Builder-broker and broker-builder cooperation is of the greatest importance in order to sell new homes in today’s marketplace!

No longer can the builder do without the broker or the broker do without the builder as each individual benefits from the relationship established by one another.

Mutual opportunities to make money exist because a broker has a compliment of prospective homebuyers, and the builder has an inventory of homes.  Together they can each accomplish their goals by satisfying their particular needs – the broker by fulfilling the wants and desires of a prospective homebuyer with a new home while receiving a commission for that sale, and the builder by selling his home.

By developing outstanding relationships with broker, harmony will be created and business will develop for each party.

The biggest problem that a builder faces is the ability to communicate with brokers about policies, procedures, and the particular product.  This lack of communication breeds fewer sales than might have been accomplished if the builder had learned to work with brokers and communicate more openly!

The following series of questions and answers will hopefully open up new lines of communication between builders and brokers alike!

MONEY

1.       Why don’t all builders cooperate with the paying of commissions to outside real estate brokers?

Many builders think that it is not necessarily to their benefit to cooperate with brokers as they believe that the additional fees that must be paid to brokers will affect their margins of profit and thereby restrict them from earning more money for the sale of their home.  In fact, by cooperating with a broker, they will most likely be able to sell that particular home faster, reduce their interest cost, satisfy a new customer and sell additional homes as a result of creating a happy neighborhood!

Additionally, a builder may feel that his product is so outstanding that the marketplace will accept the product without the need of any broker cooperation, thereby creating more profit for his company.  Quite the opposite is true:  By offering the product to brokers and consumers alike, the eventual acceptance will be even greater and sales, as well as profits, will then be recorded faster. 

Another answer to this question is that builders have not always had success with brokers by openly communicating with them.  The result of this situation is a lack of understanding about the particular offerings that the builder may have.  The builder may be afraid to work with the broker and a consumer together, feeling that the broker may steer the customer to another builder’s product.  This fear can be eradicated by simply communicating with brokers on a regular basis about policies, procedures, and the product that the particular builder has to offer for sale to the general public and with the broker in mind to help consummate the sale sooner!

2.       Why are commission schedules different from one builder to another?

Each builder prices his particular product separately from another builder; and, therefore structures his profit center differently.  Some builders have had good experiences with brokers and others have not.  By developing a particular schedule of cooperation with regard to fees, the builder can increase or decrease his particular sale with the broker community.  Also, each particular marketplace has a different schedule of commissions that may be the accepted form of practice.  Therefore, a difference may occur from one marketplace to another.

3.       Why does the builder offer a commission schedule in one market and a different commission schedule, or even none at all, in others?

The answer to this question is similar to the answer to question #2 in that each market has a different set of accepted policies and procedures.  If a builder feels that he does not necessarily have to cooperate with a broker, he will often elect not to do so.  This consideration is a mistake, of course, because he is possibly alienating additional sales for his particular neighborhood of homes, his speculative inventory built on scattered lots throughout his trading area, and also potential pre-sales for any one of his home plans or future home plans with a prospective homebuyer.

It is best to be as consistent as possible with regard to the cooperation of commissions to brokers so that the good will of a particular builder is accepted immediately from one area to another by the real estate community!

Brokers are human beings!  They have a tendency to talk to one group of brokers from one community to the next.  If a particular builder has an outstanding reputation in one trading area, then it can be quickly enhanced in another area!  Therefore, by consistently practicing good will and fair business ethics with the broker community, a builder can benefit from one neighborhood and/or city to the next.

4.       Why do builders change their commission schedules?

Builders often fluctuate their commission schedules when sales are not being recorded at the accepted pace that they are seeking.

When a builder dramatically raises his commission schedule – for example, from a standard of three (3) percent to five (5) percent – it is an alarm to the real estate community that the builder is having trouble selling his particular product.  Also, the new home builder may have inflated the sales price of the home to increase the commission to the broker.  Therefore, it is to everyone’s advantage to maintain a consistent schedule of commissions.

Brokers not only buy an outstanding product, but they also get outstanding salespeople who are consistent in their approach to selling new homes.  It is better to be consistent with commission payment policies and procedures than it is to fluctuate.  If a builder is having some difficulty in selling a particular home product, then it is important to consider improving the permanent financing considerations for the consumer and/or improving the standard features by making various options standard items.  When a broker can offer his homebuyers a “better deal,” then, he in turn feels better about the opportunity to make that particular sale.

