As we all know by now, the real estate landscape is shifting in light of recent changes to the National Association of Realtors (NAR) rules. These adjustments, prompted by the Sitzer-Burnett verdict, signal a move toward more turbulent times ahead as the general real estate business adapts and creates new best practices. Let’s explore how smart builders can adapt to these changes, leveraging them to benefit their business while rising above to create an atmosphere of fairness and transparency. Since, according to the National Association of Homebuilders, 72% of all new home transactions have outside representation, we know we need to work together.
Understanding the NAR Rule Changes
The NAR rule changes mark a significant departure from some traditional practices, particularly regarding commissions. Starting in July 2024, agents will no longer be allowed to list in any field in the MLS or any IDX fed listing site, using any verbiage (commission or referral fee) any offers of cooperating compensation. In addition, all agents working with buyers will now have to obtain what is commonly known as a buyer-broker agreement. Many real estate brokerages are already adapting and training their agents on the best practices of how to use them. *These are not new but were not used frequently. Now, they are a requirement.
As builders, it is more important than ever that we create transparency for our buyers and their outside representation. Without disclosing commission amounts in the MLS and other public IDX feeds can lead to mistrust, steering, and even Fair Housing Violations. Therefore, we will have to ensure our advertising and marketing efforts are clear. Buyers want to go where they can have representation and not feel that it added to the transaction and agents want to go where there is certainty on when and how they get paid for their hard work. In my opinion, this creates a huge opportunity for home builders.
Pros for Builders
Increased Interest in New Homes:
As uncertainties cloud the used home market, new constructions may become more appealing. Real estate agents who recognize stable and straightforward commission structures are likely to direct more clients toward new homes. More importantly, buyers who want representation may also become more open to the new home offerings as private sellers may be less certain in the changing landscape.
Most builders already have a direct-to-agent marketing program in place, some better than others, but all will need to reexamine those practices and enhance them in the coming months to reach both agents and buyers. Gone are the days of only advertising commissions to agents. You will also need to disclose and use those commissions to lure buyers. That will require savvy multichannel messaging and tools.
Builders can forge stronger alliances by establishing a VIP program that educates agents about construction processes and builder contracts. This ensures that agents are knowledgeable and confident when presenting new homes to potential buyers.
Another Pro for builders is the potential elimination of non-contributing outside agents. Requiring the buyers to sign an agreement upfront on the commission amount should eliminate those irritating and expensive “kick-back” agents who often attempt to parachute into a purchase when we know they weren’t the procuring cause. Although smart builders were already combatting this problem area by beefing up registration requirements for outside representation, the buyer-broker agreement will completely aid or curtail this problem. However, I still strongly recommend the use of Broker Registration Forms so the outside agent understands their role in the transaction and how and what you, as the seller, are paying. (If you want a sample template for this form, please feel free to reach out to me).
We hope the new agreements will improve professionalism and clarity with our outside agents. Those who embrace this change and set about building their value in more ways than transactionally should thrive and be terrific resources for builders. Others may struggle and decide this isn’t the business for them.
Cons for Builders
Complexity in Rewarding Top Agents:
Implementing tiered commission schedules or offering bonuses to top agents becomes more complex, requiring upfront clarity and mutual understanding. As builders, we have always set our cooperating commission amounts. We typically did this based on sales needs and the market norms. While sales needs won’t change, figuring out market norms will become more difficult under the new rules. Our onsite agents will need to establish stronger relationships with their outside Realtor® VIPs and dig deeper into their competitive shop analyses.
Loss of Leveraging Tools:
In my opinion, this has the potential to be the biggest loss that I see for us in the short term. Under the new rules, we could lose the ability to throw an extra bonus or spiff on a home/community that isn’t moving as fast as we would like as easily as we do today. Since buyer’s agents can only accept the compensation listed on their buyer-broker agreement, those spiffs may lose their meaning without understanding how to create the proper addenda. Thus, creating a VIP program that rewards and educates outside agents for the right behavior and support that isn’t tied to the commission or sale will require a carefully thought out VIP program and become even more of a priority.
In conclusion, the NAR rule changes present both challenges and opportunities. By embracing these changes, builders can enhance their practices, build stronger relationships with real estate professionals, and ensure a smoother, more transparent buying process. This is not only beneficial for builders and agents but ultimately serves the buyers’ best interests. While 72% of new home sales have outside representation, we estimate only 15-20% of all general real estate agents ever sell a new home. That’s a huge opportunity gap for us all! If you have questions or want to discuss creating a VIP program that embraces the coming changes, please feel free to set up a free 1-hour consultation with me. You can set that up at your convenience by clicking here.
Kimberly Mackey is the founder of New Homes Solutions Consulting, LLC. Kimberly brings over two decades of experience as a senior-level residential home building and real estate executive. She has earned the reputation of being the “expert with real-world SOLUTIONS” in a competitive and rapidly changing sales environment. She often says, “Sales should be the engine that drives your train rather than running it off the tracks.” Not just another sales trainer, Kimberly walks alone as the only sales and marketing management consultant who pulls your business’s systems and parts to support profitable, consistent, and predictable sales.
Kimberly is an accomplished and sought-after national speaker and published author of many Sales and Leadership articles. Her expertise is in creating Sales Management and Training Solutions for home builders nationwide. Her experience includes working with Builders and Developers of all sizes, from local/regional companies to publicly traded national companies.
She also works with REALTORS® and Brokers from across the country and is the architect and director of the highly successful Preferred Builder Partnership program with Berkshire Hathaway Florida Properties. This cutting-edge REALTOR®/Builder program generated $200 million in NEW home sales alone last year!
She is an active leader at the National Association of Home Builders (NAHB), serving as the Immediate Past Chair of the National Associates Committee. She is a past chair of the National Sales and Marketing Council. Mackey is a Delegate on the National Leadership Council and an Associate Director for the Florida Home Builders Association (FHBA), representing her local Tampa Bay Builders Association chapter. She is a past Chair and Life Director of the FHBA’s Sales and Marketing Council and TBBA’s Sales and Marketing Council. Kimberly is the 2020 recipient of the John P. Hall Award for lifetime achievement in sales and marketing and was the 2017 Associate of the Year for the Florida Home Builders Association and a two-time recipient of the SMC Member of the Year. She is a member of the National Association of REALTORS® and Professional Women in Building, and she is the host of the National award-winning “Head-to-Head” live program and the co-host of the National award-winning “Sales & Marketing Power Hour.”