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
7 comments:
I won't deny there are some agents out there who jump on the commission bandwagon right after their client (usually a good friend or family member) strikes a deal with the builder but has yet to put it in writing. But this example raises a bunch of questions regarding the builder's greedy behaviors just as it does a Realtor's.
Did the builder ask the buyer if they were working with a Realtor? Did they ask the buyer if they signed a buyer's representation agreement with a Realtor? Did the builder explain to the potential buyer that since they have "reached a deal" that he will not be paying a Realtor's commission if suddenly a Realtor appears?
In my opinion, these are questions the builder needs to be asking the buyers before a "deal is struck". And why not have them sign a disclosure saying they are not working with a Realtor?
There are always 2 sides to every story. I have a client who told me the salesperson for a new home told her if she cut me out of the deal then they would give her $25,000 in "free upgrades". So there's that too.
Both builder's and Realtors need to get over themselves when it comes to new construction and do what's best for the client. While Mr. Stephens claims in this story the buyer's did not get the home they wanted because the Realtor was only looking out for his/her wallet, the builder said he was the one who refused to sell them the house. So ultimately it wasn't the Realtor who killed the deal.
There definitely are two sides to this issue. Many Realtors and builders work magnificently together and have for years. Numerous Realtors actually specialize in new-home construction, have earned professional designations for new-home sales and are extremely knowledgeable.
And on the other side, some builders even create a "bill of rights" for their Realtor clientele.
At the end of the day, it comes down to a matter of ethics and honesty and the desire to do the right thing. Why would anyone want to burn a bridge in such a closely networked industry?
I agree with Karen. Why would you willingly do that to your business, especially where many see you only as good as your word?
As a long time Mortgage Specialist, I find that 95% of the problems in any transaction can be avoided with direct and open communication.
I see it far too often that fear of losing a sale causes professionals to ignore addressing hot button issues up front. There is the underlying hope that if a challenge is addressed after a point of no return, people can get what they want anyway.
As a believer in Steven Covey's "7 Habits of Highly Effective People", I believe in always striving for a win/win or no deal situation and to get there, everything needs to be on the table from the start. If we hit a no deal, I at least no that my client is in the situation that is most comfortable for them and I at least helped them get to where they want to be.
As a former on-site new home veteran of over 15 years in the DFW area, a Broker since 1990 and RE/MAX agent since 1999, I don't think it really matters as long as you are delivered a buyer from nowhere...
You're the homebuilder, we just deliver a qualified candidate so you can make lots of money off of selling them an expensive home that you otherwise wouldn't even know about...
The Dallas Real Estate Wizard
Mark Kukla
RE/MAX DFW
In our office, if the Realtor is the procuring cause of the sale, then they are entitled to a commission and should expect it. However, if they did not procure the buyer, then the company isn’t going to bat for them to secure a commission. It comes down to what is fair and reasonable.
It seems reasonable that a builder should not pay a commission to an agent who did not actually obtain a buyer for their property. On the other hand, every buyer should be entitled to their own representation.
As a seller's agent, I've done deals where the buyer's agent was practically on paper only. But to get to closing, I'll do the work of both sides. Typically in these curcumstances, the 'other' agent is not a full-time, active agent. Because anyone operating like that, won't be earning a living for very long.
There are numerous problems with Mr. Lytle's blog. First being he says he is located in Texas and is a Realtor yet is not registered with the Texas Real Estate Commission. Only a member of the National Association of Realtors can call themselves a "Realtor"
I have been a broker in 3 states and been a project director for subdivisions where we cooperated with buyer's agents. 85% of people are working with a Realtor when purchasing a home and to not welcome an entire industry is a terrible business practice.
Mr. Stephens is proud of his certification and that is fine. However, to imply that a Realtor who is not certified in the particular style of building to be unqualified is ludicrous.
He is confusing several issues and Mr. Lytle helps extend an unwarranted animosity. First is the issue of procuring cause. If Mr. Lytle were a practicing Realtor he would know that procuring cause is an issue that surfaces thruought the real estate industry. The builder has a choice to work with 85% of the represented market or not.
The idea that a procuring cause issue has happened to him "hundreds" of times is simply mathematically impossible and a gross exageration. I managed three subdivisions simultaneously for three years and only had the issue arise once. In hundreds of written contracts over 12 years, only once have I had a procuring cause confict arise.
A Realtor's job when representing a buyer is to negotiate and facilitate a contract and make the client aware of legal issues and disclosures. This has nothing to do with knowing the inner particulars of every house on the market which is an impossibility.
Marketing the home and making a potential buyer aware of the particulars of a particular home is a marketing job that is the builder's responsibility or whomever is handling his marketing. Many of the items about insulation and energy efficiencies would come up in disclosure which most builders are unaware they have to provide by my experience. An experienced buyer's agent would find out these things. What I do know here is that I have come across many people in my time as a Realtor that had wished they were represented when working with a builder.
Lastly, if 85% of people are working with a Realtor. In a typical builder's career, how many homes will he sell as a direct result of our collective hard work. The percentage is most of his builds. A little gratitude would be nice rather than categorizing an entire industry and process by one incident.
Realtors know who works well with them and happily show friendly builders houses. Why would a Realtor bring a client to a builder who is belligerent to their industry?
We are in the same business. Helping people get into a home. Until some builders realize this then a perception of inaccurate animosity will persist. Blaming Realtors as an industry for an isolated incident that was poorly handled is simply not productive.
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