Editor’s note: This is a post I have been sitting on for a few months now, but the HooK’s story last week about Ryan Homes’ market dominance spurred me to publish. It is written by a local Realtor who works for a local builder. I have made a few edits here and there to anonymize and generalize it as much as possible. If there are any factual inaccuracies, please let me know in the comments or offline.
From the HooK –
At a time when local stalwarts like R.D. Wade Builder and Church Hill Homes have fallen by the wayside, Ryan’s 24 percent market share of all new residential construction in Charlottesville and its surrounding counties is by far the largest of any builder in the area.
How does Ryan do it? Economies of scale.
“They’re like Wal-Mart,†says Keith Davis, a local realtor and real estate commentator. “Since they are a big national company, building homes all over the east coast, they’re able to buy their materials in bulk.â€
This lets Ryan, to use the the pitchman vernacular, pass the savings on to you. Davis says this approach, unprecedented in the Charlottesville area, has allowed Ryan to be wildly successful selling mid-range homes to first-time home buyers.
Without further ado –
I just finished reading your article about the outrageous contracts now being used by some builders and I am amazed any buyer would sign them. I thought it was great you were pointing out these areas buyers should be aware of and advised not to do.
As you know I represent and work for a local builder and never think of requiring such language in our purchase agreements.
I am hoping you may choose to give a positive spin on the value to buyer agents and their clients to working with a local builder who contributes to a community.
We give firm absolute delivery dates on all contracts.
We invite, encourage and ask buyer agents to participate in our final walk through just prior to closing.
We invite and encourage buyer agents to be present at all meetings and are always kept informed to every step involved from initial meeting to closing.
We recognize buyer agents as the “most valued clients†we have. We work hard to make sure buyer agents and their clients want to do business with us again.
We give a construction key to our purchasers at time of contract so they can access the home we are building them on a daily basis.
We allow purchasers to have multiple home inspections at the different stages of construction it they desire.
We obtain our construction financing locally, we buy all of our materials locally, we hire only local subcontractors, our buyers are encouraged to obtain the mortgage financing locally, we love working with the CAAR Realtors and value their business. We pay Realtor buyer agents commissions on the homes’ final sales price after all upgrades, selections and options are chosen and not pay on a “bogus†base price that is much lower than the final sales price, we love contributing to the Charlottesville area and market by offering a great value and quality product and we offer outstanding warranty, customer service and prompt follow-up.
Some do not bank locally, they do not buy building materials locally, they do not us local subcontractors, they require buyers to obtain financing from their out of town lender, they do not like to work with Realtors and make every effort they possibly can to sell to the public directly, they pay Realtors on a “bogus†base price that is always much lower than the final sales price, they have very strict walk through policies as you described in your blog and do not encourage or allow buyer agent participation in the final walk through and offer very very minimum warranty and customer service follow up after sales. They actually are a drain on a community like Charlottesville unlike a local builder who contribute to the community.
Jim, I truly enjoy reading what you write on Real Central Virginia. I hope someday you may give consideration to writing on the VALUE of working with quality reputable local builders who contribute to a community as opposed to being a drain on a community.
Done. In my opinion, if you do not have a buyers’ agent representing your best interests when building/buying a new home, you may be asking for trouble.
(Bear with me, I’m testing something …) To search for homes built since 2008 in Charlottesville and Albemarle:
Jim,
Great article!
In a situation like this, what additional help would a Realtor provide over an attorney?
It seems to me that an attorney worth his $500 should be able to work out the legalese better and cheaper than a buyer agent for a 3% commission.
Let me know if I am missing something…
Scott –
Thanks for the comment.
First, I’m surprised at the assumption about the 3% commission.
There’s a whole lot more that goes into negotiating for a buyer in new construction. First and foremost, price … then guidance about what options to choose, answering questions – which seems simple, but is really quite a bit more involved – recommending things (sorry to be so unspecific, but there are so many “things” involved, from minutiae to penalty clauses) … the simple statement that a buyer should always get a home inspection is valuable …
And finally, in this market, attorneys that I know generally don’t make it a practice to know who’s a good builder and who’s not, where builders are building, where they’re likely to build …
As with anything, picking the right professional – who practices his or her respective profession every day – is key.
Hi Jim,
You know I am going to badger your for detailed examples, since there are so many right? 😉
It seems to me that if there is a question regarding a builder and the construction, hire an architect for a review or you can have a home inspector look at it. If there is a question regarding the contract, get an attorney. I am still not sure what your average realtor is going to do other than suggest that. Especially since Realtors are very risk adverse in regards to getting sued when they swim out of their realm of expertise.
