There’s always something to howl about

Making a great deal even better . . .

Cathy’s clients ended up buying at one of the new home subdivisions I accompanied them to on Sunday. She was tied up today, too, so I went back with them to reserve the lot and go over the contract (more of that tomorrow). I almost never sell builder homes, but this was my second one this week. Go figure.

The price was even sweeter today than it was on Sunday. The builder is trying to close on absolutely every inventory home by the end of the quarter, September 30, so they’re Making Deals, as they say down at the new car dealership. They’re basically giving my buyers a $75,000 upgrade package for free, plus throwing 6% of the purchase price at their down payment. If the Phoenix real estate market gets back to normal soon, they will have a ton of equity fairly quickly. And even if not, this home is an incredible bargain — an unrepeatable opportunity.

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.

So how much should I get paid for doing not very much work as capably and professionally as I can? Surely not 8%. I won’t even take 3% on new construction. Here’s what I did today: I gave my clients 6% and kept 2% for the brokerage. Even then I’ll make great money for my efforts. But my clients will get an even more incredible bargain…

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    10 Comments so far

    1. carefulwithnumbers August 30th, 2006 10:05 pm

      hope you cleared it with Cathy first…

      just kidding.

      that is incredibly equitable of you. again, your clients are lucky to be working with you.

    2. Greg Swann August 30th, 2006 10:32 pm

      > hope you cleared it with Cathy first…

      I did actually. Not the specifics but the general idea — because the buyers were her clients originally. I did another builder contract on Saturday where my efforts will be hugely circumscribed and where the buyer has done virtually all the preliminary work. I conceded two points to them and kept one for the brokerage.

      I do think of this as a matter of equity. I think an incentive pay plan is a good idea, because it promotes industry, but I also want to balance my rewards to my efforts — and I don’t ever want to even seem to have betrayed my clients’ interests. The builder is offering a huge commission to get me to twist their arms. They’re trying to buy my agency. I’m only going to do what my clients direct me to do, in any case, but my compensation should be appropriate to the task, with any bonuses going to them.

      I wrote about this in the Republic just lately, to the huge delight of brokers and Realtors. And while I had discussed splitting the co-broke with Cathy, I hadn’t brought it up with my clients, nor had they raised the issue with me. For some reason, it’s not considered a disclosure issue (it’s one of the fields that is omitted from the listing print-outs that are shared with clients), so the first my clients would have known about my $24,000 commission — paid for entirely by them — would have been when they saw the HUD-1 at closing. Charming.

      I’m not being a hero about this, but nothing changes until someone changes it. If we want for people to regard Realtors as square dealers, we have to deal squarely with them.

      We say, “Do unto others,” or, “Do as you would be done by.” I know a lender who says he imagines that every loan is to his mother or son. The lens I use is this one: What would I want to have happen if the tables were turned? What would I want to know if I were the client and a builder is surreptitiously giving away a huge chunk of my money? From there it’s easy.

    3. Daniel August 31st, 2006 6:45 am

      Great Blog. I’ve also been using Seeking Alpha’s write ups of the housing market, and thought you might also find them useful.

    4. Todd Tarson August 31st, 2006 7:12 am

      Greg, how did you ‘give’ your clients the 6%?? In the deal at closing I assume, right??

      Notice to homebuilders, what Greg has done was look out for his clients best interest and was still fairly compensated. When times are hot again perhaps some day, please remember that really good RE agents aren’t looking to break the bank on a deal for their buyer. The offer of 1.5 or 2 points in the MLS is enough since the workload on the agent is a bit reduced.

      I saw an article about Beazer Homes out of Vegas saying something like offering 10% (or more, it was just an incredible number I quickly forgot the detail but it was double digits) to the buyer agent. Just give the extra commission offered to the buyer in the form of upgrades or discounts. Just offer a normal commission on a consistent basis and treat us like partners.

    5. Greg Swann August 31st, 2006 7:45 am

      > how did you ‘give’ your clients the 6%?? In the deal at closing I assume, right??

