Navigating New Home Construction Sales – Chicago Agent Magazine Real Issues

The relationship between home builders and real estate brokers is constantly evolving and becoming more comfortable in today’s market.

Brokers who represent those who buy and sell residential real estate will often tell you that one of their favorite things about the job is that every day is different. And while every deal has its own nuances and challenges, many aspects of every sale remain the same – it’s usually known, for example, what percentage the commission will be and usually how long it will take for the deal to close. .

But all bets are off in the world of new home sales, where the relationship between builders and brokers often changes depending on how strong or weak the local market is. In a tough economy, buyer’s brokers find themselves courted by builders with larger commissions and bonuses, sometimes in the tens of thousands of dollars. But when new homes sell quickly, as they have in recent years, agents not only see less financial incentives, but often find themselves in direct conflict with homebuilders.

Who’s your agent?

Jessica Kelly, Buyer’s Agent at Weinberg Choi Residential, Keller Williams ONEChicago, recently found herself in such a situation while working with overseas clients looking to purchase a newly built home in the western suburbs. She had spent around 30 hours with them conducting a thorough consultation with buyers, mapping out possible homes in new developments and taking them on a tour of homes in the area.

Kelly and her clients did their own research and shared information. “Coming in for screenings, they contacted several developers to gather more information,” she explained, noting that this is where she found herself at odds with the builder.

A salesperson at the company contacted Kelly’s clients to ask if they “planned to bring an agent” on the visit.

The email continued: “The reason I ask is that usually, unless they developed the relationship (i.e. brought you to [the builder]) they are not necessarily part of the deal with a custom home – as we do all the work on the land, house, etc. [sic] the commission is paid by you, so I just wanted to let you know.

Kelly was well aware that home builders sometimes try to claim an agency over a client, so she advised them not to sign anything during the visit or online. Signing an intake form at an exhibition or even just on a builder’s website can create challenges as to who is representing the customer down the road, she explained.

Work in good faith

It’s these types of scenarios that cause many brokers to look elsewhere when referring clients to homes on the market. But that’s not the only hurdle when it comes to selling new construction. Agents often say they avoid the market because of the time it takes to get paid for the transaction, especially with pre-construction sales.

But industry experts say there are a number of advantages to selling new build, not least because of the low likelihood of a deal going off the rails due to a poor appraisal or inspection.

Christine Lutz, executive vice president of Wolf Development Strategies, a Chicago-based developer services company, said her company is working hard to cooperate with brokers because they are essential to the process. “We do everything we can to make sure we’re easy to work with in the brokerage community,” she said, noting that brokers aren’t easily forgotten after finding themselves in an adversarial relationship with a developer. .

She acknowledged that the long wait to get paid can make it harder to sell properties, so her clients offer half the buyer-agent commission up front for the luxury condos they sell at The Reed, a 440-unit skyscraper in the South. Chicago’s Loop neighborhood which is about a year away from delivery.

“We’re competing with the resale market, and it’s harder to sell something that doesn’t exist yet,” Lutz said. “You have to be credible with the buyer and broker, and paying 50% commission is a commitment.”

Melissa Camp, senior global real estate adviser at Realologics Sotheby’s International Realty in Seattle, also stressed the importance of working in good faith with outside brokers. Among his most recent accomplishments are sold-out sales of Vancouver-based BOSA Developments Insignia in Seattle and One88 in Bellevue.

“I’m very lucky — every developer I’ve worked for has realized how important outside brokers are. They are our bread and butter, so we are doing everything we can to make it easy for them,” she said.

Those who cut commissions when markets are strong are making a big mistake, she added. “Lower commissions aren’t going to get agents to bring prospects to your project,” she said.

Bonuses are back

According to Devyn Bachman, senior vice president of research at John Burns Real, brokers may not have to worry about low commissions on new construction for long – rising interest rates and a cooling market. real estate are already encouraging builders to sweeten the deal. Real estate advice.

Bachman said July sales were weaker than expected for new home construction, and 42% have cut prices via incentives, but they haven’t resorted to lowering the base price yet. These buyer incentives include things like rate locks, buyout mortgages, closing cost assistance, and flex money for design upgrades.

These incentives also extend to agents, she noted. “We’re hearing about an increase in agent commissions and bonuses,” she said. “That’s one of the levers you pull when the market is down.”

One-time bonuses of $10,000 for closing within 30 days are one such lever, Bachman said. Camp noted that she has seen recent offers that include escalating commissions for additional units sold. The first sale is a 2.5% commission, while the second is 3% and the third is 3.5%.

However, commission rates and bonuses change constantly, so agents need to keep a close eye on builders’ offers in order to work in new builds. National homebuilder DR Horton, for example, offers 2.5% commissions, but this percentage does not extend to purchase incentives. So a home in the Chicago suburb of Pingree Grove that has a $7,500 purchase incentive on closing costs won’t be included in the agent’s commission, for example. The broker will earn 2.5% on the net sale price, but not on the incentive.

More recently, DR Horton launched a broker incentive program that offers $1,000 on the second home sold, $1,500 on the third, $2,000 on the fourth, and $2,500 on all subsequent ones. Some of their new homes, which have been on the market for longer, come with different bonuses. A registration at Pingree Grove offers a bonus of $5,000. Look at another builder and you will get a different offer. Lennar Homes Chicago currently offers 3% for new home sales, but that figure was recently at 2%.

The shift in builder generosity can even be seen in markets like Atlanta, where housing developments and high-rises are popping up across the metro area. Engel & Völkers Atlanta Founder and CEO Christa Huffstickler said commissions that used to be 1-1.5% have increased as the market has evolved, and it’s now more common to see commissions of 2 to 3% offered for new home sales.

It’s not just the market

Huffstickler, who has worked in new home sales her entire career, is an expert on the sales side of the business, but she’s also had extensive experience with builders and how deals are done. She said it’s not just the market that influences what builders offer brokers; this is often driven by their financial obligations and the timing of future projects, she explained.

Sometimes builders have to close the books and pay off their debts because it will save them in the long run. Other times, it’s financing schedules and rate adjustments that force them to sell their homes faster. “It’s not a one-size-fits-all solution,” she said.

Engel & Völkers Atlanta was recently named prime broker for the 22-story condominium tower Seven88 West Midtown by McKinley Homes. That’s less than six months after the automaker hired its own in-house sales staff. That’s not a sign the condo market is struggling, Huffstickler noted. “McKinley Homes is amazing at what they do, and this particular type of product is something that we’re amazing at, and we were able to bring that specific skill set to this specific type of product.”

Reasons to sell

Despite the challenges of new home sales, experts say it’s still a market worth exploring, especially given the relative ease of such transactions. “It’s a longer sales cycle, but it’s also a less risky environment,” according to Bachman, who explained that with new construction, there’s less chance of the deal going off the rails. Home inspections and appraisals can easily threaten a home resale, she said.

For Camp, it’s the personal touch she’s able to bring to the transaction as a builder’s representative that isn’t a typical part of the resale business. “What I love about what I do is…in a typical resale situation, you don’t meet the buyer,” she said. “You (usually) never understand what’s going on in their world that triggers the movement. I often become friends with the buyer and try to develop this relationship.