Latest / Dishin' Dirt with Gary Pickren / 5 Builder Traps That Expose Buyer Agents to Lawsuits and License Loss

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5 Builder Traps That Expose Buyer Agents to Lawsuits and License Loss · Dishin' Dirt with Gary Pickren

0:00
SPEAKER_00: Today we're going to talk about a topic that frankly has me more concerned than almost anything else happening in the new construction world right now.
0:07
SPEAKER_00: Builders are going to get real estate agents sued by their buyer clients.
0:11
SPEAKER_00: Now, before I start, let me make something very clear.
0:14
SPEAKER_00: This is not an attack on builders.
0:16
SPEAKER_00: Not all builders are doing this crap.
0:17
SPEAKER_00: In fact, I've represented almost every major builder at some point in my 30-year career here in South Carolina.
0:22
SPEAKER_00: I've done thousands of builder closings.
0:25
SPEAKER_00: In fact, I was on the board of directors for the Home Builders Association here in central South Carolina, did two terms, won several awards for it, and advocated for them in Washington, D.C.
0:34
SPEAKER_00: multiple times.
0:35
SPEAKER_00: Most builders are good people who run very good businesses.
0:39
SPEAKER_00: In fact, I'm very good friends with multiple builders.
0:41
SPEAKER_00: But there are some practices that have been developed by some builders in our marketplace that are creating enormous risk for the buyer agents.
0:49
SPEAKER_00: And here's the problem: the builders don't have the real estate license.
0:53
SPEAKER_00: The builder doesn't have the fiduciary duty and obligations to the buyer.
0:56
SPEAKER_00: The builder's not subject to the realtor code of ethics.
0:59
SPEAKER_00: The builder's not the one who's going to be dragged before the real estate commission.
1:02
SPEAKER_00: The builder isn't the one who's going to be sitting in a deposition five years from now trying to explain why they recommended this particular house or their buyer over this particular house.
1:09
SPEAKER_00: That person I'm afraid of is going to be the real estate agent.
1:12
SPEAKER_00: The agent's the one whose license will be on the line.
1:14
SPEAKER_00: The agent's the one whose duty is owed to the client, the agent's the one who's going to get sued.
1:20
SPEAKER_00: And I'm seeing more and more builder programs today that essentially shifts the risk from the builder directly onto the real estate agent.
1:27
SPEAKER_00: And today I want to talk about five specific practices that are creating tremendous concern: builder bonuses, builder volume incentives, builders interfering with buyer agency agreements to the point where they're changing your real estate commissions, builders manipulating sales prices through large cash credits, and builders trying to cut buyer agents out of the transaction altogether.
1:49
SPEAKER_00: If you're a buyer agent, this episode may actually save your license.
1:53
SPEAKER_00: If you're a broker in charge, this is definitely something you're going to want to discuss at your next office meeting.
1:58
SPEAKER_00: And if you're a broker in charge representing one of these builders, you need to have a long look in the mirror and decide do you want to continue doing these practices?
2:05
SPEAKER_00: Now I'm going to discuss this and a whole lot more on this episode of Dish and Dirt.
2:10
SPEAKER_01: This is Dish and Dirt with Gary Pickering, South Carolina's only podcast dedicated to the real estate agent craft.
2:18
SPEAKER_01: And now the host of Dish and Dirt, Gary Picker.
2:21
SPEAKER_00: Hey Greens, and welcome back, everyone, to another episode of Dish and Dirt.
2:23
SPEAKER_00: I'm your often opinionated, but rarely wrong host, Gary Picker, coming to you from the beautiful downtown Columbia, South Carolina offices of Blair Cato Pickering Castellon, this, the second week of June 2026.
2:33
SPEAKER_00: Let's jump right into this.
2:34
SPEAKER_00: Start with the builder bonuses, because this is where this whole problem begins, in my opinion.
2:39
SPEAKER_00: For years, builders have offered incentive programs to agents.
2:43
SPEAKER_00: Bring a buyer, you get a bonus.
2:44
SPEAKER_00: Sell a certain number of homes, you get a bigger bonus.
2:46
SPEAKER_00: In fact, you may even get a cruise.
2:48
SPEAKER_00: Close this inventory house, you get an extra$5,000.
2:51
SPEAKER_00: And whenever I raise concerns about this, someone's always going to say, well, they've been doing this for years, and builder bonuses are completely legal.
2:59
SPEAKER_00: Well, maybe, maybe not.
3:00
SPEAKER_00: But you have to understand that it was perfectly legal before Sitzer Burnett, during Citzaburnett lawsuit, and even after Citzaburnett to list compensation on the MLS for the buyer's agent.
3:12
SPEAKER_00: Still perfectly legal.
3:13
SPEAKER_00: Yet you lost a$1.00 verdict.
3:16
SPEAKER_00: Don't come to me trying to tell me that these things are completely legal, which I don't think they are, but there's a lot plenty of plaintiff's lawyers out there ready to file lawsuits that have great ideas on why these things are illegal.
