Time to Play Nice

Today's AZ Republic has a lengthy article about the relationship between home-builders and real estate agents. You can read the whole thing at your leisure, but the gist of it is summarized in the beginning paragraphs:

Home builders are spending big bucks and dishing out heaping helpings of hospitality during what has become the summer of love in the Phoenix new-home market.

The objects of their affection? The real estate agents they spurned during last year's housing boom.

The wooing has agents sipping wine and tossing down hors d'oeuvres in Buckeye, networking to live music in Chandler, munching free sandwiches in Florence and cashing fat commission checks.

It was a different world in Phoenix housing last year at the peak of the boom. With buyers camping out at subdivisions, builders didn't need agents to bring them prospects. Builders, looking to maximize their profits, cut agents' commissions or started paying flat fees, if they paid any fees at all.

That angered a lot of agents, who felt that builders were abusing the long-standing relationship between the people who sell homes and those who build them.

But the tables have turned. Demand has evaporated, and builders are trying to get cozy with agents again, throwing parties and offering big fees - commissions of 4 to 5 percent - for selling houses fast. The typical commission is 3 percent.

In the normal ebb and flow of the real estate market - and everyone agrees that the market has been anything but normal for the past few years - agents and builders work together to sell homes, each making a profit on the sale. Last year in particular, the real estate scene was fairly scary in its meteoric rise, and we experienced the insane demand in Morrison Ranch along with other locations in the valley. This year, the market has corrected itself a bit, the investors that drove prices up are leaving, and the homes are being bought by folks who intend to live in them rather than turn them for a quick profit. This is good, for our economy, for the homebuilders, and for the home buyers. In the meantime, the agents and the homebuilders need to kiss and make up, which will help both of them in their goal of making income.

There are a couple of sentences in the article above that cause me some offense, and I feel compelled to point them out. The first is the sentence, "Builders, looking to maximize their profits, cut agents' commissions or started paying flat fees, if they paid any fees at all." Somehow this implies that builders would be wrong to try to maximize their profits. Of course they are going to maximize their profits! That's why they are in business. That's why some shoppers use coupons, to maximize their grocery dollars; why would anyone pay more than they need to for something? If people are camping outside the door to buy a home, why would the builders feel the need to pay the agents to bring more people? In fact, the agents now are maximizing their profits by steering customers to the homebuilders that pay the highest commissions. There are some ugly (and illegal) stories floating around the real estate circles about some agents going to customers who are under contract with one homebuilder and offering to give up some of the agent's higher commission to the buyer if they will switch to a different homebuilder in the same subdivision (who just happens to be paying the higher commission). The Mister has heard of some homebuilders offering up to 10 percent commissions; I don't fault any agent for attempting to collect that commission, if it serves her clients, and if it is legal. I suppose my thinking is, thankfully, forever influenced by The Mister's philosophy that there can be a win-win situation. In the real estate industry, there will always be ebbs and flows; it is the nature of the industry, and sometimes it is quite profitable, and sometimes not so much, and sometimes it can be ruinous if people position themselves poorly, but that's a different topic for a different day.

The other sentence is the one that indicates the memo all reporters must have received about the "tanking housing market," and it is this: "Demand has evaporated..." Really? Evaporated? As in nothing, nada, no more? Is it possible that there is still demand, but that it is reverting back to sustainable levels? Is it possible that the demand of investors has evaporated, but that there are still folks moving into the valley that need a place to live? This seems like an extreme statement, and frankly, misleading.

The point is that in the Phoenix area, the housing market is still quite vibrant. The builders want to maximize their profits by selling more houses, and the agents want to maximize theirs by doing the same. I think they are mostly all adults who will figure out how to work together. Win-win.