I doubt many realtors are an architect, builder, attorney, and realtor all in one. And if they were really focused on any of those other trades they would most likely be doing that as opposed to selling real estate.
Regarding the 3% commission are you saying that you would provide this service as a buyer’s agent and then wouldn’t require a commission to be paid from the builder for bringing the buyer?
According to our MLS data and my quick data analysis, Ryan Homes is responsible for 11.4% of ALL RESIDENTIAL sales in 2009. Granted, the SOLD data in our MLS for Ryan Homes is not always up to date, so 11.4% of the entire market is most likely low. I’m trying to figure out where the “24% share of new construction” number came from – actually sounds low. From quickly glancing at the latest numbers in MLS it’s more like 50%. Where are they getting the 24% number from? Do you know, Jim?
Sure Pavel, I can tell you exactly where the data came from. Here is a link to the blog post that started this discussion with Lindsay. If readers have additional questions about this data, please let me know, and if it is available, I’m happy to provide.
Keith
Keith, have you tried getting the actual sold data from Ryan Homes? Using MLS to quote Ryan Homes “market share” can be dangerously inaccurate and the time period ambiguous – especially when the Hook article is published in 2nd quarter of ’09 and the 24% refers to the last 6 months of ’08. It’s like saying: “Pavel Dovgalyuk is the agent with the largest number of sales in Foxcroft” without further explaining that it happened in 2007 and the “largest number of sales” was only 2 🙂 I’m mostly kidding!!! But seriously, I think the Charlottesville community would appreciate knowing the actual SOLD numbers from Ryan Homes and how they relate to the rest of the market.
Pavel,
I agree that Ryan numbers are not historically valid. But I do believe that they have become much more accurate in reporting than in the past. My post was very clear as to where the numbers came from. The first quarter was not over when I wrote the post, so using those numbers would have been rather odd, not to mention incomplete. More importantly, during Q1, there have been only 79 reported closings. During Q3, there were 157 and during Q4, there were only 78. If I were to use the numbers you suggest, while slightly more current, they represent only 33% of the volume of the period I looked at. Again, if you look at my original post, I was not looking to discuss Ryan, I was writing about the ability of a National builder to compete in “local-loyal” Charlottesville. And the answer is, They Can, and They Are.
Every data point can be updated as often as you would like. While the trend to Ryan may be even more dramatic than I initially posted, my numbers are accurate and have brought an interesting trend to light.
On the flip side, I received a very good e-mail from a builder who builds custom homes and does not report any of his sales through the MLS, reminding me that as for volume as a percentage of closed value, not just closed units, that Ryan actually does not have the percentage dominance that my numbers show. They are lower. So, as with most statistics, they can be used in different ways depending upon what you hope to see.
Sorry,
Not “Ryan numbers are not historically valid.” Should read, “Ryan numbers historically have not been valid.”
Misplaced modifiers will get you every time…
Scott –
I think this analogy works in response to this:
Here’s the thing – if I’m going to make dinner, I could very well go to the Main Street Market for the fish, the City Market for veggies, Veritas for wine, Albemarle Baking company for the bread and so on and so on. Realistically, I’m going to go to either Harris Teeter or Kroger to get everything in one place – it’s not a direct analogy, but it’s an example to show that in new construction, Realtors are as much chefs as they are trusted representatives.
Part of being a great Realtor is knowing whom to call. And when. It’s why I prefer my clients to use attorneys at closing instead of title companies – for the just-in-case scenarios.
Regarding my commission – I’m saying that what I negotiate with my buyer clients is between me and my clients.
Lastly, as a friend said today – don’t use an average Realtor. Use an exceptional one.
Hi Jim,
You said:
“Here’s the thing – if I’m going to make dinner, I could very well go to the Main Street Market for the fish, the City Market for veggies, Veritas for wine, Albemarle Baking company for the bread and so on and so on. Realistically, I’m going to go to either Harris Teeter or Kroger to get everything in one place – it’s not a direct analogy, but it’s an example to show that in new construction, Realtors are as much chefs as they are trusted representatives.”
Not to put too fine a point on it, but would it have been so hard to give me a real example (of the many you said there were) that had something to do with the value of a Realtor as opposed to an analogy that doesn’t make your case.
Because another way to look at your analogy is, if you can’t afford the best or don’t care to take the time to get the best you should use a Realtor. Basically think McDonalds even though you want fine dining.