3:26
SPEAKER_00: But that's probably not even the right question to ask.
3:28
SPEAKER_00: The right question isn't whether they're legal or not.
3:30
SPEAKER_00: The right question to ask is whether they're creating a conflict with your duty to your client.
3:36
SPEAKER_00: And I think that answer is a resounding yes.
3:38
SPEAKER_00: Because once you represent a buyer, everything changes.
3:41
SPEAKER_00: The agency agreement changes everything.
3:44
SPEAKER_00: You no longer are just a salesperson, you now are a fiduciary.
3:48
SPEAKER_00: You have obligations.
3:50
SPEAKER_00: Those obligations include loyalty, disclosure, reasonable care, obedience to lawful instructions, confidentiality.
3:56
SPEAKER_00: That's a massive duty you have.
3:58
SPEAKER_00: And you owe reasonable accounting.
3:59
SPEAKER_00: And perhaps most importantly, you have to put your client's interests ahead of your own.
4:04
SPEAKER_00: I know that's a hard concept for some real estate agents to accept, but you have to put your client's best interest above your financial needs and best interest.
4:12
SPEAKER_00: Now let's think about what a builder bonus really is about.
4:14
SPEAKER_00: The seller says if you bring your buyer here, we'll pay you extra.
4:19
SPEAKER_00: You bring your buyer here, we'll pay you extra.
4:21
SPEAKER_00: Who benefits from that arrangement?
4:23
SPEAKER_00: Is it the buyer?
4:24
SPEAKER_00: Absolutely not.
4:25
SPEAKER_00: Is it the agent?
4:26
SPEAKER_00: Absolutely.
4:26
SPEAKER_00: They get paid more money by bringing the buyer to this seller.
4:30
SPEAKER_00: Because I can tell you who's writing the check.
4:32
SPEAKER_00: Check's being written by the seller.
4:34
SPEAKER_00: Who's the seller in this transaction?
4:36
SPEAKER_00: The adversarial party.
4:38
SPEAKER_00: The parties whose interests are directly opposite the buyer's interest is now paying you a bonus check for doing nothing more than bringing the buyer to see their house.
4:48
SPEAKER_00: The fact is, the seller wants the highest price while the buyer wants the lowest price.
4:51
SPEAKER_00: The seller wants most favorable terms while the buyer wants the most favorable term.
4:54
SPEAKER_00: The seller wants to move this inventory, but the buyer wants the best house for them.
4:58
SPEAKER_00: And in the middle of all that, the seller is now offering money directly to the buyer's representative to do nothing more than to steer that client to that house.
5:08
SPEAKER_00: And that should make everybody uncomfortable.
5:10
SPEAKER_00: Anybody that is honest with themselves and has a brain that can think and function properly should understand what this is all about.
5:17
SPEAKER_00: Now let me be clear.
5:21
SPEAKER_00: A lot of questions about whether you can participate in them properly, but what I am saying is that every builder bonus program creates tremendous legal and ethical questions for a real estate agent.
5:32
SPEAKER_00: Questions you better be ready to answer about under oath.
5:36
SPEAKER_00: Because the questions are very simple.
5:38
SPEAKER_00: Did the bonus influence your recommendation?
5:40
SPEAKER_00: Be honest about that.
5:41
SPEAKER_00: Did you really show that house because of that bonus?
5:44
SPEAKER_00: Did the bonus affect which houses you showed?
5:46
SPEAKER_00: Did it affect which communities you toured?
5:48
SPEAKER_00: Did it affect which builders you recommended or what positive comments you said about a builder?
5:53
SPEAKER_00: Did it affect your advice at all?
5:55
SPEAKER_00: Because if the answer is yes, even slightly yes, or if it merely appears that the answer is yes or slightly yes, you have a tremendous problem on your hand.
6:04
SPEAKER_00: Again, we don't deal in realities anymore, we deal in perceptions.
6:07
SPEAKER_00: And it's gonna be very hard for a jury not to perceive that you steered that person over that big bonus.
6:13
SPEAKER_00: Of course, the fact is these builders continually send out emails saying, bring us a deal before this date, and you'll get a$10,000 bonus.
6:20
SPEAKER_00: That doesn't help you at all, guys, because that email is very discoverable in a trial.
6:25
SPEAKER_00: And that email is gonna be blown up on this massive screen where it shows, if you bring us a buyer by this date, we'll give you$10,000 more dollars.
6:34
SPEAKER_00: And now you're sitting before a jury who's looking at you.
6:36
SPEAKER_00: Remember, juries hate real estate agents, thinking to themselves, well, the only reason that real estate agent showed that house was because they got this email.
6:43
SPEAKER_00: And particularly when you showed that house directly after receiving that email.
6:47
SPEAKER_00: It's not very hard to paint a very ugly picture of a real estate agent showing a house solely because they got an email saying a$10,000 bonus.
