You would think that because builders supply approximately one-fifth of national home inventories to sell, relationships between builders and real estate agents would be more cordial. But opposing agendas, misinformation, and mistrust still abounds, preventing what could be a mutually profitable relationship.

Motivational speaker and "edutainer" Jerry Rossi has shaken his head over the problem for years, watching old myths between agents and builders perpetuated to the benefit of neither. To assist in rectifying the problem, he has focused much of his speaking topics and materials on improving the communication and service delivery between agents and builders. Rossi is also a speaker for the Residential Sales Council and designer of the popular course, " New Home Sales and Building Builder Business (207). A former Realtor and manager of one of the largest brokerage firms in Albuqueque, Rossi has extensive experience with new-home and resale inventories and the mindsets of all individuals involved in the real estate transaction.

"A builder is really just a person in need of market knowledge, sales knowledge, trends, absorption rates, and current buyer desires," Rossi says. "What I try to do in my seminars and tapes is try to teach the agent to become an expert in the preconstruction process to help create the product the market wants. Homes don't just sell themselves. The market should be researched before the start of construction. That is how you show the builder you are worth every penny he pays you."

New-home construction is at an all-time high, along with heavy traffic in resale homes. In markets such as Las Vegas, one of the top four relocation destinations in the nation, new-home construction is booming. Last year, 51 percent of everything sold through MLS was new homes. Homebuyers have a choice of more than 3,600 new home neighborhoods. So why aren't agents swarming this kind of opportunity in Las Vegas as well as other areas? According to Rossi, most agents stop themselves before they even get started. Rossi names four major reasons why agents don't prospect builders for business.

1. Lack of knowledge. Many agents don't understand the building business. Realtors make the mistake of approaching builders the same way they do Mr. and Mrs. Resale. But the building game is different for two reasons. Selling a resale property is buyer-centered, with properties being negotiable because appreciation has already set in. But in new homes, the center is on the builder and the product, with the price set by costs of building, land, and cost of money. Appreciation has yet to be set. Due to these factors, there is little margin for negotiation.

2. Fear of builders. According to Rossi, agents fear builders, and builders dislike agents, mostly due to conflicts over fees. Builders have a lot of responsibility and make slim profits for their time and risk. The national average of percentage profit that builders made in 1996 was only 4.62 percent. Along comes the listing agent, who says, "List with me. I only charge 7 percent." The builder, who is there at 7 a.m. and acts as his own purchasing department, supervisor, human resource manager, and insurance specialist, doesn't clealy understand what the agent does to deserve a greater profit than he is making on the same house. Then deer season comes, and all the subs disappear for week. So builders fight to maintain their small profits, meaning that in a good market, the builder will bite off an agent's head. In a down market, they will come begging for help to sell their homes. As a group, builders are tough, bottom-line, and forthright. They aren't salespeople. And Realtors who don't believe they are really worth the money will be intimidated. The only way to initiate a positive relationship is to show them how you can become their "marketing" subcontractor.

3. Sales are already represented. Realtors believe that builders hire their own representation or have their own sales staff. Not necessarily, Rossi says. "About 80 percent of builders in the National Association of Home Builders are classified as small builders. Only the largest can afford a marketing staff, and many of those still choose to take advantage of the resources of brokerage firms because of their resources." The fact is most builders don't choose to go into high production, preferring to build custom homes on a smaller scale. Those are the builders Realtors need to target. The question we should be asking ourselves is: What could I do to earn the money?

4. Too much liability. Some builders hire Realtors to share legal liabilities as well as carry the burden of advertising expenses. "If I sell you a house and you aren't happy, you could sue me. If I hire a Realtor, and he/she sells you a house that I built, and you aren't happy, I have just divested my liability. This by the way is the single reason why real estate agents will never be replaced by a computer. Realtors are also aware that representing a builder is very time-consuming, especially if there are multiple products. Builders expect coverage, and new-home sales are still very much an open-house activity. A lot of agents don't want to work as hard as builders demand, with open houses every weekend. It is also costly to represent a builder because you can't advertise enough to please them. The reality is that they think a Realtor is the same thing as an advertising agency. You can put in a full-color, full-page ad, and the house doesn't sell, and they want another ad next weekend."

So what is the solution to a better agent/builder relationship? When an agent can understand the position of the builder and walk in his shoes, then they begin to realize their problems aren't much different from those of agents. Designing and developing solutions is only possible by first gaining knowledge and second by applying your own personal knowledge. For example, when a home doesn't sell fast enough to suit the builder, the problem is more likely to be the market's absorption rate. If you really want to do business with a builder, show him that you can help him build homes that will quickly sell by identifying what types of homes are selling the best.

"If a builder offered you 10 houses to sell, what would you do? Most agents would jump at that. But before you commit, tell the builder that you need to do some research, and you'll get back to him. What you are going to find out is the absorption rate of all houses in that price and category, you find how many homes like that are started, and pull the number of permits for homes to be built. You take those figures, and divide them to find out how many are selling per month. If you have an eight-month supply, no, you don't want the listing, because the advertising costs and open-house times will eat you alive. But if you can go back to the builder and say, 'Look, I did a little research, and if you will build homes in this other price range with these features, we can sell them in less than four months.' Then the builder will know you are worth every dime of what he will pay you."

Most builders today count on the fact that approximately 70 percent of their homes will be sold by real estate agents. The question is how you can justify your fee to the builder. Because most builders build the same type of product or want to gain a reputation in a certain type of market; they don't tend to look at absorption rate before they commit. By doing the market research and sharing the results, you can help the builder build the most profitable home size and features, as well as increase the supply of the price and types of homes buyers really want.

Published: March 12, 1998

Use of this article without permission is a violation of federal copyright laws.