The consumer will also have a better appreciation percentage as the home will increase in value faster over the years.  As time passes, the homeowner will find that he has more flexibility to sell his home.

Consumers also have an understanding of the marketplace, and it is better to pass on this type of savings or benefit to them than to pay the broker more commissions!

5.       Why do some builders cooperate by paying brokers commissions when times   are bad rather than in a consistent fashion all the time?

Builders are human too!  They often believe that it is their product that is selling and not necessarily the broker who is making the sale for them.  When economic times develop into a recession or a depression, a builder begins to think of any and every way to sell a particular product.  The first thing that comes to mind is to offer commissions to brokers.  Unfortunately, the builder should have been doing this from the inception of the sale of his product to the community!

Brokers are also looking for consistency and not a “fair-weather friend.”  The more consistent, communicative, and supportive that a particular builder is with the broker community, the more consistent, communicative, and supportive the broker community will be with the builder!

PEOPLE

1.       Are on-site salespeople brokers?

Not always, unfortunately!  It would be beneficial if every on-site salesperson were a broker and affiliated with the local Board of REALTORS, but this is not the case.  Some on-site salespeople are direct employees of the building company, whether it is in the form of a secretary, hostess, or salesperson.  The builder may also choose to sell his own product as well.

The real estate commissions of every state throughout the United States honor an individual’s ability and right to sell his own property and/or to have his own employees sell the property.

It is recommended for everyone who sells new homes to be a broker!  Brokers prefer doing business with other brokers because of the trust factor of working with people who are sworn to the same professional codes of ethics with their peers.

2.       Are on-site salespeople trained in new home sales?

The answer to this question is yes and no.  Sometimes a builder will staff a community with a hostess who is merely trained to hand out brochures and open up model homes for prospective buyers to view.  Unfortunately, these people are not trained in the product and, therefore do not offer a builder the best selling advantage that would be offered by someone trained about every aspect of the product from the “sticks and stones” to the financing.

Often, a builder will use brokers from a given real estate office to merchandise particular homes.  Fortunately, the utilization of brokers to sell new homes is outstanding.  However, there is an exception regarding brokers who work one or two days a week at a particular site and the rest of the week go about selling other property.  They never become extremely proficient in the sale of any one given product and owe no loyalty to the builder.

It is extremely critical to have a full-time sales staff, whether offered by an outside real estate brokerage company or an in-house team of salespeople who are trained to sell the given product, provided that you are a large or medium sized builder.  It may even be cost effective and prudent to have a salesperson for a small volume building company to maintain customer and broker satisfaction.

It is best to have a trained staff of brokers who merchandise and sell the new homes at the site every day.

Please take time to inquire about the individuals who are selling the new homes because these people can provide you, the broker, a better degree of control and salesmanship when working with your customers so that they in turn become buyers!

The most conscientious builders are those who realize that nothing happens until a home gets sold!  These people have better trained sales staff and spend a lot of time, energy, and waking hours trying to develop the best possible sales team.  The more experience that salespeople have, the better they will be able to perform.  To compliment this pragmatic experience, it is important to educate and train these individuals as often as possible.  Many of the builders seek to accomplish these goals and do an outstanding job.  Take time to look ahead and find salespeople that are trained to help you make more sales!

3.       Are on-site salespeople commissioned?

On-site salespeople are compensated in a number of different ways.  There is no one form of compensation that is the standard accepted rule throughout the industry.

One form of compensation may be to have a hostess who is basically paid on an hourly fee.  Another one may be to have a salesperson that is paid an hourly fee and a small bonus for the sale of each home.  Still yet another concept may be to have an in-house salesperson who is a licensed broker and does receive a commission.  This individual may also receive a draw against commissions.  The draw may be a minimal amount of money so that a salesperson will be able to cover his personal expenses of a mortgage, car expense, and some survival expenses.  The draw should never be too much money so that there is no incentive to work!

Lastly, a builder can develop an outside relationship with a real estate brokerage company to sell his particular homes.  The on-site sales staff represented by the brokerage company can be paid commissions for the sale of the homes.

4.       Does an on-site salesperson get compensated differently if he works with an outside broker?

The answer to this question is also ambiguous in that every builder operates his company differently.  Sometimes a broker and/or on-site salesperson is paid a fee that is not as much if he or she works with an outside brokerage company.  If this is the case, an on-site salesperson may pay less attention to a broker and his prospective buyer than a potential homebuyer without a broker.