      That’s right. Unilateral instructions to the title company. It’s easier in all cash transactions. If there’s a lender involved, I’ll work out with them where they’ll let the funds show up on the HUD-1.

      > Just offer a normal commission on a consistent basis and treat us like partners.

      For what it’s worth, I had no problem with builders paying little or nothing last year. They had more business than they could turn away without Realtors, so they had no reason to pay for introductions (which is what the co-broke is from the builder’s point of view).

    6. Cathleen Collins August 31st, 2006 8:38 am

      > hope you cleared it with Cathy first…

      I was on picture 507 of 654 of the home I was photographing for an agent I know from GRI class (I’m building her a virtual tour and webpage of the home as a “favor,” but I’m honored she offered me this opportunity… it’s an incredible house, and I can’t wait to show it off!), when Greg called me to say he was taking my clients out and he had a feeling they were going to buy the new build. Of course I blessed his “stealing” my clients ;) and we talked about sharing the commission with the buyers. The one thing we really like about the current market where the builders are offering such great incentives to the buyers’ agents is we can pass the incentives along to our clients. We don’t need all the extra points, but it’s great to be able to see our clients get so much more house for their money.

      There are situations when I’ll accept up to 3% on a new build. I have one 3% contract out there right now. In this case I’m representing an out-of-town buyer who is relocating here. We’ve been working together remotely since February. Between February and May, when the buyer decided on this particular house, I would preview houses that he identified from MLS feeds I’d built him, and build web pages for those houses so he could decide whether any were worth coming to see in person. And when he was in Phoenix, I’d drive him around to teach him about the different neighborhoods. Since he has gone under contract for this particular house, which is going up in the first phase of the gated community he’s bought into, I’ve been able to continue practicing agency. I’ve run interference for him with the builder and the builder’s rep when my client wasn’t getting the responsiveness he needed, and every 3 or 4 weeks I take photos of the development’s progress. All of this – the contracts, photographs and logs of activity – are memorialized on the buyer’s custom page and Document Kennel. So here is an exception to Greg’s and my thought that with new build contracts we cannot typically effect much buyer’s agency, because of the constraints imposed with the builders’ contracts.

      By the way, when my California client is ready to sell this house, I’ll pull the photos I’m taking of it being built from our archives and put those on the house’s listing website. That will rock when we’re marketing for him!

      (Good to hear from you, Numbers!)

    7. Andrew Breese September 2nd, 2006 6:47 pm

      I stand in awe of you refusing those $20,000′s in builders’ kickback commissions this year!!

      My cynicism embarrasses me upon noticing that I “probably” wouldn’t even BELIEVE that post (as the whole truth) without knowing other personal history of integrity as I do here.


    8. Greg Swann September 2nd, 2006 6:58 pm

      That ain’t integrity. The best name for it is fastidiousness. Realtor bonuses are filthy, filthy things, an overt, out-right bribe to get an agent to violate his agency. I’m going to make something like $6,000 for maybe 20 hours’ work. If that isn’t enough, nothing ever could be.

      Here’s the fun part: Through my column in the Arizona Republic, on Friday I’m going to tell the entire West Valley that all buyers should expect, at a minimum, full disclosure of the buyer’s broker’s commission. That’ll win me some friends!

      Nice to “see” you. Inlookers: Andrew Breese is a man of the highest honor and a professional poker player. You can trust him without reservastion with your wallet, your kids or your reputation. Just don’t play poker with him.

    9. [...] I can not believe that this is the sole reason property values have not dipped much, I think that is mainly because sellers are not in that much of a hurry. However it can explain why new home sale prices have not dipped drastically in the face of record inventories. The Bloodhound Blog has an interesting story about a buyer and the deal he got buying new that provides a great example of the deals builders are offering these days. [...]

    10. Hit Cheap Info » December 23rd, 2006 12:59 pm

      [...] Cathy s clients ended up buying at one of the new home subdivisions I accompanied them to on Sunday . She was tied up today, too, so I went back with them to reserve the lot and go over the contract More [...]