6:56
SPEAKER_00: Guys, these builders are doing you no favors with these bonuses.
6:59
SPEAKER_00: Now imagine sitting in a deposition, the buyer's attorney asks you this, Mr.
7:03
SPEAKER_00: Agent, why did you recommend house A over house B or builder A over builder B?
7:08
SPEAKER_00: And you try to explain floor plans and neighborhoods and schools and all that crap.
7:11
SPEAKER_00: But then the lawyer asks you, how much bonus did you receive from builder A?
7:16
SPEAKER_00: And then suddenly suddenly everything changes because now you have to say, well, I got$10,000.
7:20
SPEAKER_00: Because now every recommendation that you've made is viewed through the lens of the self-interest and getting that$10,000, which oftentimes is equal to or greater than the actual overall commission you got in the entire transaction.
7:31
SPEAKER_00: That's not client's interest, that is self-interest.
7:34
SPEAKER_00: And you're a fool if you're sitting here thinking to yourself that you can talk your way out of that with a jury.
7:38
SPEAKER_00: I don't care what jury you get.
7:40
SPEAKER_00: They're gonna sit there and look at you going, this guy should have made about a$9,000 commission, but he made$19,000 because he got this$10,000 bonus.
7:48
SPEAKER_00: Huh.
7:48
SPEAKER_00: Why did he show that house?
7:50
SPEAKER_00: To double his commission.
7:51
SPEAKER_00: And that's exactly how commission steering claims begin.
7:54
SPEAKER_00: And let's talk about commission steering because some agents think steering only exists when you're talking about fair housing, steering certain people based on the way they look or where they come from or what how they worship or who they're in love with away from a house.
8:08
SPEAKER_00: That, of course, is steering.
8:09
SPEAKER_00: But that's not the only steering.
8:10
SPEAKER_00: There's other steering.
8:12
SPEAKER_00: Commission steering is very real and it is very problematic.
8:15
SPEAKER_00: Commissioned steering occurs when a real estate agent's compensation influences what they do or recommend to a client.
8:23
SPEAKER_00: It can be as innocuous as making a comment about something or showing a house over another.
8:27
SPEAKER_00: The builders know exactly what they're doing.
8:30
SPEAKER_00: They're not stupid.
8:30
SPEAKER_00: They're trying to sell houses, guys.
8:32
SPEAKER_00: That's their job.
8:33
SPEAKER_00: In fact, their bonus program proves that it actually works.
8:37
SPEAKER_00: They would not be offering you a$10,000 bonus if it didn't produce agents who showed the house.
8:43
SPEAKER_00: So the simple fact is when you get sued, they'll ask that builder in deposition, how many times have you offered this$10,000 bonuses, dollar bonus, and how many times did you sell houses before, and how many times did you sell houses after you gave the bonus?
8:55
SPEAKER_00: It's an easy slam dunk case of steering.
8:58
SPEAKER_00: The fact they actually offer the bonus proves it works.
9:01
SPEAKER_00: But remember, your job is vastly different.
9:04
SPEAKER_00: Your job here is to protect the buyer.
9:06
SPEAKER_00: Your job is to give independent advice.
9:09
SPEAKER_00: Your job is to recommend the best property for the client, not the property that pays you the most money.
9:15
SPEAKER_00: It's that simple.
9:16
SPEAKER_00: Now let's take this one step further because some builders have gotten more creative.
9:20
SPEAKER_00: They don't just offer cash bonuses, a$10,000 bonus.
9:23
SPEAKER_00: They offer escalating compensation.
9:25
SPEAKER_00: You sell one house, you get this amount.
9:27
SPEAKER_00: Sell five houses, you get more.
9:29
SPEAKER_00: You sell 10 houses, you get even more.
9:30
SPEAKER_00: Hell, you might even get a cruise.
9:31
SPEAKER_00: That's created an entirely different problem because the incentives are no longer tied to a single transaction.
9:37
SPEAKER_00: And again, I'm gonna stop here and don't say, well, these things have been going on for years and they're perfectly fine.
9:42
SPEAKER_00: Every single aspect of what real estate agents do and have done over the last 30 years is being looked at.
9:48
SPEAKER_00: It's being investigated.
9:49
SPEAKER_00: And we're what we're finding is a lot of things that real estate agents have done for the last 10, 20, 30, 40 years probably were not in the best interest of their clients.
9:57
SPEAKER_00: So again, I don't want to hear that, well, they've been doing this for years.
9:59
SPEAKER_00: I've been on many of these cruises.
10:01
SPEAKER_00: The incentives these builders are giving you is tied to maintaining a relationship with the builder.
10:07
SPEAKER_00: And you can't tell me that every one of your clients, all 10 of them who bought a house from this builder, were best served by buying from that builder in a particular community that just happens to give you a bigger commission rate when you close multiple deals with them.
10:20
SPEAKER_00: The agent's not just motivated to steer one client, you're now being motivated to steer all of your clients.