It is recommended to compensate your on-site salespeople in the same manner, whether or not they are working in a cooperating status with another broker, so that they will have the incentive to work to make every sale a closing sale!

5.       Do on-site salespeople have monetary incentives to work with brokers?

Hopefully!  Hopefully, the builder and his sales staff cooperate with brokers, thereby encouraging the on-site salespeople to work with brokers in order to sell more homes!

6.       Why does the on-site salesperson want to control my buyer?

The on-site salesperson is trained to assist in the sale of the particular product that the builder has to offer.  Hopefully, this salesperson is solely selling this particular product and, therefore, is an expert about the new home that he or she is selling and demonstrating.

A broker who is bringing a potential buyer into the sales center is not as familiar with the particular product in the form of permanent financing, available inventory, value, the standard versus optional features, etc.

The on-site salesperson is at the sales center to educate future buyers about the total product.  The on-site salesperson realizes that he only has a short time to make a favorable impression with the broker and the potential buyer; or, he will not be able to make the sale as easily because the broker is probably touring the prospective buyer throughout the entire marketplace.

7.       How does an on-site salesperson develop the opportunity to control the respective buyer with the involvement of an outside broker?

This is probably the easiest question to answer – by communicating with the broker community on a regular basis so that the brokers have knowledge of the policies, procedures, and product that you and your builder are offering!

Various forms can relate a protection of the broker’s homebuyer for a specific period of time in order to ensure a potential commission for the broker from the home builder.

Communication of your product to brokers can be accomplished by sending direct mail flyers and newsletters, telephoning, and attending broker meetings where you can explain your products.

The on-site salesperson should become active on joint committees of the local Board of REALTORS.  Such committees might be political action, economic development, education, or public relations.  By joining and participating on a committee, on-site salespeople can better develop a good working relationship with the broker community.

By becoming more familiar with the brokers, the on-site salesperson can also offer to help pre-qualify the potential homebuyer with the broker before the broker visits the model home center or the home builder’s office.  The pre-qualification step can help the on-site salesperson be ready for the homebuyer and the broker when they visit.  By preparing for the visit, the on-site salesperson can better schedule his time to give everyone his undivided attention.

Upon meeting the potential homebuyer, the on-site salesperson can also use his time effectively to reinforce the homebuyer’s decision to work with the particular broker by explaining the broker’s virtues and positive characteristics.  The broker is never sure of a homebuyer’s intentions.  Buyers may often switch from one broker to another before making a home buying decision.  If the homebuyer continues to receive more positive compliments from the on-site salesperson about their current broker, it may help that broker, who in turn will help the on-site salesperson with a sale.

8.       What is the advantage of a builder having the same salespeople daily versus having many people irregularly?

By having a consistent sales force, brokers and consumers can gain confidence in the overall sales program that you have to offer.  National statistics provided by the National Association of Home Builders indicate that the average consumer will visit thirteen communities and will return to one particular community four to five times before making that final decision.

If a consumer comes back to a residential community to purchase a home and is met by a different salesperson each time, that consumer and/or broker do become somewhat disturbed by the fact that little rapport is being established by the selling company.  Buyers dislike having to disclose their life history to someone else each time they walk into a new homes sales center; thus, a favorable atmosphere of continuity, understanding, and sensitivity to an individual’s needs can be met with a regular sales staff.

Also, by maintaining a regular sales force, a broker can be more at ease when returning to a sales center, knowing what the policies and procedures will be and having the confidence that a commission will be paid for services provided by the cooperating broker!

9.       Where do builders find on-site salespeople?

There is no one place where new home salespeople are found.  One of the best sources of new home salespeople is from other companies that have new home sales teams.

Salespeople who have succeeded in other markets of manufacturing, pharmaceutical, insurance, or service related sales can often intersperse their expertise with the real estate industry.  Many of these companies have trained their sales staff efficiently with all of the basic skills and; therefore, these salespeople can become instant winners as new home salespeople.

Another source of on-site salespeople are brokers who have worked in the industry and now long for the opportunity to have the new home site provide them with leads and referral sources rather than having to go out into the marketplace to solicit for these same leads!

Another source is to advertise for personnel in the trade publications of your association or in the business and classified sections of your local newspaper.  You may also elect to advertise in other successful marketplaces through their respective medias.

10.     What does an on-site salesperson do during the day?

The on-site salesperson can be kept very busy by “tracking” every contract, making sure that it becomes a closed sale!  There are many people to communicate with such as the title company, the permanent mortgage company, the outside broker participating in the sale of the home, the builder, and the consumer.  Additionally, the on-site salesperson may have to contact an architect, a manufacturer, a supply house, and maybe an interior decorator.

