The small volume builder must look beyond the broker's faults to the onsite agents' needs. Onsite agents need a competitive product with competitive incentives.
If builders, regardless of size, don't concentrate on competing for co-broker sales, the price, incentives, and mortgage rates don't matter. They will find their home used as a 'sell against' trained new home co-brokers who will show the builders homes to help sell the builder's home across the street or a resale just down the road.
There is nothing wrong with comparison shopping. We all do it.
So, let's assume the small volume builder decides that, at least for a while, he will raise the real estate co-broker commission to six percent to compete with the builder across the street.
He is now in a position to compete with Realtors to bring their qualified buyers to the builder's sales office.
The challenge is to make the new home model beautiful and add a base price that makes competitive sense compared to other models in the community or subdivision. Easy.
Suppose the going mortgage rate is 5.75, and the production builder across the street offers a 3.75 mortgage and $10,000 cash contribution to closing costs.
Should the local builder offer a competitive mortgage and cash contribution as well? Does he have a choice?
Once the local builder knows mortgage costs, it's easy to evaluate incentive margins such as cabinets, fixtures, etc.
Now the local builder can be assured of three things:
- Broker commissions will attract Realtors with qualified prospects.
- Realtors will consider the builder price, and package value is salable.
- Brokers will consider the mortgage package competitive
There is only one thing left to settle: Incentives.
Without incentives, the builder has no competitive closing tools. All builders know this.
The production builder across the is offing a $6,000 incentives package. The local builder does not have to match the incentives package but needs to be competitive and flexible case-by-case.
Will the above make any sense to the local builder? A review of projected absorption costs projection will help the decision process.
Assume the base price of the home is $500,000, and fifty percent of the sales are projected to be co-brokered at a six percent commission.
The co-broker is paid $30,000 for 50% of the homes sold. Walk-in traffic will cost the builder zero for co-broker sales. So walk-in traffic sales are essential.
If this projection is realized, the actual overall sales cost outside the onsite consultant will be 3% or $15,000 a deal.
The goal for the small volume or local builder:
- Compete toe-toe with the production builder across the street. Use their package as your baseline and modify your commission/mortgage/ incentive package accordingly.
- Offer your onsite sales team incentives for walk-in sales. By doing so, the builder is providing strong incentives for both
The good news is that the demand for housing exceeds the supply. Production builders establish prices, packages, and promotions on market research, as they should.
Local builders have faced options when it comes to 'the builder across the street." They can ignore the builder. They can treat the builder as a problem to discuss or accept as real competition and respond accordingly.
But one thing all builders have in common in today's market:
Realtors control motivated, qualified buyers, most of whom have homes or had homes to sell, which is how the Realtor met them in the first place.
All numbers used in this piece are fictitious and provided for examples only.