Bribery to Work with the Builder’s Preferred Realtor

I just read a great blog article entitled: Bribery to Work with the Builder’s Preferred Lender and I could certainly resonate with the author, Rhonda Porter. I wrote about the same subject on an earlier post (How to get a loan with a new home builder) advising consumers to be careful when choosing a lender and not get “blinded” by the incentives being offered.

Well, I decided to write a part 2 to the original article by Rhonda and talk about a similar practice involving a builder’s “preferred” Realtor.

I just got an email from a friend who wanted me to rebate the entire 3% of my commission to help him buy a home! After I did some quick math, I realized that I would be making ZERO on that particular deal. His proposal originated from the builder’s preferred realtor program: Use our real estate agent to list your house and that agent will rebate you 3% when you buy ours

Since the “preferred realtor” is the one who is listing the builder’s homes, and since she is rebating 100% of the buyer’s side commission, how can she legally represent and provide the appropriate services to that buyer?

Without proper representation, nobody is looking after that buyer’s best interest. The idea is that the average buyer does not know as much as a real estate agent does when it comes to buying a home. There is a power/knowledge imbalance. So to balance things out it is only fair that the person with the greater knowledge and power act in the interest of the client because it is too easy for someone with MORE power and MORE knowledge to harm someone with less. (edited from Rhonda’s original blog post).

So here is what I recommend that will cooperate and not compete with the real estate community:

(These examples assume that the builder’s bottom-line price for the home is $200,000)

BUYER HAS A HOME TO SELL:

1. Not represented by a Realtor – refer the buyer to a Preferred Realtor that will list their home and gladly rebate 1% of the new home back to the client. (Result: Preferred Realtor gets extra business, client gets full representation and saves 1%, builder sells house for $200,000)

2. Represented by a Realtor – offer to sell the home for 1% less then you normally would. (Result: Current real estate agent is not competing with a list of Preferred Realtors, client gets full representation and saves 1%, builder sells house for $198,000)

BUYER HAS NO HOME TO SELL

1. Not represented by a Realtor – Sell the home for $200,000

2. Represented by a Realtor -Sell the home for $200,000 (This cooperates with real estate community – buyer can’t get the home cheaper by ditching their agent)

I also recommend a simple set of criteria to make the “Preferred Realtor Program” live up to it’s name. Someone who is preferred should:

1. Have brought business to the builder in the past (That real estate agent has proved he/she is capable of bringing something to the table and can generate business for that builder)

2. Have listing experience. The current “preferred” Realtor in the above scenario has never sold one home in the city that the builder operates (Georgetown, Texas). Don’t just recommend an agent to your client that is willing to discount to get the business. Recommend somebody who actually has a strong performance record! My recommendation is to get that agent’s average DAYS ON MARKET for homes he/she has sold in the past 2-3 years. The builder shouldn’t recommend an agent who takes 6 months to sell their homes, they should recommend an agent that will take 33 days or less (my career average) so that the buyer can quickly move forward with the purchase of the builder’s home

I think this paints the builder in a very good light. It shows that they care for their customers and aren’t in business just to maximize profits. It shows that they also care for the community of real estate agents that are working hard to bring them business and are willing to cooperate, rather then compete, for their business. When you recommend a painter, a handyman or a doctor, wouldn’t you want it to be for the best benefit of the consumer? The same goes with a “Preferred Realtor Program” that not only looks out for the best interest of the consumer, but also the local real estate professionals that represent them

UPDATE 8/18/2008 – The builder in this post is no longer promoting the Upgrade program through their website and on-site brochures! I think they still have the program in place, but now the unrepresented buyer would have to ask for it first. That’s a great move on their part and will be well-respected by the real estate community!

Comments

  1. Rhonda Porter says:

    Thanks, Edward! It’s amazing how people are not able to see through how the homes are priced factoring in all of the great bells, whistles and rebates–while the buyer is paying for it.

  2. I find it unfortunate that you post only “particular” portions of the “deal”
    to make yourself the victim in this situation. Good luck with your business my friend.

  3. Your favorite HOMEboy says:

    David – thanks for responding.

    The entire deal was to match the preferred realtor’s offer which is to “Use our real estate agent to list your house and that agent will rebate you 3% when you buy ours.” Although the preferred agent would be making money on the listing, it still is true that they stand to make 0% on the buying side of the deal. A Realtor is never a victim when it comes to negotiating their commission because they always have a choice to accept or decline it.

    The main point for the post, however, is really about helping the builder come up with a better move-up program that cooperates with the real estate community. A program that doesn’t cause tension between existing broker/client relationships and that doesn’t take away basic buyer representation rights.

  4. I did not say the statement was false. All that was implied was to tell the whole story not just a particular part to make your friend look like the bad guy in this situation.
    Point is you/agent would be making money. Correct?

  5. Your favorite HOMEboy says:

    Correct. But even if I wasn’t making money at all (on either side)…or even if somebody asked me to do something that was going to COST me time, energy and/or money…I don’t think that makes them a bad guy.

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