The on-site salesperson is a servant of the homebuyer by making sure that the new homebuyer has all of the information necessary to enjoy his new home.  For example, appointments may be necessary with the local elementary, junior high, and senior high school for the students who will be matriculating to the various areas.

Also, it is easily understood that a salesperson can constantly maintain contact with the hundreds of brokers who are in the community.  Each of these brokers can be called and solicited on a regular basis and updated with regard to all the outstanding advantages that the particular home builder has to offer them and their buyers.

BUILDER

1.       Why does a builder build homes in a specific neighborhood?

Hopefully, the builder has researched the marketplace prior to developing a product. There are certain opportunities that are available with each piece of land that is available.

It is important for a builder to study the land and potential products with regard to the absorption rates. By absorption rates, it is meant how fast a particular builder can build a product and sell that product – hopefully, to make a profit. This is really the principle for a particular builder to build within a given neighborhood. By focusing on the needs of a given area, a builder can then determine how fast he can sell his particular home product and develop the return of investment that he is seeking to make his profits.

2.       Why don’t builders “in-fill” their buildings in existing neighborhoods rather than creating new ones?

Builders will build wherever the opportunity exists to make a profit. Often, there are more homeowners and potential homeowners that are interested in obtaining a new home in a new environment rather than a new home in an old environment. As time passes by, you will continue to see in-fill communities become more accepted as the opportunity will be outstanding to relocate within the existing environments in the central core of major cities throughout the United States.

Also, suburbia is not to be the best way of life for each and every family. In-fill communities are once again becoming an accepted way of developing an outstanding standard of life where homebuyers can enjoy the benefits of existing schools, colleges, shopping facilities, transportation facilities, medical facilities, and neighbors.

3.       Do builders make profits on every sale?

The answer to this question is an interesting one:  Large and medium volume builders make profits at the end of a development more so than at the beginning of the building program, whereas a small volume builder seeks to make a profit on each home he builds. The most important aspect to relate to is that of cash flow. A builder must generate “closings.”  By creating cash flow, a builder then can continue to build more homes.

In order to get a community started, a builder will often charge less for the product in order to sell more homes and create a better value for the first buyers. By creating a neighborhood, consumers will rally to this new community and adopt it more quickly than if it was a ghost town of uninhabited houses.

Please remember that a builder’s goal is to make a profit, and he can only do so by paying attention to the economic research material for his product, managing his overhead properly, and creating homes and neighborhoods.

4.       Why do builders build condominiums instead of townhomes?

By building condominiums, a builder can utilize the land more efficiently to create more homes than if he were to utilize the same land to prepare fewer townhomes. Also, there are more families that can afford lower priced condominiums than townhomes on the same parcel of ground. The key to reviewing this situation is economic research. By knowing the best use for the property, it is easier to adapt a product that will be easy to sell to this particular parcel.

5.       Why do builders build townhomes instead of single family residences?

Once again, a builder will build a townhome in place of a single family residence in order to best utilize the land for the market demands. Sometimes, consumers would prefer to live in townhomes with the advantage of maintenance-free living and security benefits rather than a single family neighborhood.

Most families have proven to opt for the selection of a single family residence when they are able to compare products of equal value – as statistics have proven that the past and present resale value of a single family residence is greater than a townhome or attached home of comparable value.

6.       Why don’t builders have more focus sessions with brokers to understand what prices and styles of homes are selling throughout the new and used market?

Builders are not as sophisticated about working with economic research data. Builders should study the marketplace prior to building a product, while the product is under construction, and while it is being prepared from one building phase to the next. You are never established until you have sold your last piece or inventory. Therefore, it is essential to keep abreast of all of the opportunities to refine and make your product better than the competition!

7.       Why don’t builders communicate with brokers about economic conditions that affect the housing industry?

Some builders do communicate with brokers on a regular basis; but, most builders are so involved and caught up within the mainstream of their own business that few communicate with brokers or, for that matter, many other builders.

It is essential that people take the time to learn about ways to improve the economics of their industry. Builders, brokers, manufacturers, suppliers, and lenders all have a tremendous amount in common with regard to the shelter industry. The need for these companies to all work together to make the shelter industry successful becomes more apparent every day.

