Why Builders Don’t Like Working with Realtors (And what you can do about it)
Picture this… you receive a referral from a Realtor in another province who wants you to represent a client of theirs to purchase a home. The Realtor sending the referral wants 100% of the commission instead of the more common 25% referral fee.
Would you be happy about taking that referral? I am pretty sure that you would not be, so why are you not happy?
Your answers probably range from “I have to do all of the work”, and “all the referring Realtor did was send over a name”, to “I have expenses that I will incur throughout the process”.
Now let’s look at how many Realtors refer a client to builders. They sign up the client online, or in a show home, and then walk away and expect the sales rep to take over the process. But, the Realtor still wants to get paid 100% of their commission.
In addition, it is often the builder’s marketing and choice of location that attracts the buyers to their product. The buyers discover the builder through these methods in which the builder has already invested in. Yet even after the buyers have already found the home and visited the show home, Realtors expect to get paid by inserting themselves into the process after the home has already been found.
In these very common situations, it starts to become clearer why builders are reluctant to offer hefty compensation to Realtors. It could be argued that in the majority of situations, a commission totally about 25% of normal should become the standard compensation for Realtor’s introducing their clients (much like the inter-provincial referral mentioned previously).
If you are a Realtor, you might be getting a little upset at this point. You might be thinking about how much work you have already done with your buyers, only to have them turn to a builder. Or perhaps you are one of the Realtors who sticks with their clients and are prepared to help your buyers navigate the building process and provide knowledgeable representation. Don’t worry, we will get there in a moment.
Think for one more minute about a car sales person at a Mercedes dealership who took you through all of the features of various models over the course of several visits. They built multiple quotes for you based on custom specifications of different models and searched several locations to find the perfect car. But then, you walk into a BMW dealership and purchased a car that just suited your needs better. Should the Mercedes sales rep get paid? The answer is no, since you did not by a Mercedes. You did not buy the product they were selling.
Now, what if you were a car broker and you work with customers, dealerships and privates sellers to match customer’s with the perfect car for them. Let’s say you also help them ensure they are paying a fair price regardless of the makes and models? How would you ensure that you got paid? You would likely need an agreement in place that ensured the customer paid you directly, or allowed you to negotiate compensation directly with the dealer or seller.
See where I am going with this?
Realtors offer services to their clients across several different product types that all offer different compensation amounts. A few of these are:
- MLS – represented by a full-service brokerage
- MLS – represented by a limited-service brokerage
- MLS – mere posting (like a For Sale by Owner)
- For Sale by Owner, non-MLS
- Builder – MLS listing
- Builder – Non-MLS listing
Given that our clients will likely choose a property that falls into one of these categories, what can you do to ensure that you get paid a commission for your services? After all, builders are not the only time you will face a conversation about commissions with a reluctant seller.
Much like the car broker we described, you will need to offer a valuable set of services and then have an agreement that allows you to get paid. The mechanisms already exist in the real estate industry to cover all of these scenarios. You just need to put it into practice. Here is what is looks like:
- Educate yourself on how to better represent your buyer clients across the various product types. What services do you offer a buyer who is interested in a new build? Why should they use your services? At CIR REALTY we offer a course called “Working with Builders” (the video and notes are available on-demand) that answers these questions and provides Realtors with a great overview of the services they can provide buyers and dozens of ways to better represent their clients.
- Create a compelling presentation and marketing materials to communicate the value you provide to your clients. You could have different marketing materials specific to different product types. Also educate your client on how you will help them search for non-MLS listings and what to do before they look at new builds to make it easier to involve you in the process.
- Use an Exclusive Buyer Brokerage Agreement. This negotiates your fee upfront with your buyer and ensures that you get paid your full fee regardless of the product type or seller. 9 times out of 10, you will be able to negotiate your fee into the transaction to prevent your buyer client from paying cash out of pocket.
- And finally, deliver in a massive way on your services. Show up and provide big value. Make sure your clients know exactly what you are doing for them throughout the process. It doesn’t help if you quietly work behind the scenes and your clients believe that you only did a fraction of the work that you actually did. Making them aware of how hard you are working will ensure future business and will also position yourself for referrals as well.
It is up to us to communicate the value of our services to our clients to earn the right to request compensation. Realtors who simply introduce their clients to builders, then walk away, or who try to insert themselves in the process after the client have already approached the builder independently, have made builders reluctant to pay Realtors what they expect to get paid. Understanding this can help us formulate a real plan to address the issue without clients in advance.
It is our recommendation that if you follow the four steps above, and add real value to your clients throughout the building process, you will get paid your full fee by more clients, more often.