Give a glance to these excerpts from this article in today’s Arizona Republic. There will be a quiz at the end.
Home builders are spending big bucks and dishing out heaping helpings of hospitality during what has become the summer of love in the Phoenix new-home market.
The objects of their affection? The real estate agents they spurned during last year’s housing boom.
The wooing has agents sipping wine and tossing down hors d’oeuvres in Buckeye, networking to live music in Chandler, munching free sandwiches in Florence and cashing fat commission checks.
It was a different world in Phoenix housing last year at the peak of the boom. With buyers camping out at subdivisions, builders didn’t need agents to bring them prospects. Builders, looking to maximize their profits, cut agents’ commissions or started paying flat fees, if they paid any fees at all.
That angered a lot of agents, who felt that builders were abusing the long-standing relationship between the people who sell homes and those who build them.
But the tables have turned. Demand has evaporated, and builders are trying to get cozy with agents again, throwing parties and offering big fees – commissions of 4 to 5 percent – for selling houses fast. The typical commission is 3 percent.
Yet some agents are steering clear of new subdivisions unless clients ask to see homes there. It’s payback, they say, for builders who got greedy in a runaway market in which builders raised prices with impunity and slashed commissions. Money and parties may not be enough to restore the relationship.
And more sleaze:
It’s unclear whether builders will be able to mend fences with agents. Some agents note that there are more reasons than leftover bad vibes to show resale, rather than new, houses.
Builders pay their co-broke percentage on the base price of the house, before the buyer adds the thousands of dollars in options that typically go into a new home. Also, agents don’t receive their commission on the new home until the sale closes. Valley construction times are running six months, often longer. Resale deals close faster and the house is fully valued, at least by current market conditions.
“I feel like we get gamed a little bit by the builders,” Barry said. “I get my commission check from the builders and roll my eyes and say, ‘I know my buyers paid more than that.’ But it’s better than nothing.”
Here’s the quiz:
If the builders are shearing the buyers in good times and bad, and if the Realtors are unhappy that sometimes they don’t get to shear the buyers as much as others — who, if anyone, is looking out for the buyer’s skin?
A simple way of understanding agency is by going back to the original Latin: Respondeat superior — let the master answer. The law of agency is the law of servants. If an agent is making decisions for the client — as the agents quoted in this article admit to again and again — that is the polar opposite of respondeat superior.
The amazing thing is not that Realtors pull these stunts — we didn’t get this awful reputation by accident — but that they so blithely and baldly admit it in public.