Love and War—Realtor vs. Builder

For Mike Stephens, co-founder of Elite Custom Homes, Inc., the ongoing controversy about how and when a Realtor is entitled to a commission is a battle that has been going on for “years and years.”

The builder, broker and former appraiser has an insider’s view of the battle, and he sides strongly with the builders regarding Realtors, whom he thinks “are more concerned about getting a commission than putting their clients’ interests first.”

He traces the start of the battle to the 1980s, when the real estate market was far more troubled than it is today. Previously builders did not work with Realtors, he said. However, when the market became so soft, homebuilders desperate for sales allowed real estate agents to bring buyers to the table and collect a commission from the builders.

For 20 years the practice has continued, but Mr. Stephens believes most Realtors are not trained to sell new homes. “They aren’t qualified to talk about new construction,” he said. Mike further explains that according to Article 11 of the Texas Real Estate Commission Code of Ethics, A Realtors® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence….. Yet time after time, they come into a new home and value it with cost per square foot and point to granite countertops and say “Look at the quality in this home.” Stephens insists, “Quality is found behind the walls, not on the countertops. For example, our homes are US Green Building Council LEED-H certified. That means a tremendous amount of attention was paid to the overall construction of the home to obtain the highest levels of performance and energy efficiency. Almost without exception, every Realtor that I have encountered does not have the least bit of understanding of what LEED certification means to the client. So, how is the best interest of the client served?”

In what he describes as a standard practice, Realtors show up expecting a commission after the homebuilder and the client have negotiated the purchase of the house. In one case, he negotiated his lowest price with an out-of-town buyer who was not represented by an agent. A few days later an agent called to tell him she was bringing a contract for the buyer to buy the house. Her commission was to be about $14,000. His question to the Realtor, “Just exactly what did you do to earn that commission?” The agent claimed she was needed to represent the client’s best interest. Mr. Stephens answer was “How do you figure you have represented the client’s best interest? The only interest that was represented was the Realtor’s $14,000.00 commission part.”

In the end, he refused to sell the house to that buyer because the agent insisted on being paid the un-earned commission by the builder. As it is, the client’s interest was not represented, the client did not get the house they wanted. “If I have had one of these cases, I’ve had a hundred. And every builder I know will say the same thing,” Mr. Stephens said.


Is there a solution to the builder-Realtor challenge? Is there a need for explicit rules? Can détente be on the horizon in a challenging sales market? Post your comments here