Does Your Builder Pay Commissions On Options?

Written by Posted On Wednesday, 16 March 2005 16:00

Why do some real estate agents make a fortune selling new homes and some "would rather not?"

Recently, I had the opportunity to enjoy a nice dinner with several real estate agents, and the conversation turned to working with builders.

Two of the agents said they sell new homes every chance they get. I asked them why they focused on new homes sales. One said, "It is much easier. There is practically no transaction management. I don't have to hold my breath waiting on home inspections and appraisals, or do any other follow up. I can focus on selling and listing more homes."

"Plus, I don't get worn out trying to negotiate small differences between the buyer and seller."

I asked her if she gets completely out of the picture after the purchase agreement is signed.

"Oh, no," she replied. "That's the time I really earn my commission. Buyers call me when they learn their home is not going to close as scheduled. They don't understand supply shortages and the havoc hurricanes can create, but it's my job to manage through these kinds of crises. Builders appreciate having me on their side during these periods."

"So, you don't mind waiting months for your commission, rather than being paid in 30 days if you sold an existing home?" I asked her.

"I would rather have a commission in a few months than lose the buyer," she said. "I don't let my prospects shop new homes on their own. I always qualify for new homes up front."

I have asked hundreds of real estate agents why they like to sell new homes and the vast majority has said, "because it's easier."

There it is. New Homes Selling 101 for general agents.

Then the inevitable complaint came up.

Another agent spoke up. "I would rather not show new homes, because the builder doesn't pay commissions on options. I don't think it's right. I sold a $400,000 home and lost out on commission for $30,000 worth of options. I'll never take another prospect to that builder again."

I know I've hit a raw nerve here because, I hear the "options" complaint in my new homes seminars all the time. And I'm always asked what I think about it.

Here is what I always say, "You must understand the times, and know what to do."

In these times, the new homes market is better than it has been in a long time, and is forecast to stay strong for a while. In some markets, new homes sales are outselling existing homes and listings are hard to get.

New home buyers are everywhere. Many find what they want on the Internet and contact the builder before they meet you. Before the Internet, builders paid Realtors a co-broker commission, primarily to bring the prospect, not for the services provided. They still pay for that service. There is very little, if any service agents provide to the builder. All of the services are for the buyer.

In fact, home builders would prefer that their team manage all the details including, showing the homes, follow up, writing the contract, and managing the transaction.

So, why do so many builders pay the same commission or more, that the market pays brokers for existing homes, especially in a day when prospects can find them on the Internet?

Believe me, they wonder the same thing. They have a point. I have sat on their side of the table. I have watched builders try to justify the 3 percent commission. You must understand which builders pay what, and what to do about it. Are you not going to show a builder's homes, because they don't pay commission on their homes? That's up to you.

Builders don't pay us for the work we do. They pay us to bring the prospect, then help keep the buyer happy through financial closing.

The builder commission is market-driven, not service-driven. Builders know that at our own risk of losing a commission, we will not bring them to their sales center if we can make more commission selling an existing home.

Is this wrong? Yes and no.

We are in business to make money. Our business is a service business, that of helping our buyers find the best possible home for their wants and needs.

I have known many successful general agents who always put the customer first. As long as the builder is paying a competitive commission, these agents don't worry about how much it is, or what it is paid on, because they focus on the well-being of the buyer. They also know that their service will result in referrals, which is the lifeblood of their business.

Would you not take a prospect to a builder because they don't pay commission on options? The correct answer is not right or wrong. It is a matter of how you want to run your business, but it is a question you need to answer.

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David Fletcher, NHCB

David Fletcher is a co-founder and CEO of New Home Co-broker Academy LLC., an online e-commerce business. Visit David's website to take his famous 3-hour online course, How To Build  A New Homes Niche, to become a certified New Home Co-broker (NHCB). More than 5,000 graduates. Content is based on his long career and onsite sales success working with both builders and Realtors to list and sell more than $3 billion in new construction. If you are a broker who wants to offer your agents a way to add new homes to their resale inventory and home shoppers, this is your solution. 

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