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Sleaze versus sleaze: We didn’t get this awful reputation by accident . . .

Give a glance to these excerpts from this article in today’s Arizona Republic. There will be a quiz at the end.

Sleaze:

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.

Versus sleaze:

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.

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  • 10 comments

    10 Comments so far

    1. Todd Tarson August 28th, 2006 7:55 am

      “I’m the expert, and you are the boss.”

      The above is a statement that I say to each and every one of my clients. And agents can’t get paid unless they have a client. Why that is such a disconnect for agents, like the one that appears in the article, is beyond me.

      If the builder wants to wine and dine me then they should give me the chance to represent their listing. Otherwise the next time they see me is when I’m working for a client that perhaps has chosen to negotiate for one of the builders offerings.

      If these so called agents want more commission, then they need to open up a discussion with THEIR own client (i.e. buyer broker agreement). Otherwise shut up and do the job you are meant to do.

      For the clients out there, if your agent won’t negotiate with you… how do you know if he/she is worth a darn negotiating FOR you in the transaction?? A good negotiator is especially important when dealing with builders.

    2. Daniel Rothamel August 28th, 2006 9:29 am

      Builders drive me nuts sometimes. Of course the only class of real estate professionals more aggrivating than builders is REALTORS. Personally, I find the fact that REALTORS expect to be paid off of upgrades disgusting. And that is without even mentioning the agency issues it raises. The fact that a REALTOR would be qouted in the article about it is just saddening. I wonder what his client would have thought about that?

      If a client says that they want to go see new construction, who am I to stop them? I tell people all the time, I don’t care what house you buy, I don’t have to live in it. The only thing I can do is tell them what my relevant past experiences have been with a builder, especailly with regard to construction issues. I never want my client going into a relationship with a builder expecting one thing, and then getting another. It makes it bad for everyone.

      Some REALTORS never cease to amaze me. . .

    3. Troy Tisdale August 28th, 2006 12:39 pm

      Agents and builders have always had a love/hate relationship. Agents resent builders for what and when they get paid, builders feel that the agents do very little for the amount paid.

      As a broker/builder, albeit a very small builder, I see it both ways. As a builder, I resent agents who just “drop their clients off at the door” and then are the first to complain about the commission. These are your clients, ones that you are supposed to be representing, take care of their needs. If that means you have to help with selections, then do it. If that means you have to hold their hands during the construction process, then that’s what has to be done. I can’t tell you how many clients I have had to help because their agent felt their job was finished after the contract was signed.

      On the other hand, builders also have some work to do. They need to concentrate on building a quality product at a fair price. They also need to educate agents about the construction process. The more agents know about building, the more than can pass onto their buyers. Finally, builders need to stop worrying about whose selling the product and instead, focus on whose buying it. Once that’s accomplished, agents and builders can get to what’s important….the buyer!

      Nice blog Greg!

    4. [...] Greg Swann over at Bloodhoundblog has an excellent post on a recent article in the Arizona Republic. The article talks about the current relationship between local builders and agents. It’s an excellent commentary on the attitude of some Phoenix agents. Definately worth reading.     [...]

    5. [...] Then I read today’s article in the Arizona Republic, Builders work to mend fences with agents, which Greg commented on this morning. Arghhhh! We may not always agree, but I will admit that sometimes drawing conclusions based upon someone’s associates can be more efficient. [...]

    6. Greg Swann August 28th, 2006 5:40 pm

      > If these so called agents want more commission

      In Metropolitan Phoenix, representing a buyer to a builder is more referral than anything. We bend over backwards to do everything we can with new-build buyers, but the whole process is insanely limited by the builder’s contract. In that circumstance, it make sense to me to rebate back the lion’s share of the commission to the buyer. No matter what I do, I won’t be doing much.

    7. Greg Swann August 28th, 2006 5:43 pm

      > Finally, builders need to stop worrying about whose selling the product and instead, focus on whose buying it. Once that’s accomplished, agents and builders can get to what’s important….the buyer!

      Bless you, sir. That was beautiful!

    8. Troy Tisdale August 28th, 2006 8:05 pm

      I meant to write who’s selling/buying, it came out whose….twice!

    9. Greg Swann August 28th, 2006 8:10 pm

      Homonyms are good. If you write with your ears, you make music.

    10. [...] Here’s the kicker: The builder’s rep told me in private that the buyer’s agent’s commission is 8%! Unbelievable! I don’t know what builders are like in other markets, but in Phoenix, they leave precious little room for a Realtor to effect any meaningful buyer’s agency. In effect, taking a party to a new home subdivision is a referral, and that could explain why so many builders and Realtors treat it that way. For my part, I’m going to do everything I can to defend and protect my clients’ interests — and that still won’t be very much. [...]