8.       Why do builders substitute building materials from one home to another even if the home is the same model?

Unfortunately, many cities are not manufacturing cities but cities of distribution. Therefore, materials are often short shipped, mis-shipped, and/or damaged prior to getting to their destination. Builders, therefore, have to substitute various building materials when they are not available.

There are more than 300,000 parts that go into the making of the average home. Therefore, it is highly likely that there will be a substitution; but, if there is one, most builders do substitute materials of equal or greater value.

If a builder were to wait for a particular product to arrive, it could delay the completion of the home; and, therefore, delay the sale of the home to an anxious family that is waiting to move into their new home. Additionally, by delaying the closing, the builder will most likely have to absorb the increased interest costs which may affect the builder’s ability to sell the home for the projected profit or for any profit.

9.       Why do builders choose to staff their sales centers with their own sales staff?

It is to the advantage of the builder to staff his particular models, sales centers, and/or office with his particular employees. The loyalty derived from one’s own staff is far greater than that from another group of people selling your product. Therefore, it is to the advantage of a builder to employ his own sales staff. If this concept cannot be accomplished, then it is advantageous to hire an outside brokerage firm to assist in the sale of the particular product being offered by the builder. It is essential to have one consistent sales force on hand to work with the consumers and brokers.

10.     Why do builders have grand openings and promotional events at the same time as other builders?

Builders do not schedule their grand openings and promotional events with the knowledge that their competition is simultaneously scheduling a similar event.

Builders do not regularly confer with one another with regard to grand openings. And, even if they did, there is a competitive spirit to complete one’s product as soon as possible and have it ready for the public so that it can be sold as soon as possible. The sooner that a builder can sell his product, the faster he can create closings which in turn create “cash flow” and future profits.

11.     Why do builders refer business to only a few brokers?

In many cases, it is the path of least resistance for a builder to choose one broker. It is to the builder’s advantage to work with as many brokers as possible in order to “spread the wealth.”  The more a builder works with other brokers and other real estate offices, the more exposure he is going to receive from those brokers. The other brokers will learn that only a few brokers are not favored, but all are wanted!

Unfortunately, many brokers feel that when several other brokers are involved with a particular builder there is no hope to obtain additional business from that particular builder; and, therefore, they do not attempt to obtain the additional business.

It is imperative for brokers to constantly try to obtain additional business from builders!  The more that a builder experiences a broker trying to obtain additional business from him and other builders, the more the builder will begin to refer business to that broker.

12.     Are builders sworn to a code of ethics like brokers?

No. Unfortunately, builders are not sworn to a specific code of ethics; but, builders do have to adhere to building codes and restrictions set forth by local municipalities in order to provide the best possible product. Most builders also provide warranties in an effort to service the particular product in accord with the consumer.

Builders also realize that they are often as good as the last home they built and sold to a particular customer. By the aforementioned statement, it is meant that a builder who is good and who services his customers will receive the benefit of third party testimonials in his favor. On the other hand, a builder who does not take good care of his customers will definitely not benefit from his lack of good will.

13.     How much profit does the average builder make per home?

The answer to this question is more difficult because there is no particular set percentage. To date, builders who build volume make more money from the sale of the land and permanent mortgages if they have the capability to buy land, develop the land, and then sell it to their building company, as well as provide permanent mortgages for their new homebuyers. Those companies that do not have this advantage have to pick and choose markets that are carefully developed for them to succeed.

Custom home builders make the biggest profit per individual home; but, there is much more detail and more time consuming design with each home than there is with a home that is built many times.

The range of profit per home can be anywhere from a minus figure to as much as 25% depending upon how a particular builder manages his company.

14.     What type of financial risk does a builder have?

Today, a builder has as much risk as he has ever had in the past. Each home is a financial risk for a builder to undertake and; with each month that passes that the builder does not sell a particular home, the risk becomes greater. It is often difficult to raise the price of the home to cover the interest costs.

A builder can lose his business if he is not careful with the selection of land and home designs with which he hopes to provide homeowners. With all the stress, tension, and difficult economic times, it becomes even more important for a builder to prepare each particular home with care and consideration in order to generate a profit today rather than have the bank make any potential profit tomorrow.

ECONOMICS

1.       What is the difference in value created by a new home versus a used home?

A new home community that just opens its front doors to consumers offers a lot of hopes and dreams and immediate profit to a particular homeowner. Builders often provide lower costs for their new product to the consumers in order to generate sales for the new neighborhood. Often, builders do not make profits on the initial sales within the community in order to establish the community. Therefore, the initial sales are, in a merchandising sense, “loss leaders.”  Builders make more profit at the end of a community than at the beginning in order to develop the acceptance for the new home product. This is also due to the fact that the overall development costs are spread out over the build-out of the community.

