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Understanding Builders'

I was reading a blog about what co-broke agents do not like about going to new home sites. I am not going to talk about all the items, but I want to try and help everyone understand a little bit of the builder's side of the story.

When a builder starts a community there are alot of expenses that the buyer and there agents never think about. Just a couple of things are clearing the land and laying out the community. The roads need to be started so that people can get into the site. Most of the time there are road improvements that are required by the city that the builder is building in. Water and sewage lines have to be run. Surveys have to be done for the whole community. These are some of the expenses a builder faces before he even starts building.

Most builders' build at least one model. If it is decorated you are talking about $20,000 plus per home. The builder has to pay for everything just like a regular home owner, including a mortgage. Builders have to be able to get a loan from a bank in order to even start to build.

One of the things agents do not like is that the builder contracts seem to be one sided. Once the builder has a contract to build a home he has to go to the bank and get a loan to build that home. He is building a home for one person with the items the buyer puts into the home. The builder is taking a large risk everytime he builds a home. If the buyer does not close on the home when it is finished, the builder has to try to sell the home to someone else. It is not very often that you find a buyer that is going to like what the other buyer put into the home. Alot of time the builder has to discount the price in order to sell the home. If that is not bad enough, once the home is built the builder has to pay a regular mortgage on the home. These are some of the reasons the contracts are designed more toward the builder. The builder has alot to lose if the buyer does not close.

I know that when agents bring their buyers to a new home site it is there job to protect their buyer and get them the best deal. Just remember the site agent is there to protect the seller. The seller is the site agent's client. If we all work together we can make the buying process easier for the buyer. If agents educate the buyers on the process of having a home built it makes a smooth transaction for all parties.

I hope this helps give you an idea of what a builder has to lose.

Posted by Denise Allen Realtor@ Chesapeake, Hampton Roads on 11/23/2008 03:42 PM

Comments (9)

new homes, real esate,

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9 Comments on Understanding Builders'

NOV

2008

Denise,

As long as the site agent or the builder does not entice the buyer to let their Realtor "go", I would think the transaction should go smoothly. I have had a builder in front of me, tell my client they will discount the price by $3000 if they lose their agent.... Right in front of me!

My buyer was appalled and we left.

Ann

NOV

2008

I am with you that a builder should not entice a buyer to leave their agents. I have been very lucky that all the builders I have worked with have always had co-broke agent commissions already in their budget. It is in a seperate account from the costs of building a home.

I would not work for a builder that would have such bad business ethics.

NOV

2008

Denise,

Times are tough but there is no excuse for that type of rudeness!

Ann

NOV

2008

Denise, Having worked with builders for many years, the new home site agent should make it easy for the realtor and their client(s). A good new home sales professional can make your job a lot easier and free your time to work with other clients. You just need to let the builders on site agent know how much you want to be involved because a good on site agent will do everything for you and will value your time so you have more time to work with other clients. You made some very good points, builders invest large sums of $ when building homes and communities vs. the one time earnest deposit the purchaser invests at the time of contract. Ann, Sorry you that happened to you. Not all builders are like that.

DEC

2008

Ann,

I have had the reverse situation happen. I worked with a Buyer for 2 weeks getting them a loan helping them to decide what options they wanted. The day we sat down to write the contract we were about 30 minutes into it when a Realtor walked in and said he was looking for Mr and Mrs my Buyer. They were sitting right in front of him and he had no idea who they were. I told them here they are who are you. He told me he had spoke with a friend of their's last night and he was here to represent them. They look totally confused about what was going on. I asked them if they wanted him to stay and they said no. He continued to plead on how much they needed him to be there for them. Again they said no thank you.

He still wasn't giving up. I finally took him in the other room and told him you really need to leave. They did not ask for you and they have refused your services twice.

Well he started yelling how I stole his clients (he had never seen or spoke with before) and how he would let every one in his office know just how I do business.

I guess it goes both ways sometimes.

DEC

2008

Good post - the reality of the business is that developer aren't deep pockets. Often, they are small businesses that have alot on the line. As to builder contracts, I have drafted more than a few and have reviewed several hundrded over the past 20 years. They ARE necessary to protect the builder in litigious times. I would hate to have someone walk away on a pretext after the home is built. Periodically, we see tying arrangements to preferred lenders or title companies or an onerous term involving a buyback in the event of disputes. However, these provisions are often negotiated out or have easily explained rationale.

I haven't seen any inducements offered to a customer to ditch their agent. It is economic hari kari for a builder's representative to do so. We rely on Realtors to bring us customers. In contrast, we have seen the reverse situation discussed by Denise where an agent jumps into the transaction at the eleventh hours (sometimes long after the contract is written) to claim a commission that was not earned or due. The last one involved an agent who didn't identify the property, didn't show the property, didn't negotiate the offer, didn't attend inspections, didn't handle the financing, and really didn't know there was a sale until she contacted her buyer the afternoon before the closing. The buyer failed to disclose that she had an agent and simply said "not currently working" with an agent when asked. Turns out, there was a buyer's agreement that said "properties in X city or Y city" and "properties with a view." Gee, that is sufficiently vague to cover "all or nothing" depending on your view.

I don't know if my recent post was the source of concern - but I agree with your comments that some Realtors look as developers as "deep pockets" and think every cost should be borne by them without considering the economics of the deal. More than a few developers don't generate any excess cash or income until they sell a certain number of units. Often, the profit in the deal is at the end after a ton of expenses have been outlayed.

DEC

2008

Denise,

Sorry to hear about your experience. We should respect each other in business and life. Things would be ever so much easier.

Have a great Sunday,

Ann

JAN

We work with Builders all the time on our Real Estate side. We even have to fire some from time to time. But as a rule new construction is much easier to sell. The builder has no attachment to the house. They want to sell it. Have a great 2009.

Terry Miller

APR

One way to help guarantee that you dont get cut out of the equation is to provide the builder with a way they can save huge amounts of money. Many builders have enjoyed using commercial credit lines to build their homes vs. CP loans for individual buyers, however I'm sure you know that much of the commercial credit lines for builders have dried up or have been drastically reduced. Even builder that still have the credit lines would definately benefit from moving to plugging buyers in to CP loans and unloading their lots immediately vs. continuing to pay the juice while the buyer's home is being built.

That being said, if you want to show your builder something really powerful, introduce them to our new industry-best construction-to-perm product and you will not only have very happy builders, but you will most certainly have very happy clients. :)

In my experience, the very best way to make friends with builders is to introduce them to an industry-best high LTV financing solution with low rates since this is litterally unheard of in today's market. Offering a construction product this unique will at minimum make your phone start ringing!

Through our program, you can offer the new construction buyers:

- Up to 96.5% FHA Construction financing (most banks have retracted down to 75% - 80% LTV on construction loans in many markets)
- Rates as low as 4.75% during construction.
- Long term rate locks for up to 12 months.
- Credit Scores as low as 620
- Loan amounts up to $750K

I have found that leveraging a powerful program like this is the best way to get the attention of your targeted new construction buyers.

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Let me know if you'd like to chat about this. I can even get you some personalized co-branded "Construction Advantage flyers wtih your contact information on them.

Your Thoughts? Thanks!
Joe
www.JoeKarns.com

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