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Will Homebuilders Ditch Agents?

by Peter Thomas Ricci

New construction has sprung back to life, and agents have been a big reason why; but as the market recovers, will homebuilders leave agents behind?

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First things first: the housing market is in recovery, and evidence of that recovery has finally worked its way to new construction.

New single-family home sales were up 28.9 year-over-year in January; though that’s the best January since 2008, new home sales at their peak exceeded an annual rate of 1 million, and with sales at just 437,000, there is, as David Crowe of the NAHB put it, serious room for development.

“It is safe to assume that new homes construction will continue to move forward, if not surge,” he said.

Yet, as the housing market soldiers on and new construction begins to return, a slightly unsettling question has been on the mind of many real estate agents – when the new construction markets fully recover, will homebuilders have any use for agents?

Homebuilders & Real Estate Agents – Collaborators

The housing downturn brought upon an unheard of level of collaboration between homebuilders and real estate agents, particularly in the form of  co-broker commissions that incentivized agents to refer their clients to new construction properties.

And studies by various trade groups support this trend:

  • According to NAR, 63 percent of al new home sales are sold to prospects sent by Realtors.
  • And according to Builder Homesite Inc., which includes the nation’s 32 largest homebuilders, 84 percent of home shoppers contact a Realtor during their home searching process.

Will Homebuilders Ditch Agents?

But again, could this be a temporary business model brought upon by the housing crash, rather than a new, mutually lucrative business model? Will we see homebuilders eliminate co-broker commissions and other agent-centric business plans when they feel they no longer need agents to sell their properties?

That was the question that David Fletcher, the founder of EMentoru and a real estate broker, put to LinkedIn’s New Home Professional Group, and the results of his ad hoc survey were, though unscientific, nonetheless encouraging.

As Fletcher wrote in a wonderful piece on Inman News, his question to the homebuilders – As new homes sales improve, do you think production builders will continue to pay co-broker commissions? – generated 62 responses, and 44 of the respondents, or, 71 percent, voted “Yes,” that co-broker commissions would continue in a growing housing market.

The consensus, Fletcher wrote, was that if builders eliminated anything, it’d be the lot premiums, long production periods or upgrade commissions they had offered the last couple years, but as John Huston, a Phoenix, Ariz.-based homebuilder, wrote in the comments section of Fletcher’s survey, it does not make sense for homebuilders to do away with co-broker commissions.

“I suppose one could make the argument that paying a commission reduces the profit,” Huston wrote. “But that presupposes that every co-broker sale would have sold anyway without a broker in the same period of time. That has not been my experience.”

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