.”
Regardless of the permutations, the Realtor relationship is one that today's builders can't afford to squander. “You have to look at the whole industry as a fraternity,” Perlotti says. “Everyone has a different specialty, but we're all in it for the same reason and hopefully have the same passion, which is helping families get into a home.”
Cheryl Weber is a freelance writer in Severna Park, Md.
The digital era has made it easier than ever for builders to provide up-to-the-minute information to real estate agents. Last month, the Drees Co., in Fort Mitchell, Ky., launched a Web site just for its Realtors, which features “the mother of all search engines,” says Jack Miller, senior vice president of marketing. “This Web site is designed to create graphic brochures of homes to be built, along with price lists and community names.” The plans and descriptions are generated in a PDF format. Realtors can download the files, personalize them with their own photo and company logo, and print them out or e-mail them to customers.
Drees designed the software for the Web site—two years in the making—so that price changes can be seen instantly. “It's real-time data,” Miller says. “If a house price changes at 11:48 a.m. and the Realtor does a printout at 11:49 a.m., [he or she] will have the new price. Everything has a time and date on it.” When someone at one of the divisions enters data in its own system, for example, the change is automatically generated on the Web site.
Realtors can sort the database of thousands of homes by zip code, community, house type, price range, square footage, facilities such as walking paths and swimming pools, school system, MLS code, and a house's availability. Miller says the real-time database is especially useful for Drees' spec houses, which number in the hundreds at any give time around the country. “You can't do a marketing brochure on spec houses because they're all different,” he says. “But we've found a way to take construction drawings and create a PDF file of five pages that our buyers normally get and transfer it over the Internet on the fly.” Drees is in the process of incorporating the same technology into its new customer Web site, on which buyers can track the progress of their new home.
Learn more about markets featured in this article: Tucson, AZ.