By Dan Provost
Curt Bailey, president of Chicago developer Related Midwest, relies on a simple formula when it’s time to find real estate agents to market his company’s developments: he wants agents who are good at their jobs.
This isn’t as simple as it sounds, of course. Bailey looks for agents who have a proven track record of selling new construction in Chicago and its suburbs. He wants agents who operate in an honest and ethical manner. And he wants those who can effectively tell the story behind whatever development they are selling, agents who can quickly tell potential buyers why a particular newly built residence is special.
And, just as importantly, Bailey wants to work with agents who believe what they say about his buildings. He wants agents, in other words, who “buy in.”
“I want to work with agents who believe in our projects and who believe that they can sell them at the price points and velocity that we are targeting,” Bailey said. “You want an agent that says, ‘Yes. I can do that.’ It’s important to find partners who believe in your company and your developments.”
Agents who want to develop long-lasting relationships with developers in the city and suburbs should listen to Bailey’s words; they are a blueprint for real estate agents who want to earn as much new construction business as possible.
Listing a new development can prove lucrative to agents. Earning listings from city and suburban developers, though, isn’t easy. But once agents have proven themselves, they’ll find that the area’s developers will come back to them with additional projects.
“You want to do business with people you like doing business with,” Bailey said. “You want to leave each of these transactions feeling as if you’ve gotten the best service possible. You want to leave each transaction feeling that you were treated fairly. If that happens, you’re more likely to work with those agents again.”
The New Construction Market
No one would argue that the new-construction market in the city and suburbs isn’t struggling today. Developers simply aren’t bringing new residential projects to the market, which makes financial sense. Housing prices in the city and suburbs remain far below where they stood in 2005 and early 2006, the height of the housing boom. Unemployment refuses to slip under 9 percent across the nation, and businesses still seem just as likely to lay off employees as they are to hire new ones. Today, agents are working hard just to sell those new construction condominiums and single-family homes that were built during the boom times.
This means it’s especially important for real estate agents to form good relationships with developers. When the pool of new construction projects is so shallow, only the top agents can expect to nab regular business from developers.
For Sarah Leonard, a real estate agent with RE/MAX Cornerstone in West Chicago, the secret to grabbing new construction business is knowledge.
Her job, she says, is to be able to quickly educate potential buyers on what makes new construction homes special. She needs to know if a developer is providing what would normally be upgrades at standard pricing. She also needs to know when a new construction condo is priced aggressively for its market, and must be able to sell this point to her buyers.
In other words, she needs to tell her buyers why purchasing new construction makes sense today, and why buying a particular builder’s project makes especially good sense.
“There are great opportunities in the new construction side of the housing market today,” Leonard said. “Buyers can find great deals today. Builders can come down in price. They’re often backed by corporations. That gives them more negotiating power than you normally get with owners trying to sell existing homes. It’s my job to tell buyers about this, to get them interested in seeing new construction when maybe they hadn’t considered it before working with me.”
Rich Kasper, a real estate agent with the Roscoe Village office of Conlon: A Real Estate Company, agrees that agents with the deepest knowledge of the new construction market will earn the most business, and repeat business, from developers.
This means that agents need to be able to answer any questions that potential buyers throw at them. They need to know what’s between the floors of a new construction home, what kind of cabinets the kitchen boasts and what kind of wood the builders selected for the living room trim. Buyers also want to know the history of the builders behind new developments. Agents need to tell the story of these builders – highlighting these developers’ past successes and history in the market – to help sell the new-construction projects that they are offering, Kasper said.
“You get a lot of questions that you’re not normally asked on a resale,” Kasper said. “And the buyers do want to know a lot about the builders. First, you are showing and selling the property. Then you are selling the guy who built it.”
Kasper also makes sure to only work with builders and developers whom he knows do good work. That way, it’s easy to sell the builders to potential buyers: they deserve the good reviews.
Kasper refuses, though, to work with who he calls the “drive-by” builders. “There are guys who have never swung a hammer before and think they’re suddenly builders. Because of this economy, most of them are already gone. But I’d never work with someone like that,” Kasper said. “I have long-lasting relationships with guys I can trust. I work with builders who I know will serve the buyers very well. The punch list will be taken care of. I’ll be able to go back and get a referral from the buyer because of how happy and satisfied they were with the builders I work with.”
Agents can also increase their odds of earning business from developers by making sure they never put builders in uncomfortable situations.
Kasper points to those agents who promise their buyers too much. Buyers may want a specific type of cabinet built into kitchens or a particular type of lighting in the dining room. Without first checking with builders, agents will promise their buyers that these changes will be made.
Unfortunately, the new cabinets and lighting might be expensive. Adding these upgrades without first charging buyers extra for them can seriously cut into the profits that developers make. This puts developers in a bad situation.
“The builder will look at the agent and say, ‘This is costing me 1,200 bucks. Who is going to pay for that?’,” Kasper said. “That mistake isn’t usually made by a seasoned agent. It usually comes from someone who has no grasp on what things cost. It’s a mistake that can cost agents a relationship with a builder.”
It’s important, too, for agents to give builders added value – especially in a market as tough as this one.
Leonard, for instance, once worked with a builder in Elgin. She brought lunch to the teachers at a charter school in the area. The hope was that these teachers, even if they weren’t interested in learning more about the developer’s new-construction homes, might talk about the free lunch, and the new homes in the area, to their friends and family members. This positive word-of-mouth advertising might bring in potential buyers, Leonard said.
Developers today are looking for agents who can market in unique ways, Leonard said. For Leonard, this means heavy online marketing and networking.
“A lot of Realtors today aren’t networking,” Leonard said. “A lot are cutting back on their marketing. Both networking and marketing cost money. But you have to spend money to sell these homes. Builders want to know that you are working with them. They appreciate that. If you show that you are willing to do the extra work for their projects, they’ll want to work with you.”
