The Official Online Weekly Newspaper of NAHB
Some builders think that paying a buyer’s agent is a waste of money. They are so wrong.
Sure, there are agents who show up with a buyer and are not seen again until closing day. But there also are agents who handle all buyer communications and are heavily involved in all aspects of the sale.
Many builders look at both scenarios and wonder if the commission given was really fair compensation for work done. But builders who look at the real estate community as the enemy couldn’t be further off the mark.
For one thing, customers generally view both new-home salespeople and real estate agents as but two fingers of the same glove.
Maybe more importantly, however, is the good possibility that if you aren't maximizing the participation of the co-brokered community in your sales efforts, you're leaving money on the table when you close an unassisted site sale.
That's because the conversion ratio is substantially higher when working with a Realtor®. When you think about it, part of their job is to screen out unqualified visitors. They don't want to waste time with unqualified or uncommitted buyers, so they've already pre-screened the clients they are bringing to you — and not wasting your time.
Do the Math — It Pays to Co-Broker With a Realtor®
According to years of new-home sales data, the prospective buyers accompanied by Realtors® have a one-in-ine chance of purchasing, or an 11% conversion ratio.
Your commission cost on the sale is variable depending upon how you reach out to the Realtor® community — minimally through the Multiple Listing Service (MLS) or by doing more, which we recommend. But you only pay the commission if there is a closing.
So, as an example, for the sale of a $200,000 house with a 3% co-broker fee, the broker’s commission is $6,000.
Now let’s look at the unassisted sales rate. The same data reveals the conversion ratio of unassisted prospects is substantially lower — 4% — or a one-in-25 chance of making a purchase.
The data also reveals that the average cost of creating traffic — through advertising, public relations and promotional events — is about $350 per unit. These are fixed costs that you must pay whether you close a sale or not.
Now, with only a 4% conversion ratio, the one-in-25 cost of the unassisted sale ($350 X 25) is $8,750 — or $2,750 more per sale than working with a Realtor®. By working with a Realtor®-assisted prospect you save 32%.
Referral Sales, Contingency Sales, Lower Sales Office Expenses and Other Benefits
The higher conversion ratio and lower cost-per-sale are not the only benefits of developing strong broker relationships.
Referrals. Once Realtors® help manage an outstanding buying experience for their client, they are predisposed to repeat the process with other clients — which means increased referral sales with the Realtor® and their office colleagues.
Plus, referrals, with a 33% conversion ratio, are the most likely prospects to purchase, according to the data. So working with Realtors® is working smarter.
Contingency Sales. Building a strong relationship with the Realtor® community also will result in increased control when managing contingency sales.
About half of all new-home purchasers have a home to sell. Having a Realtor®-partner involved as a listing agent means there will be better communication through the entire sales process.
For one thing, the Realtor® will be highly motivated to keep the process moving forward smoothly because she has two commissions at stake — one for selling the existing home and the other for helping close on your new home.
And in situations when a prospect with a home to sell comes to you unassisted, you can probably cement relations and earn a referral or two (or more) when you hand off the transaction to a Realtor®.
Lower Sales Office Expenses. Having a network of real estate professionals also means you can turn over a neighborhood at closeout to one or more agents who will put it under their lockbox — eliminating the fixed costs of continuing to maintain a model with a full-service and fully staffed office. When Realtors® take on marketing a neighborhood, the marketing costs become their responsibility, not yours.
When only a handful of opportunities remain, keeping a community open and staffed just does not make sense.
Additionally, some neighborhoods are too small to warrant a full-time exclusive builder representative on site. Yet infill sites in the urban core can be terrific opportunities for builders to make money.
Here is where a trusted general broker with new-home sales and marketing experience can actualize a profit-making opportunity — and, if they are already skilled and well trained, you won’t have the expense of training them.
Filling Emergency Staffing Needs. Building a trusted relationship within the brokerage community will also enable you to meet emergency staffing needs because a trusted broker can step in when your sales representative is called away for a few hours or even for a few days.
Depending upon the tenure of your relationship, you can compensate the broker hourly or by paying them a fraction of a percentage of commission.