A new home specifically designed and built for a homebuyer’s particular wants and needs is another advantage because the homebuyer can obtain exactly what he wants in his home.

A new home offers the consumer an advantage in picking a specific lot, style of home, customized features, neighbors, special permanent financing, and a guaranteed buyout plan, if the builder has these benefits.

A previously-owned home also offers various advantages, such as:  An established neighborhood with more mature landscaping, a lived-in home that has weathered various seasons and has been improved with time, and the benefit of conveniences and services from the immediate neighborhood. Many new homes do not have new commercial shopping centers or additional conveniences such as transportation, medical facilities, recreational facilities, schools, shopping, etc.

2.       How quickly does a broker receive monetary recompense for the sale of a new home through a builder?

As soon as the closing takes place, the broker receives monetary recompense through the brokerage firm that he represents. The listing broker, in turn, prepares a check to the cooperating, selling broker for the services rendered for the sale of the new home on behalf of the seller/builder.

Several new compensation programs offer partial compensation to the brokerage firm at permanent loan approval.

3.       How can I find out the stability of the builder?

As a broker, there are various areas of reference that you can check in order to determine the stability of a particular building company. These areas of reference are:

                   1.       Title companies

                   2.       Lending institutions

                   3.       Other brokers

                   4.       Previous homebuyers

                   5.       Neighbors of homes built by the builder

                   6.       Local building officials

                   7.       The Better Business Bureau

                   8.       Chamber of Commerce

                   9.       Employees of the building company

4.       Will builders take less than the retail price that they are asking for the purchase of a new home?

Most builders will seek the retail price. It is important to determine the answer to this question prior to visiting the builder with a customer. By having all the facts prior to the visit, you can best represent the seller/builder and your customer.

The builder prides himself in his work and craftsmanship and likes to be compensated in accord with a fair price for his product. He does not like to find himself in a position where he has to jeopardize his profits; or, he will not be able to maintain a profit oriented company and may be forced to retire from the building industry.

Once you have made your agreement between the buyer and seller, do not try to renegotiate the transaction. Respect and a sale will possibly be lost, as well as any future business between all involved parties.

SALES

1.       Is it best to demonstrate a new home in the planning stage?

Yes.  It is best to demonstrate a new home in the planning stage because objections can be raised by brokers who are selling new and previously owned homes.  The broker’s insight, combined with the economic research data, can often provide better design and concern for future and prospective homebuyers.

By planning in advance, costly changes to production can be saved.  Those savings can be passed on to the new homebuyers and higher profit margins can be made by the home builder.

2.       Is it best for the on-site salesperson to demonstrate the new homes to the broker community without buyers first?

Yes!  By being able to talk to brokers beforehand, you can arrest their fears and explain your product to your advantage without intimidating the brokers and, therefore, make them more at ease with you, your product, and the policies and procedures to work together and make money together!

3.       Is it best for the on-site salesperson to demonstrate the new home to the broker and the consumer together?

Yes.  It is always beneficial for the on-site salesperson to demonstrate the new home to both the broker and the consumer at the same time.  Objections to any particular point can be handled more effectively if the on-site salesperson is present to hear the question.  Also, by accompanying the broker and the prospective buyer, the new home salesperson can obtain feedback about the homebuyer’s wants, needs, and desires and begin to demonstrate the new home to his advantage in order to make a sale more quickly.

Builders spend hundreds of thousands of dollars on new home model areas in order to benefit from the demonstration of the particular product.  The walls, steps, and kitchens cannot talk to a new home salesperson.  He must be present to hear the consumer’s wants and needs!

4.       Why do builders create inflation with new creative financing plans in order to sell their homes?

Builders are not necessarily trying to create inflation with new creative financing plans; but, they are trying to develop a creative edge against their existing competition of other builders as well as homeowners of previously owned homes.

By incorporating financing plans in the price of a home, the builder is better able to meet the competition head-on!  Without permanent financing, a builder is left in a more dangerous position with no opportunity to compete.  By creating an assortment of permanent financial packages, he has a better chance of selling his product.

5.       Why do builders create guaranteed buyout programs in order to sell their homes?

This is another sales tool that a builder can incorporate into the sale of his home in order to make the sale occur faster.  Today, there are more previously-owned homes on the market than ever before; and, in order to sell a new home, the old home has to be sold first.  Therefore, by incorporating the funds and/or setting funds aside within the price of a new home for this guaranteed buy-out program, a builder once again can be more competitive with other new home builders as well as consumers trying to sell their homes in the same marketplace.