Kasper, too, believes in giving developers more value. He, for instance, still looks for land for builders on a consistent basis. If he finds a well-priced plot of land, he’ll inform his developers.
And if that land turns into a future housing project? The developers will remember that Kasper was the real estate agent who first brought the empty lot to their attention.
Of course, there are some risks in this approach. Agents have to understand the market values for land in their areas. If they don’t, they risk exposing their ignorance when they bring these empty lots to the attention of area developers.
“You need to have an understanding of what it may cost to build a single-family home on a piece of land versus a three-unit building. You need to have an idea of zoning issues. You need to know if there is a strong enough market for a builder to even be interested in it,” Kasper said. “You have to wear a builder’s hat when you consider land. Anyone can bring a builder a piece of land. But it has to make sense. You can only cry wolf so many times before builders won’t take your calls anymore. If you recommend a piece of land that’s priced at $750,000 when it should be at $550,000, builders aren’t going to take your calls too often.”
What the Builders Want
The selling process works differently at Ryland Homes, a national home builder that has a division office in the Chicago suburb of East Dundee. Ryland relies on in-house sales counselors – all with six to 14 years with the company – to market their properties.
However, the company does work with what it calls Realtor liaisons. This agent promotes Ryland’s developments to other Realtors. The liaison also makes sure that Ryland lists its properties properly in the MLS and informs other agents about any special offers that the company is currently running.
John Carroll, division president with Ryland, said that all Realtor liaisons first go through an interview process. During this interview, Ryland officials look for certain traits, Carroll said.
“We look for agents who have strong presences in that particular submarket. We want them to have an established record of strong sales in that market,” Carroll said. “We want our Realtor liaisons to also have a strong understanding of the market and what existing homes are selling for. We want to be convinced that they’ll be able to help us identify where we need to position ourselves relative to competing resale properties.”
Market knowledge is the key to making a good impression on Ryland officials. Carroll said that he wants his Realtor liaisons to be able to identify trends in particular markets. Maybe single-story homes are selling faster than are multi-level properties. Maybe buyers in a certain market are particularly interested in living near bike paths. Ryland officials want to know this information about the markets in which their developments sit.
“A healthy, strong relationship with our Realtor liaisons helps us to see the other side of the picture in our markets,” Carroll said.
Todd Condon, sales manager with Ryland, said that the company also prefers to hire buyer agents exclusively to serve as Realtor liaisons.
There’s a reason for this, Condon said.
“We want to work with agents who are self-prospecting and bring us the best opportunity of reaching out to buyers,” he said. “We don’t want agents who just want to list properties for sale.”
When Related Midwest was searching for a real estate company to help market its One Evanston condominium project in Evanston, it chose Jameson|Sotheby’s International Realty.
There was an important reason for this, Bailey said. Jameson officials agreed with Related Midwest on the price point of One Evanston. Other agents and other firms, he said, didn’t. It all came down to that important “buy-in” factor.
“We met with a number of agents who told us that we’d have to fire-sale these units,” Bailey said. “Well, that turned out not to be the case. We are selling at levels well above what the majority of the sales agents we interviewed predicted. We are selling these condos at prices that are 15 percent above what many agents believed we could get.”
Negotiating New Construction
Negotiating the new homes market today is no easy task. Builders and agents working in it face plenty of challenges.
One of the biggest? The abundance of foreclosed homes on the market.
Leonard says that the high number of foreclosed properties has lowered the asking prices on new construction, just as it has with existing homes. Foreclosed properties also compete with new construction today, with bargain-conscious buyers turning to bank-owned homes because of the low prices often attached to them.
But agents who work with new construction know that newly built condos and single-family homes come with plenty of benefits, benefits that buyers simply can’t get with foreclosed properties, Leonard said.
“Foreclosures are no sure thing,” Leonard said. “Buyers don’t get any disclosures when they are purchasing foreclosures. New construction comes with a warranty. Builders today, too, have been able to adjust their prices to be more competitive with foreclosures. I always tell my buyers to think of what they’re getting with the 10 percent or so higher price tag that comes with new construction. They can get a home that’s move-in ready. That doesn’t happen with foreclosures.”
Carroll from Ryland Homes doesn’t pretend that foreclosures aren’t an important part of the residential real estate market today. But he does make the argument that buyers often fail to understand just how challenging it can be to purchase a foreclosed property or to close on a short sale.
Short sales, for instance, can take an extremely long time to close. And there’s no guarantee that a bank will accept the buyer’s offer.
Busy families might find that a short sale, with the months of negotiating and back-and-forth with banks, doesn’t fit well within their time schedule. Meanwhile, many newly built homes are ready for instant occupancy.
“People are starting to recognize that it’s a lot easier to talk about buying a short sale or foreclosure than to actually do it,” Carroll said. “A lot of Realtors that we work with are recognizing this, too. A lot of the bloom is off the rose.”
Bailey said that he is seeing positive signs in the Chicago-area new-housing market today.
First, the number of unsold residential units in the core downtown Chicago market has shrunk to about 1,400. That’s down from a high of about 8,000 unsold units.
At the same time, no new residential building is on the horizon for the core Chicago downtown area. And rental prices are rising, nearing the level at which renting in a quality building will cost you as much as purchasing a condominium.
“People who are interested in new construction today are interested in the amenities,” Bailey said. “The amenities you find in kitchens and bathrooms are so important, and they are prevalent in new construction. The latest and the best are available in new construction. We continue to see people who want to move into a new building. Many are empty-nesters and cash buyers. They see a great opportunity to purchase across the board in Chicago.” C.A.
Conlon: A Real Estate Company