Strategies for Success
Now that you understand the importance of establishing builder-broker relationships, here are a few critical steps that can help get you started:
If you already have a relationship with a cooperating broker, that’s great. Build on it.
If not, select an office or firm that is either near your community or has a track record of sales success in your target market, location, product type and price range.
Next, pick an ambassador at each real estate office. According to the Pareto Principle, 80% of the work is done by 20% of the people.
In real estate, the disparity in productivity is even more pointed. A National Association of Realtors® study conducted at the peak of the last real estate cycle found that 93% of all earned commissions went to just 7% of its members. So choose only top producers as your ambassadors.
An ambassador program identifies and empowers selected agents, usually one per office, with the information needed to sell your homes to their clients, or the clients of their colleagues. Essentially, an ambassador will serve as your advocate.
Make sure the information you provide is up-to-date and that you compensate your ambassador for referring the other agents in their office to your site. It doesn’t have to be much; agents will naturally assist their office-mates and a token of your appreciation is sufficient.
Offer Incentive Programs
You also should consider offering incentive programs for the cooperating broker community.
One choice would be to increase your commissions compared to what other builders are offering. Another choice would be to offer a selling agent bonus. Most brokers generally have to split additional commission with their company, but a selling agent bonus is not subject to a company split so the agent has more incentive to sell your homes.
Additionally, you can also make any bonuses you offer incremental per agent, per office, per neighborhood or per division. Under this program, an agent or office canl earn a base bonus on the first sale and successive sales can trigger a bonus increase.
Keep in mind that bonuses don’t always have to be money. They can also include trips, tuition to educational programs that will help real estate agents further their careers or similar incentives.
Most states require that the selling agent fully disclose any bonus programs to the buyer in a timely manner, usually before showing. This covers all compensation above and beyond their agency agreement.
In addition to compensation, consider holding special events directed to the brokerage community to create agent loyalty. These can include broker previews of a public grand opening of a new model, phase or neighborhood; hosting brokerage sales meetings at your model or clubhouse — they’re a great way to get everyone to see your community and its product line; and progressive broker lunches or breakfasts, particularly when they are staged in all of your models.
One of the best ways to reward the brokerage community is to sponsor educational events. Bring in known speakers to discuss topic important to the brokers' bottom line and they will attend.
Home Builders Care, So Include Your Broker Partners, Too
Whether it's Habitat for Humanity, Susan G. Komen 3-Day for the Cure or another charitable endeavor, builders are often sponsors of community service events. So why not create a team spirit for your charitable events by including your brokerage team in your community outreach?
Brokerage agents will generally welcome the opportunity to help their community, plus building such team spirit will go a long way toward eliminating any potential adversarial relationships between your representatives and buyers' agents.
Information, Respect, Consistency
Building a strong builder-broker relationship requires that you provide up-to-date information that enables them to do their jobs more effectively, that you show respect for the real estate agent and that you are consistent in your dealings with agents.
The multiple listing service must be accurate and timely — and be sure to include presales. The appraisal community will use presales as comparable sales and your presales generally will be higher dollar than the sale of speculative inventory, so the entire neighborhood will benefit if this data is included.
As for consistency and respect, definitely avoid the temptation to encourage prospective buyers to abandon their agent for a better deal with you. Go down that path even once and your area's close-knit brokerage community will cast your reputation into the gutter of sales oblivion.
The rewards of building effective builder-broker relationships far outweigh the effort. Work smarter by putting the capable, motivated co-broker community to work for you and you’ll see the results in an improved bottom line.
Gian Hasbrock, MIRM, MCSP, CGP, CRS, is a builder representative for the Chatham Builder Guild at Briar Chapel by Newland Communities for Coldwell Banker Advantage New Homes in Chapel Hill, N.C. He is an NAHB master instructor and a principal instructor in 11 IRM courses. The 2004 recipient of the IRM's Trina Ripley Excellence in Education Award, Hasbrock is the author of “Multicultural Sales Techniques and Strategies” and has co-authored “ Effective Marketing on a Shoestring Budget,” “Understanding Housing Markets and Consumers (IRM I),” and “Certified New Home Sales Professional (CSP)” for the Institute of Residential Marketing. For more information, e-mail Hasbrock.
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