6.       Why do some builders offer incentives to buyers to buy their new homes?

Incentives are offered to homebuyers in order to attract them to their new homes instead of the homes built by the competition.  By offering a microwave oven and/or other appliances for the first 5 or 10 buyers, a builder is seeking additional methods to attract new homebuyers to his neighborhood.

Additional gimmicks can often be offered by reducing the price of the home within a given period of time for “X-number” of buyers to obtain this advantage, or a price increase can be announced to encourage consumers to buy the product before a given date expires.  These, and other forms of merchandising, are most helpful to create consumer awareness about a new home builder and economic savings that may be beneficial to the consumer who is in the marketplace to buy a new home.

7.       Why do on-site salespeople try to qualify and close the buyers brought to a new home community by brokers when the broker would like to perform that task himself?

On-site salespeople try to qualify a buyer as soon as possible in order to make the sale for his particular community.  Often, a broker offers a new homebuyer many different buying alternatives in many neighborhoods – both new and old – in order to understand the values that are in the marketplace.

An on-site salesperson will try to work with the broker in advance in order to help make the sale more quickly and also to help understand the wants, needs, and desires of the prospective buyer.

By having previous information about a particular buyer, the on-site salesperson can act as a third party testimonial to make the broker seem more knowledgeable about the given area.  Also, by the salesperson complimenting the particular broker in front of the prospective buyer, he benefits the broker who is constantly trying to maintain the prospective buyer’s confidence.

Also, an on-site salesperson realizes that he has only a short time in order to discern what a particular buyer is looking for and then “close” that buyer before a broker whisks the consumer to another competitor.  Therefore, it is to the advantage of the on-site salesperson to concentrate solely on the consumer’s needs in order to make that consumer a homebuyer today instead of – possibly never!

8.         Is the on-site salesperson going to steal the broker’s buyer and try to sell him another home if he cannot find a home at his particular community?

No!  The on-site salesperson is compensated primarily by selling the existing product offered by the new home builder.  If there is another community that the on-site salesperson has in mind for the particular buyer, then it is important for the accompanying broker to work with the on-site salesperson and the homebuyer to obtain that home together.

The on-site salesperson realizes the benefit of working with the broker and the other brokers within the community.  If an on-site salesperson alienates a particular broker, he stands a good chance of alienating other brokers from his community.  By utilizing broker cooperation as an important sales tool, an on-site salesperson does not want to merely make one sale that may cost him 10 or 20 sales in the immediate future through a foolish act of mistreating a broker.

9.       Why does an on-site salesperson like to maintain as much control over the buyer after a contract has been written, rather than completely involving the cooperating broker?

The on-site salesperson has more knowledge about the existing sales and product.  He, therefore, likes to maintain a direct liaison with the buyer as well as keep the cooperating broker up to date with the progress of the transaction.  By working directly with the homebuyer, the on-site salesperson can then afford the cooperating broker the opportunity to sell more buyers his product and other products in the marketplace.  The cooperating broker then does not have to worry about this particular sale and can devote his time to other money-making ventures – and even another sale with you!

It is also important for the on-site salesperson to develop a direct line of communication with the buyer in order to make the buyer more comfortable with the acquisition of the new home.

By keeping the broker up to date, the broker is less threatened about the current transaction and is more relaxed about referring more business to the on-site salesperson.

The on-site salesperson, like the broker, usually does not get paid for the sale of the new home until the actual sale is consummated.  Therefore, the on-site salesperson has an incentive equivalent to the broker’s to make the sale happen.  Please remember that the only likely source of income an on-site salesperson has is created by the sale of those homes, so he does have the incentive to make that sale!

COMPENSATION

1.       Should a broker register his new buyer with the on-site salesperson upon coming to the sales center?

Yes.  The broker should register his buyer with the on-site salesperson as soon as he comes to the neighborhood.  It is even more beneficial to register the prospective homebuyer prior to coming to the neighborhood via telephone.  By communicating with the on-site salesperson beforehand, it is easier to explain which benefits, needs, and desires the customer is seeking so that everyone can qualify the prospective buyer and work together to close the sale as soon as possible.

2.       What is the average expiration time for a builder/broker registration form?

Most registration forms last for 30 days or to the point of the broker losing control of his buyer and another broker entering into the sales picture.  Most on-site salespeople maintain contact with the broker in order to review the progress of the customer.

