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!

I confess, I buy my own listings…can this be ethical?

I am a real estate agent. Let’s face it, when it comes to nest egg options, I doubt my broker has a 401k prepared for me. Therefore, I’m also a real estate investor. I buy homes and hold them for the long term. But what happens when these two roles collide? What should I do if, during the course of listing a home, I tell myself, “Gee, this is the exact type of home I’m looking for!” (Note: I really don’t use the word “Gee” in real life.)

Real World Situation

I just got off the phone with a nice young lady in my neighborhood, Georgetown Village, and was following up after a listing presentation I gave a few weeks ago. I was just about to finish the phone conversation when she made a comment that went something like this:

Some of my neighbors mentioned that you might not have my best interest in mind. They said that homes are selling in the $100/SF range and you list yours lower to maintain your statistics and sell your homes quicker (Note: My career average is 35 days). They also felt that there might have been a conflict of interest since you bought our neighbor’s home at a low price when you listed it, thus lowering values in our neighborhood.

I told her that it was a great question…and an honest one at that. I really respect the fact that she had the guts to confront me with this situation and give me an opportunity to respond. Whether I get this listing or not…thanks for doing the right thing! I encouraged her to call the individuals I bought the home from and get their first-hand testimonial when working with me. They would be the ones who could tell her whether I was being straight-forward and whether I tried to “pressure” them in any way. (Now I need to find their phone number!) In the meanwhile, I decided to dive deeper into the statistics of how much homes sold for in Georgetown Village….and how much I paid for my own listing.

Real World Numbers

The home I bought was built by Lennar and was 1603 SF. It was built in 2002 and although it didn’t have any significant upgrades, it was in very good condition. I paid $153,000 which comes out to $95.45/SF.

Since January of 2006, there were 10 resales that sold in the MLS that were built by Lennar and in the 1600 SF range (1603 SF – 1674 SF) and not ONE sold for $100/SF or higher. Do you want to know what the average $/SF was? $92.56/SF.

But wait, it gets better! In that same time period, there were two homes that sold in the MLS that were BRAND SPANKIN’ NEW! These homes were decked out with stainless steel appliances and upgraded hardware throughout the home…or rather, they didn’t have any ugly gold fixtures! Guess what the average $/SF was for these homes? $94.54/SF.


Yes, you read that correctly: I paid more $/SF for my home than the average comparable home that has sold in Georgetown Village for the past two years! In fact, I paid more $/SF for my home than two homes that were 5 years newer, had stainless steel appliances and were never lived in! Man, I need to quit letting my clients rip me off!

The Bottom Line: My integrity is worth far more than any investment home. Although I am self-employed, I do have a boss…he’s God. Ripping off a client is the last thing I want to do, because I am accountable for what I do and my actions reflect on the truthfulness of who I believe in. Here are a few important points to think about:

1. Did I really buy this home at a “great” price? It’s funny, but true: the home I bought was NEVER posted in the MLS and this is the FIRST time I have published it’s purchase price. So, how do people know how much (or how little) I paid for it? Neighborhood gossip is the last place to get accurate real estate information. Kudos to the lady who came straight to the source rather then rely on second-hand assumptions!

2. It seems like everybody is a real estate expert…except the real estate agents themselves! Read my most recent Georgetown Village case study to get the real scoop on what is selling for $100/SF or higher. $/SF is a good measurement for value, but if used out of context, and without supporting data, can be a dangerous and misleading catch-phrase. Get the facts! Only comparable homes that have recently sold determine the value of your house. If a real estate agent is determining the value of your home with something that hasn’t sold…run away….run away fast…..and hey, if you can multi-task , run away fast and call my number!

3. The seller is in control. It’s not just a good business practice, it’s also the law. Don’t you just hate pushy real estate agents that strong-arm you into making decisions you’re not comfortable making? Well, I do too. That’s why I always encourage my buyer AND sellers to make their own decisions when coming to a price. It’s my job to equip them with the data and inform them of pros and cons…it’s not my job to tell them what price to offer or list their home at. If you’re ever faced with a real estate agent that winks too much and has a gold tooth….or is using a high-pressured sales tactic on you, drop him like a ton of bricks.

In 2007, my homes stayed on the market for an average of 45 days (it was a tough year) versus the Georgetown average of 148 days. Don’t be fooled by real estate agents that “buy the listing” by offering to list your home for an inflated price. If a home takes 148 days to get an offer, trust me, it’s inflated…and around the 60 day mark, they’ll be coming to you for a price reduction that will mysteriously fall into my original recommended price range. So you decide: Sell it for market price now…or make some extra mortgage payments, deal with 20 extra showing appointments, and sell it for market price later.

So what do you think? Should I continue investing in my own neighborhood? Should homes be listed higher than market value so there is “room to negotiate?” Has a real estate agent ever bought your home? What was your experience? Please comment on my blog! Your comments are very much appreciated and keeps the conversation interesting!

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