10:25
SPEAKER_00: You as an agent have a true financial incentive to keep feeding business, feeding your buyers, to this builder's pipeline.
10:33
SPEAKER_00: That's incredibly dangerous.
10:34
SPEAKER_00: And anyone with a brain who's being honest with themself has to see that.
10:38
SPEAKER_00: There is also a belief amongst the Realtors Association that if you do take a bonus after selling five houses, that you have to go back to the first four people and get their permission to accept the bonus because each one of those acts created that bonus, not just a fifth client, the first four.
10:53
SPEAKER_00: So you would have to go back and get their approval to accept the bonus.
10:56
SPEAKER_00: Now, the problem with that is that would violate your Citra Burnett case because you can't go back and amend after the fact, and you can't amend just to capture more commission, which the bonus is, it's more commission.
11:04
SPEAKER_00: Every future buyer becomes part of this compensation structure when they do these elevated commission deals.
11:11
SPEAKER_00: The buyer is effectively saying we'll reward you if you keep bringing us business.
11:15
SPEAKER_00: Again, it may be legal, but it is conflict of your interest.
11:18
SPEAKER_00: And from an agency perspective, I think this is a disaster waiting to happen.
11:22
SPEAKER_00: And here's what I find fascinating: the builders don't care.
11:25
SPEAKER_00: They don't care.
11:26
SPEAKER_00: And it's not that they're bad people, but I've heard.
11:27
SPEAKER_00: I've had agents being in these meetings before, and the builders like, I don't care what they say.
11:31
SPEAKER_00: Keep doing it, keep pushing it.
11:32
SPEAKER_00: Because it's not their problem.
11:34
SPEAKER_00: They're not the fiduciary, they're not the licensee holder, they're not real estate agents, they're not subject to your same duties.
11:40
SPEAKER_00: The risk falls almost entirely on the buyer's agent.
11:42
SPEAKER_00: But here's something they don't think about.
11:43
SPEAKER_00: It also falls on their listing agent.
11:45
SPEAKER_00: And that's where their risk is going to come.
11:47
SPEAKER_00: The builder gets to sell, but both the buyer's agent and the listing agent now have all this liability.
11:52
SPEAKER_00: And that imbalance causes me great concern.
11:54
SPEAKER_00: Now, if that's not enough, I've recently seen something that should alarm every broker in South Carolina, listing agents as well as buyer's agent, a builder compensation agreement that actually attempts to override the buyer agency agreement itself.
12:08
SPEAKER_00: What are we talking about?
12:09
SPEAKER_00: I think this is one of the most dangerous builder documents I've ever seen, maybe in my entire 30-year practice.
12:15
SPEAKER_00: An agent actually sent this to me in an email, and that wasn't the first time I've seen this.
12:19
SPEAKER_00: The buyer has a buyer agency agreement signed with their client for 3%.
12:23
SPEAKER_00: Now, I'm using the number 3% because it's a factual statement in this case.
12:27
SPEAKER_00: It's for illustrative purposes as well, and I'm not trying to set any real estate commission.
12:31
SPEAKER_00: So they are Realtors Association and gave you a little antitrust, even though this has nothing to do with antitrust.
12:35
SPEAKER_00: Simple enough, we'll move on.
12:36
SPEAKER_00: The buyer understood the agreement, buyer agreed to it, they signed it, broker saw it, they understand it, they agreed it.
12:42
SPEAKER_00: Everybody knows what the compensation agreement is, and everybody agreed to it in writing in a contract.
12:46
SPEAKER_00: Then the buyer goes under contract to buy a house with a builder, and the builder offers buyer agent compensation at a 2.5% rate.
12:54
SPEAKER_00: Again, that's nothing unusual, nothing wrong with that.
12:56
SPEAKER_00: The builder has every right to pay some, all, or even no commission.
13:00
SPEAKER_00: They don't required to pay any commission.
13:02
SPEAKER_00: Perfectly fine with them saying, I'm only going to pay two and a half, I'm not paying your three.
13:06
SPEAKER_00: But here's the big problem.
13:07
SPEAKER_00: And this is where they now overstep the line, and I believe are creating a legal problem.
13:11
SPEAKER_00: The buyer would normally be responsible for paying that remaining half percent.
13:15
SPEAKER_00: They contractually agreed to pay the buyer agent 3%.
13:18
SPEAKER_00: That's exactly what the buyer agency agreement is designed to address.
13:21
SPEAKER_00: The buyer knows their obligation, the broker knows their obligation, the compensation agreement is transparent and it's expired and it's established.
13:27
SPEAKER_00: But then the builder presents a compensation agreement, and buried inside that agreement is language that says something like this: the commission paid by the builder satisfies all compensation owed to the broker and supersedes any other compensation agreement between the buyer and the broker.
13:42
SPEAKER_00: Essentially, your buyer agency agreement's no longer valid, and theirs becomes the buyer agency agreement.