3.       If the customer comes to the neighborhood without a broker and does not disclose that he is working with a broker, can a broker obtain a commission   prior to the contract being written?

It is very difficult to say yes or no to this question; but, it is important to realize that each builder has his own set of policies and procedures which he follows.

It is important to review the integrity of the local broker and also the accepted policies and procedures of the builders and brokers within the trading area.

The most accepted answer is that if the on-site salesperson had not been able to “close” the buyer, and the broker does enter into the picture, the broker, in essence, is the “procuring cause,” and therefore, rightly deserves a commission upon the closing of the home for having been the determining factor in helping to sell the home.

If the on-site salesperson was unable to make the sale without a broker, then by having the broker aid in the sale, the sale was made!  It is better to have made a sale than never to have made a sale at all!

Also, to avoid situations such as this one, it is beneficial for an on-site salesperson to ask a prospective buyer if he is working with a broker prior to asking many more questions.  If the answer is yes and a name is provided, then it is important for the on-site salesperson to contact the broker and advise him that he is going to be “covered” – the broker of record has been considered and his real estate brokerage firm will receive the due commission – if the sale is consummated between the buyer and the builder!

This spirit of cooperation is appreciated by the broker, especially if he has shown that customer many homes prior to the buyer driving on-site and seeing a particular home.  The broker will realize that a commission is forthcoming and will not try to sidetrack the buyer from buying a home.  “A bird in the hand is worth two in the bush!”

4.       Do most consumers understand how a broker is paid a commission?

No.  Most consumers do not understand how a commission is paid to a broker simply because a broker does not take the time to explain this fact of life to a consumer.  Most consumers believe that brokers are paid on a salary basis and do not recognize the fact that a broker is a commissioned individual.

Therefore, it is important for a broker to advise a buyer that he is dependent upon buyers for an income.  This can be handled in a number of ways; but, it should be brought to the attention of the potential buyer while he is looking for a home to further illustrate the importance of a broker’s time and his sensitivity to finding the prospective buyer the most affordable product for the money spent.

5.       Why should a commission be paid to a broker when a contract is being   written without the broker and without any knowledge of involvement of the broker?

Normally, a commission should not be paid to a broker in a situation such as this one, unless there are extenuating circumstances which both the customer and the broker can explain to the builder.  Maintaining an open line of communication is important between builders and brokers alike so that problems of this nature can be handled expeditiously and thoroughly!  If the broker is not considered to be the procuring cause for the sale of the new home, then no commission is due to that particular broker and/or the brokerage firm which he represents.

6.       What is the average commission that the cooperating real estate brokerage firm can anticipate to receive from the sale of a new home when working with a builder and his on-site sales team?

The average sale is approximately 3% of the retail price of the new home.  The average range is from 2.5% to 4%.  The degree of difference and the percentage depend upon the local marketplace and also the consistency of the builder-broker cooperating program.

7.       Is there a different commission schedule for the sale of land versus the sale of new homes?

Yes.  One commission can be for the sale of the land, which can occur almost immediately, and another sale can be for the material and labor incorporated into building a particular home.  This commission would occur at the time of closing of the permanent mortgage instrument and would be exclusively for the material and labor agreements.

SUMMARY

Builder-broker cooperation is of the greatest importance in order to create more sales for all of the parties concerned.  Without cooperation, there can be no success for either builders or brokers to work together to make money together!

By continuing to open up lines of communication so that questions can be answered effectively and efficiently on behalf of both parties, successful sales will result!

You, as a builder and/or BROKER, are encouraged to participate in “Builder-BROKER Programs” to benefit the marketplace in which you work.  The more that builders can understand BROKERS and BROKERS can understand builders, the better our industry will be for BROKERS, builders, and most importantly, the satisfied homebuyers!

Take time to understand the people whom you work with and for!

About the Author:

S. Robert August is president and founder of S. Robert August & Company, Inc., a national firm based in Denver, CO which specializes in providing home builders, developers, REALTORS, manufacturers, and lenders marketing/management consultation and sales training.  Robert is also an owner of Gourmet Real Estate, a Colorado real estate brokerage company.  Robert is past Chairman of the NAHB’s National Sales and Marketing Council.  Robert can be contacted by phone (303)-220-8480 or e-mail robert@srobertaugust.com.

Tags: Builder-Broker Cooperation, New Homes Sales, Real Estate Sales