AgentReal Estate

“We remember who pays us, and we remember who doesn’t”

Agent commissions and incentives are on the rise as homebuilders try to convince buyers to pull the trigger

Builders-and-agents
When buyer demand was surging, homebuilders often refused to pay commissions to buy-side agents. But with cancelations on the rise amid a brutal market, builders are not only paying agent commissions again, some are offering bonuses.

In the summer of 2021, Alanna Strei took a client to check out Cornerstone Communities‘ “Tesoro Vista Del Sur,” 134 newly built townhouses in the Ocean View Hills area of San Diego. But when Strei and her buyer walked into the sales office the staff told them they would not be paying her a buyers’ agent commission.

“My experience last year was distinctly rude,” the eXp Realty agent said, reflecting on the interaction. “They were awful. I know they were probably overwhelmed with buyers then, but they were so rude.”

During the height of the pandemic fueled homebuying frenzy, Strei’s experience was not at all unusual.

“They didn’t want to pay us,” Mandy Nichols, a Dallas-Fort Worth-based Brixtone Realty agent, said of homebuilders. “Or sometimes they might pay us 1% and this was after we had driven these buyers around to see 20 homes before we got them to the builder, so it was really costing us money to sell their new build.”

I am getting emails with offers like, ‘If you go under contract this weekend, we will give you a $5,000 bonus.’

Anne-Marie Wurzel, Mainframe Real Estate

But 2021’s level of homebuying was never sustainable. As home prices have continued to appreciate and mortgage rates have surged to the highest levels in decades, demand for both existing homes and new construction has sunk. Faced with a new reality – in which a fourth of buyers are canceling contracts in some markets and mortgage buydowns and big price cuts are now on the table – homebuilders across the country are reconsidering their relationships with real estate agents.

“I am getting all these emails from builders now telling me about the commissions they are offering and for most it is back to 3%,” Nichols said.

In 2019, the average sales commission on a newly built single family house was $18,105 or 3.7% of the purchase price, according to a report from the National Association of Homebuilders — according to an NAHB spokesperson, this is the most up to date data the trade organization has. The highest sales commission share recorded by NAHB’s surveys was 4.3% in 2007, at the onset of the Great Recession.

As the supply of newly built homes has risen to 461,000 new homes, roughly an 8.1 month supply at the August sales pace, builders in some markets are upping the ante with real estate agents to get deals done.

“Commissions are coming back, but some builders are offering incentives now too,” Anne-Marie Wurzel, an Orlando-based Mainframe Real Estate agent, said. “I am getting emails with offers like, ‘if you go under contract this weekend, we will give you a $5,000 bonus.’”

Wurzel said she has even seen $10,000 bonus offers and 6% commissions, while Nichols said she has seen some builders offering up to $20,000 in bonuses and 5% commissions in the DFW area.

It is going to be hard for any individual builder to differentiate themselves from the rest of the market now, and that is where Realtors can help.

Scott Norman, executive director of the Texas Association of Builders

But just southwest of Wuzel’s Orlando market, in Sarasota, Florida, eXp Realty agent Sandy Williamson said such incentives for agents haven’t materialized.

“We don’t have a lot of inventory,” Williamson said. “So, we haven’t seen a lot of builders starting to court us again. They went from paying us a commission based on the total sales price and now they are paying us on the base price of the home and the lot and that is it. But we are starting to see some builders offering another half percent commission in some place.”

For their part, homebuilders argue that at the height of the market, in most instances it was unnecessary to engage a buyer’s agents, negating any need builders felt to compensate buyers’ agents.

“We had one we put under contract last year that didn’t even hit the market,” Susan Kadilak, the incoming treasurer and secretary of the Home Builders & Remodelers Association of Massachusetts and the owner of Kadilak Homes, said. “People were really aggressively looking, but now that demand has taken a hit.”

In Texas, Scott Norman, the executive director of the Texas Association of Builders, said that whether or not builders offer a buyers’ broker commission is usually contingent on homebuyer demand.

“Since January, because of the interest rate increase, housing affordability has become a major concern and some buyers are leaving the market and waiting to see if prices or rates come down,” Norman said. “It is going to be hard for any individual builder to differentiate themselves from the rest of the market now and that is where Realtors can help. Builders are going to compensate those Realtors and brokers that help them succeed.”

Agents like Strei understand this and appreciate the strain builders have been under with rising material and labor costs.

“I know they had to cut corners somewhere to keep homes somewhat affordable and it makes sense to cut it from a commission, but it is still frustrating,” Strei said.

Although Strei noted that helping her clients purchase a quality home is important, she also appreciates being respected for the role she played in the transaction.

“As the market shifts, I think it is especially important for builders to have strong relationships with agents and maintain good reputations both with the quality of their product and how they treat agents,” Kadilak said.

Wurzel added: “We remember who pays us and we remember who doesn’t and this cycle has been in place ever since I started in real estate back in 2005 and it has been the same every time.”

With Federal Reserve observers predicting at least three more interest rate hikes in the coming months, builders and agents know that things are only going to get tougher, and the bonds between them will have to become stronger.

“Builders are going to have to work harder, agents are going to have to work harder. And agents are going to be crucial to these builders as they try to adjust to this more normalized market,” Norman said.

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