13:48
SPEAKER_00: The buyer is saying that the builder compensation is now completely replaced by their agreement.
14:02
SPEAKER_00: The buyer and the broker have already signed a contract, an agency agreement, which is mandated by law, what has to be in an agency agreement.
14:09
SPEAKER_00: The builder wasn't part of that contract or that agency agreement.
14:11
SPEAKER_00: The builder didn't negotiate any of those terms of that contract.
14:14
SPEAKER_00: The builder didn't even provide any consideration for that agency contract.
14:18
SPEAKER_00: The builder didn't represent the buyer during this transaction.
14:20
SPEAKER_00: In fact, they were the adversarial party.
14:22
SPEAKER_00: Yet now this builder wants to dictate what compensation agreements govern the relationship.
14:27
SPEAKER_00: That should set off alarm bells not only to the buyer's agent, but the listing agent who works for these builders.
14:33
SPEAKER_00: How can you, as a listing agent, sit there and see this crap and not be concerned that you're violating state law?
14:40
SPEAKER_00: Because you are.
14:41
SPEAKER_00: The builder agreement says the commission being paid by the builder satisfies the commission payable to the broker.
14:46
SPEAKER_00: Then it goes further.
14:47
SPEAKER_00: It says the agreement amends, replaces, and supersedes any other compensation agreement between the buyer and the broker.
14:54
SPEAKER_00: Think about that.
14:54
SPEAKER_00: The builder's not simply offering compensation.
14:57
SPEAKER_00: The builder is declaring that the compensation agreement, i.e.
15:00
SPEAKER_00: the agency agreement, between the buyer and the broker no longer controls.
15:05
SPEAKER_00: In other words, the seller saying, We know you and your client already have a contract, but we're going to replace it by the way, with terms we think it should be.
15:12
SPEAKER_00: Now let's imagine that in another contract, a context.
15:14
SPEAKER_00: Imagine if I hired a lawyer, I signed a fee agreement, and the lawyer and I agreed upon it, and then the person I sue sends over a document that says, we've decided what your agreement between you and the attorney could be, and now this is going to replace your fee agreement.
15:25
SPEAKER_00: That would be absolutely absurd.
15:27
SPEAKER_00: And everyone, including the court, would recognize immediately something's wrong with that.
15:30
SPEAKER_00: But somehow in real estate, some people act as if all these crazy things they come up with are perfectly normal when it isn't.
15:36
SPEAKER_00: And before you say, well, Gary, the broker signed it, they agreed to it, that's exactly the point.
15:41
SPEAKER_00: The builder has put the broker in a position where they're being asked to modify their own agency agreement for the benefit of the seller to get the contract signed with the buyer.
15:50
SPEAKER_00: And let's think about this from a practical standpoint.
15:52
SPEAKER_00: Suppose I'm representing a buyer.
15:54
SPEAKER_00: My buyer and I agree to compensation at 3%.
15:57
SPEAKER_00: The buyer understands that if the seller offers only 2%, the buyer has to pay me the additional 1%.
16:02
SPEAKER_00: The buyer's perfectly comfortable with that arrangement.
16:04
SPEAKER_00: Then the seller steps in and says, nope, we're only going to pay 2.5.
16:07
SPEAKER_00: And by the way, this replaces your compensation, your agency agreement you're required by state law to have when you provide client services.
16:13
SPEAKER_00: Since when does the seller get to decide what the buyer owes his representative?
16:18
SPEAKER_00: Since when does the adversarial party get to dictate the terms of the agency agreement?
16:24
SPEAKER_00: The answer is they shouldn't, they can't, and they better not be.
16:26
SPEAKER_00: So let's take it a step further.
16:28
SPEAKER_00: And I think this is even a bigger issue.
16:29
SPEAKER_00: Why does the builder care?
16:31
SPEAKER_00: They care because they're trying to push the numbers on the settlement statement down so it makes it look like a bigger deal by taking the money away from you.
16:38
SPEAKER_00: That's what they're trying to do.
16:39
SPEAKER_00: They're screwing you in the process of trying to make their deal look better.
16:42
SPEAKER_00: And that's why they're inserting language that says the buyer-broker agreement has been superseded.
16:46
SPEAKER_00: Why not just say we'll pay 2.5% period into discussion?
16:49
SPEAKER_00: The answer is that somebody's made the conscious decision to go beyond simply offering compensation, and they've made the conscious decision to address the relationship between the buyer and the buyer broker.
16:58
SPEAKER_00: And that has to be concerning for every buyer's broker as well as every listing agent.
17:02
SPEAKER_00: Because today it's a half a percent.
17:04
SPEAKER_00: Tomorrow it might be two percent.
17:05
SPEAKER_00: Let's say it's something else.
17:06
SPEAKER_00: It could be every broker in charge should be worried about what other things are going to change in their agreement.
17:11
SPEAKER_00: The buyer agency agreement is the most important document in your buyer package.
17:16
SPEAKER_00: And after the NAR settlement, compensation transparency became the central issue in our industry.
