The recent National Association of Realtors (NAR) ruling has introduced significant changes to the real estate landscape, and home builders must be proactive in understanding how to adjust. In this edition of The Sales and Marketing Power Hour, hosts Kimberly Mackey from New Homes Solutions and Carol Morgan from Denim Marketing shared their expertise on navigating these changes, specifically focusing on how builders can handle compensation for buyer’s agents. One of the key updates in the new rules is the removal of cooperative compensation fields from the MLS. Builders now need a clear strategy for compensating buyer’s agents. The hosts discussed several payment options that builders can consider:
1. Buyer Compensates the Broker Directly
With this option, the buyer pays their agent directly under a Buyer Broker Agreement (BBA). The builder can offer concessions or not, leaving it up to the buyer to negotiate compensation with their agent. While this reduces the builder’s direct involvement in paying commissions, it is a risky move for builders wanting to attract outside agents, given that 72% of new home sales involve outside real estate representation. However, if the builder offers sufficient concessions to the buyer, both the agent and buyer can be satisfied, provided that transparency is maintained.
2. Buyer Negotiates a Credit from the Seller
In this scenario, the buyer and their agent negotiate a credit from the builder as part of the purchase and sale agreement to cover the broker’s compensation. Mackey and Morgan say this is the least favorable option for builders. The lack of transparency creates confusion and distrust, which can damage relationships with both the general brokerage community and potential buyers.
3. Listing Broker Enters into a Compensation Agreement with the Buyer’s Broker
Although not covered in detail during the discussion, another approach is for the listing broker to set up a compensation agreement with the buyer’s broker. This situation is less common since many builders directly enter agreements with buyers. Still, it’s worth considering to ensure clear terms on agent compensation.
4. Seller Enters into a Compensation Agreement with the Buyer’s Broker
This is the most common method and remains preferred by most builders. Acting as the seller, the builder directly compensates the buyer’s broker, ensuring clarity from the start. However, challenges can arise when the compensation offered by the builder doesn’t match the requirements in the original BBA. The buyer may be responsible for covering the difference if the builder offers less than the BBA mandates. This could limit the number of showings a builder receives if agents decide not to show homes where their buyers might have to pay out of pocket to cover the commission gap. Balancing Compensation to Attract Realtors The discussion also touched on the risks of overpaying or underpaying agents. Undercompensating may deter agents from showing builders’ homes while overcompensating can lead to buyer expectations that they should receive part of that commission. To mitigate these risks, the hosts emphasized the importance of a well-designed VIP Realtor® program. These programs can help foster strong relationships with agents, offering non-monetary rewards like handwritten notes, small gifts, or raffles, which build goodwill and encourage positive engagement beyond the transaction.
Conclusion
As builders adjust to the new NAR rules, it is crucial that they carefully consider how they compensate buyer’s agents. Clear communication, transparency, and relationship-building will be essential strategies for builders looking to thrive in this evolving landscape. Mackey and Morgan go into more detail and offer thoughtful strategies. Grab a cup of coffee and listen in more detail to decide what is right for you and your company. Our engaged audience certainly added great questions and food for thought. Homebuilders can ensure they remain attractive to real estate agents and buyers by implementing these insights and choosing the right compensation path.
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