An example –
Selections – helping buyers decide what options to choose so that they 1) don’t choose something that only they would like and 2) don’t price themselves out of the neighborhood.
Simply saying to get a home inspection.
Advising on closing dates, penalty clauses.
Knowing who the good builders are (and who aren’t).
Being the sounding board, the person whom the buyers trust to ask their questions who they know will either know or find the answers – a lot of buyers have neither the time nor the energy to research every facet of their decisions before walking in. And sometimes it’s a matter of my saying “don’t do this.”
Jim,
And what do you charge the client for this service?
Scott,
Perhaps Jim will want to answer this question, perhaps not. I’ll leave that to him. But it seems to me that his clients are happy to pay his fee and show that by referring other people to him. So whether that fee is more than you might see value in doesn’t really seem relevant.
But my question to you is, what fee do you charge your employer that you sit around all day and question everyone else’s job? What value are you providing your employer / client by attempting to hijack every blog in Charlottesville? Jim, after all, is using this blog for work. You seem to be using it to waste time at your office.
So what do other people think? Is ScottWorthMoreOrLess than he thinks?
– Just a Thought
Scott is most likely the type who will end up paying far to much for his home simply because he feels he knows more than a professional Realtor and would like to buy on his own and discredit Realtors so much that he is not smart enough to realize the value of a professional Realtor and the services they provide.
I see them all the time and many of them fall into the trap and most pay way to much because they think they know it all. Then they brag about the “deal” they got because they bought without a Realtor. It is almost comical.
Scott
The seller pays the buyer agent fees not the purchaser. You cannot negotiate out the Buyer Agents fee from the seller as this is a contractual agreement between the seller and the listing broker.
anon#1 – thanks for the comment.
anon#2 – no comment, but I know who you are.
Scott, in fairness, I’ll give you a rebuttal and then politely and respectfully ask that we all move on lest this gets more out of hand … per my policy.
Wes – and that is why we need to divorce commissions, where the buyer pays the buyer broker and the seller pays the sellers’ agent – this commingling of funds mixes loyalties – and the perception of said loyalties.
I was at a meeting this morning where buyer’s agent Realtors get greater commissions if they sell more of this particular builder’s houses … I asked if I could take (assuming I sell one or more) my “bonus” and credit it back to my buyer client … having my fees set by another to whom I do not owe any loyalty is, in my opinion, wrong.
And yes, yes you can negotiate that fee out – I’ve done it.
Scott – I am glad to discuss my fees with any potential clients any time, but as each client is different, there is no “one size fits all” response or fee.
Anonymous said:
“But my question to you is, what fee do you charge your employer that you sit around all day and question everyone else’s job? What value are you providing your employer / client by attempting to hijack every blog in Charlottesville? Jim, after all, is using this blog for work. You seem to be using it to waste time at your office.”
How brave of you to post this anonymously I suppose you are afraid that your employer would know who you are, or are you just too ashamed of your own comments? As for me, I work for myself, so I authorized myself to be able to do this… let me check again… yep I am still authorized to do this! 😉
Hijack is a strong word, if you mean participate and ask direct questions that tend to stir the status quo of the Cville Realtor doldrums that causes them to want to post snide comments anonymously, sure that happens… doesn’t it?
Try to refocus and realize that my discussion is about real estate here in Charlottesville. By me asking Jim what he charges I look at it as an opportunity for him to earn my business, and so should you.
I pay an attorney $150 for contract review and I pay a home inspection fee of $500 (it varies on the size and complexity of the property). If I felt that Jim provided a service that cost me less than that and the quality was better I would be all for retaining his services.
As I have stated on various Blogs I think Jim is one of the good guys. He uses data to look at the market, he tries to understand his clients needs, and he puts content out there… and not anonymously!
Sure I push him hard for justification, but so what? That’s the point of having a blog.
Wes – The listing agent can always negotiate out the buyer’s agent fee and refund it to the broker if they want to. In fact Jim and a couple of other realtors said that is exactly what they would do if dealing with an unrepresented buyer like myself.
Jim – As usual you know I am just asking questions that Buyers want to know, but are sometimes hesitant to ask. Obviously the fear of being cowardly attacked anonymously on the Internet is bound to deter a few.
I think you provide a good service to buyers. Many buyers are not as tuned in to the market as I am so I don’t need all the trimmings that you provide. That doesn’t make what you provide bad, in fact many buyers out there need your services.
I have told many people that if they need to use a realtor they should look at contacting you. God knows there are enough bad realtors in this market.
If you don’t feel that I add value to the board just ask me to leave.