17:21
SPEAKER_00: We have spent years telling consumers we're going to clearly explain compensation, we're going to negotiate this compensation, we're going to put compensation in writing, and we're going to let the consumer decide.
17:30
SPEAKER_00: And then along comes this builder and says, nope, we'll decide how much your buyer agent can get.
17:34
SPEAKER_00: That's simply inconsistent with the direction of our industry, particularly after Sitzaburnett.
17:40
SPEAKER_00: Now, maybe somebody at this builder believes they have a perfectly legitimate explanation for this language.
17:44
SPEAKER_00: I don't haven't seen it, I don't believe so, but from a risk management standpoint, I would tell every broker listening, you better understand exactly what you're signing before you sign it.
17:53
SPEAKER_00: Because if you have a buyer agency agreement that says one thing and the builder agreement that says another, eventually someone's going to ask which document controls.
18:00
SPEAKER_00: And that's not a question you want to be answering for the first time in a deposition.
18:04
SPEAKER_00: The larger lesson here is simple.
18:06
SPEAKER_00: Builders sell homes, agents represent buyers.
18:08
SPEAKER_00: When builders start acting like they control the buyer agent compensation agreement, they've crossed the line, and that should make everyone very uncomfortable.
18:16
SPEAKER_00: The seller compensation agreement should answer one question.
18:18
SPEAKER_00: What is the seller willing to pay?
18:20
SPEAKER_00: It should not answer a second question what does the buyer owe their agent?
18:23
SPEAKER_00: That's a completely different contract.
18:25
SPEAKER_00: And frankly, I think many agents are signing these agreements without even realizing the implications because they are being forced to through strong armed tactics and fear toward their buyer that if they don't sign this agreement, then their client's not going to get the house.
18:38
SPEAKER_00: Because their immediate action reaction is, well, I guess I'm just going to get 2.5%.
18:42
SPEAKER_00: No, that's not the issue.
18:43
SPEAKER_00: The issue is much, much bigger than this half percent of commission.
18:46
SPEAKER_00: The issue is whether a builder can insert themselves into a contractual relationship that already existed between the buyer and the agent.
18:53
SPEAKER_00: Because if they can do it here, where does it stop?
18:55
SPEAKER_00: Can they modify your administrative fee?
18:56
SPEAKER_00: Can they modify your protection period?
18:59
SPEAKER_00: Can they modify your duties?
19:00
SPEAKER_00: Can they modify your commission structure?
19:02
SPEAKER_00: Of course they cannot.
19:03
SPEAKER_00: It's all interference with your agency.
19:04
SPEAKER_00: And the language essentially says we are replacing the compensation terms that you've already negotiated.
19:10
SPEAKER_00: Imagine if this was the other way around and you, the agent and the buyer, presented a document to the seller saying what their terms were going to be.
19:17
SPEAKER_00: They would literally lose their shit.
19:18
SPEAKER_00: Now let's talk about this agency problem because agency law is built upon loyalty.
19:23
SPEAKER_00: When you represent a buyer, your job is to advocate for that buyer.
19:26
SPEAKER_00: Your compensation agreement is part of that relationship.
19:29
SPEAKER_00: It's part of the bargain.
19:30
SPEAKER_00: And when a builder starts dictating compensation terms, they are creating confusion about who controls the agency relationship.
19:37
SPEAKER_00: And that confusion is very dangerous because confusion creates lawsuits, lawsuits love ambiguity.
19:43
SPEAKER_00: Let me say even bigger concern.
19:46
SPEAKER_00: The South Carolina buyer agency form specifically contemplates that buyers and brokers negotiate compensation directly.
19:52
SPEAKER_00: The entire purpose of these agreements is to establish transparency.
19:56
SPEAKER_00: The buyer knows what the broker is earning, the broker knows what the broker is earning as well.
20:01
SPEAKER_00: Compensation agreements cleared and it's agreed upon.
20:04
SPEAKER_00: What happens when a builder inserts themselves into this equation and starts changing documents?
20:09
SPEAKER_00: We should have every realtor, every regulator, every association, every broker in the state should be very concerned because if the buyer agency agreement means anything, it has to mean what the parties who sign them, control them says, not a third-party seller.
20:23
SPEAKER_00: And this is where the legal problem exists for the builder's listing broker.
20:26
SPEAKER_00: South Carona Code 4057-71024 says that you may have discipline action against a licensee who engages in a practice or takes action inconsistent with the agency relationship that other real estate agents have established with their clients.
20:40
SPEAKER_00: I don't know of a more open and shut case of agency interference than this.
20:45
SPEAKER_00: To actually put in writing that your agency agreement no longer is in control, the agency agreement that I drafted is now in control.
20:53
SPEAKER_00: That is a 100% slam dunk interference with agency case.
20:58
SPEAKER_00: So if you're the broker in charge or the agent representing one of these builders and don't think that this is going to come back on you, I am warning you now, it's gonna.
