Excessive buyer’s agent’s commissions at new builds: “Killer deals often come with payoff . . . “
By: Greg Swann,
Phoenix Real Estate,
Post Archive,
RSS FeedPosted: Friday, November 10th, 2006, 9:21 am MST
Category: Marketing,Real Estate
This is my column from today’s Arizona Republic (permanent link). I don’t write the headlines, and I don’t think this one is terribly representative of the article, but it is what it is. I asked the paper to change the attribution to use BloodhoundBlog’s web address rather than my phone number, so maybe the poisonous phone calls will turn into poison-pen letters instead.
Killer deals often come with payoff
I have clients who are closing escrow on a new-built home soon. They’re moving from a house of about 1,725 square feet to a home of about 2,100 square feet.
Because it’s a new build and because of when they’re buying it and, most especially, because it’s a spec home — a home specified by and started for another buyer who has since canceled the purchase — they’re getting a smoking deal.
The builder is trying to close on absolutely every spec home, so it’s making great deals. It’s giving my buyers a $75,000 upgrade package, plus throwing 6 percent of the purchase price toward their down payment.
If the Valley’s real estate market gets back to normal soon, they’ll 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 sales rep told me in private that the buyer’s agent’s commission is 8 percent. Unbelievable!
I strive to be a vigorous champion for my buyers, but builders leave precious little room for a Realtor to effect any meaningful buyer’s representation.
In effect, taking a party to a new-home subdivision is a referral. That could explain why so many builders and Realtors treat it that way.
For my part, I’m doing 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 percent. I won’t even take 3 percent on new construction.
Here’s what I did for this home: I conceded 6 percent to my clients, keeping 2 percent for the brokerage.
They didn’t have to ask for this, nor should they have to. The value of my efforts didn’t change just because the builder is trying to bribe me into betraying my clients, and with their own money.
This is true buyer’s representation: I’ll make a reasonable amount for my efforts, but my clients will get an even more incredible bargain.
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4 Comments so far
Greg – You got the buyers a $75,000 upgrade package, probably a great price relative to the recent past, a new house, AND you think that doesn’t have increased value? I’d have taken the 8%, paid for all their closing costs, sent them for a weekend get-a-way, and called it a day.
Since they could not have squeezed $75,000 out of an existing home, and by definition that home wouldn’t have been new with the builder warranty, they have received a ton of extra value as a direct result of your efforts.
Sometimes your take on things makes me nutso.
[...] Redfin and the Hound on agreement in something? [...]
Greg,
I read your article and then read this: http://housingdoom.com/2006/11/10/136-cobroke/
Quite a disconnect.
,dave
P.S. I hate “captchas”
[...] Business Week has an article entitled, “Home Buyer Beware” that quotes our very own Bloodhound, Greg Swann! The gist of the article is a point that Greg has hammered on a couple of times: unusually large buyer agent commissions — sometimes offered by overextended home builders trying to offload some excess inventory — tempt buyer agents to steer their clients towards a property that may not be the best for them…and are not required, in most states, to reveal this excess commission to their clients! [...]