21:06
SPEAKER_00: You have been exposed bigly.
21:08
SPEAKER_00: Stop doing these addendums.
21:10
SPEAKER_00: Now let's move over to another troubling trend that I just recently heard about.
21:14
SPEAKER_00: And honestly, when I first heard it, I couldn't even believe it.
21:16
SPEAKER_00: There's apparently some builders in the upstate who are inflating contract prices and then giving these huge credits, cash credits, back to the buyers.
21:23
SPEAKER_00: Now, if I'm hearing this is accurate, somebody needs to start asking some real hard questions.
21:28
SPEAKER_00: So here's a scenario: a buyer agrees to purchase a townhome for around$210,000, everyone's happy, contract signed, the deal gets moving.
21:35
SPEAKER_00: Builder comes back and says we'd like to amend the contract, and they want to change the sales price to$260.
21:41
SPEAKER_00: Don't worry, they're not going up$50,000 in reality because they're going to give a huge cash credit back at closing of$50,000.
21:48
SPEAKER_00: Now, this all happens in cash deals, and they're like, well, there's no lender involved.
21:52
SPEAKER_00: So, you know, it doesn't matter what price we're put on, it's still$210.
21:55
SPEAKER_00: I mean, it's$260 with a$50,000 cash credit, it makes it$210.
21:58
SPEAKER_00: And then why are they doing this?
22:00
SPEAKER_00: We all know why they're doing this.
22:01
SPEAKER_00: They're doing this so they can raise their comps.
22:03
SPEAKER_00: Raise the contract price$50,000.
22:06
SPEAKER_00: No one will see the$50,000 cash back.
22:08
SPEAKER_00: It creates a higher comp.
22:10
SPEAKER_00: Now, is that a legitimate business purpose?
22:12
SPEAKER_00: Because remember, we're not talking about a lender required concession.
22:15
SPEAKER_00: We're not talking about closing costs, prepaid taxes, settlement fees.
22:18
SPEAKER_00: We're just talking about a very large credit that effectively changes the economics of the change the economics of the deal.
22:24
SPEAKER_00: If you are an experienced real estate professional, you already recognize the concern here.
22:29
SPEAKER_00: The concern is market manipulation.
22:31
SPEAKER_00: The concern is inflated, comparable sales prices.
22:35
SPEAKER_00: The concern is that you're creating a public record that suggests that property sold for substantially more than the buyer actually paid for it economically.
22:43
SPEAKER_00: And let's be honest, the builder knows exactly why comps matter.
22:47
SPEAKER_00: Appraisers use comps, lenders use comps, agents use comps, sellers use comps, assessors use comps.
22:52
SPEAKER_00: So the entire marketplace is relying on comparable sales.
22:56
SPEAKER_00: So when the transaction records at$260,000, but the buyer effectively paid$210, the question becomes what signal are we sending to the marketplace?
23:05
SPEAKER_00: Some people say, well, Gary, it's just a cash transaction.
23:07
SPEAKER_00: It doesn't matter.
23:08
SPEAKER_00: There's no lender involved.
23:09
SPEAKER_00: That's exactly what is concerning because these builders believe that these cash deals exist outside the lending ecosystem.
23:16
SPEAKER_00: They simply don't.
23:17
SPEAKER_00: Today's cash transaction becomes tomorrow's comparable sale, and tomorrow's comparable sale influences next month's appraisal.
23:24
SPEAKER_00: And next month's appraisal influences next year's financial decision.
23:28
SPEAKER_00: So everything is connected.
23:29
SPEAKER_00: A cash transaction doesn't exist in a vacuum.
23:32
SPEAKER_00: The marketplace doesn't care whether the first buyer used cash or and all they're looking at is that recorded sales price.
23:38
SPEAKER_00: And that affects everyone thereafter, including lenders who use appraisals to set loan.
23:44
SPEAKER_00: What I am saying is if a practice is designed to artificially increase reported sales prices while reducing the true economic cost to the buyer, someone should be asking questions because that's exactly the type of activity that the federal government tends to regulate and tends to examine very carefully.
24:02
SPEAKER_00: And even if it's technically legal, which I'm not conceding that at all, it still creates serious ethical problems.
24:09
SPEAKER_00: Our market depends on transparencies, consumers demand transparencies, appraisers demand transparencies, lenders deserve transparencies, and real estate agents do as well.
24:17
SPEAKER_00: But if the actual economic price is 210, then let's call it 210.
24:21
SPEAKER_00: Let's quit playing these games with these numbers because if you think the federal government's just going to stand by and watch you do that, I think you're absolutely crazy.
24:28
SPEAKER_00: Now, before I go, one other thing that I think agents need to understand, you cannot dump your buyers on a builder and abdicate your responsibilities to your buyer.
24:38
SPEAKER_00: If you're a buyer's agent and you're doing this, you need to stop immediately, regardless if you're just being lazy or your builder's requiring, because this is not simply a commission issue.
24:46
SPEAKER_00: This is an agency issue.
24:47
SPEAKER_00: This is a fiduciary duty, and this is a potential liability issue.
24:50
SPEAKER_00: So let's start with a simple question: What exactly are you being paid for?
24:53
SPEAKER_00: Don't you think about that?
24:54
SPEAKER_00: Your role isn't simply to unlock doors and drop somebody off at a builder's.
24:58
SPEAKER_00: Purpose of buyer representation is to provide advice, counsel, guidance, negotiation, and advocacy.
25:03
SPEAKER_00: These are the things that a buyer cannot get from the seller, and those are the things the buyer is hiring you to do.
25:08
SPEAKER_00: And these are the things that your license exists for you to provide.
25:11
SPEAKER_00: When a builder says, just leave the buyer with us, what they're really saying is remove the buyer's advocate from the room.
25:18
SPEAKER_00: And that should concern every agent listening.
25:20
SPEAKER_00: So whether your builder is telling you to drop them off or you're just being lazy and drop it off, you've got to stop doing that because the most important conversations often occur during builder visits.
25:30
SPEAKER_00: The buyer starts asking questions, discussing prices, discussing upgrades, incentives, closing dates, finance, and whether they can move forward or not.
25:38
SPEAKER_00: These are the conversations where their representation matters.
25:40
SPEAKER_00: And yet some agents just voluntarily remove themselves from the process.
25:44
SPEAKER_00: Then six months later, the buyer says, Well, my agent never explained that to me, or my agent never told me to that, or the agent was even there during all that.
25:51
SPEAKER_00: How do you have a defense when you literally dropped off your client at the builder's, whether they asked you to or didn't ask you to?
25:59
SPEAKER_00: Where is your defense?
26:00
SPEAKER_00: You simply handed the adversarial party of the client and said, here you go.
26:04
SPEAKER_00: So let's talk about that fiduciary for a minute.
26:06
SPEAKER_00: Because I think many agents hear that term.
26:08
SPEAKER_00: They don't fully appreciate what it means.
26:10
SPEAKER_00: The fiduciary duty isn't something you have to turn on and off whenever you want to.
26:14
SPEAKER_00: It's not something that applies only when it's convenient.
26:16
SPEAKER_00: If you agree to represent a buyer, you owe duties throughout those transactions.
26:20
SPEAKER_00: That means you show up.
26:21
SPEAKER_00: That means you advise.
26:22
SPEAKER_00: That means you protect.
26:23
SPEAKER_00: That means you negotiate.
26:24
SPEAKER_00: That means you help the buyer understands the risk.
26:26
SPEAKER_00: That means identifying issues a buyer may not recognize.
26:30
SPEAKER_00: You cannot outsource that responsibility to the seller.
26:33
SPEAKER_00: And let's be honest about who the builder representative works for.
26:37
SPEAKER_00: The builder representative works for the builder, not the buyer.
26:40
SPEAKER_00: The builder, they're trying to sell their inventory.
26:42
SPEAKER_00: Doesn't make them bad people.
26:43
SPEAKER_00: It simply means their interests are different than the buyers.
26:46
SPEAKER_00: The builders want to maximize profit, the buyer wants to maximize value.
26:50
SPEAKER_00: So let's flip this question around.
26:51
SPEAKER_00: Imagine the situation was reversed.
26:53
SPEAKER_00: Imagine a seller hires a listing agent, then the buyer agent shows up and says, Hey, listing agent, once you go home, I'll explain your contract to the seller.
27:00
SPEAKER_00: No one would ever tolerate that.
27:01
SPEAKER_00: The builder would be like, Are you crazy?
27:03
SPEAKER_00: My person's going to be in this deal.
27:04
SPEAKER_00: But somehow, buyer agents are allowing the reverse situation to occur every day.
27:10
SPEAKER_00: And then they wonder why we end up with these problems.
27:12
SPEAKER_00: Which is why I want to discuss something that doesn't get enough attention.
27:15
SPEAKER_00: Builder interference with agency.
27:17
SPEAKER_00: This is where things become very, very dangerous.
27:20
SPEAKER_00: Agency relationships are contracts.
27:22
SPEAKER_00: The buyer chose representation, the buyer hires an agent, the buyer entered into an agreement, and that relationship belongs to the buyer and the broker.
27:30
SPEAKER_00: Not the builder, not the seller, not the sales representative, not the new home consultant, the buyer and the broker.
27:36
SPEAKER_00: And when the builder attempts to remove the agent from that process, limit communications, dictate compensation, and otherwise interfere with that relationship, serious questions arise because the representative buyer is entitled to the representation of their choice, and the buyer's chosen representative is entitled to perform the duties they were hired to perform.
27:55
SPEAKER_00: Lastly, as a quick bonus here, I want to talk about one other quick trend that I'm seeing: preferred lender pressure.
28:01
SPEAKER_00: We've talked about the water law suit.
28:02
SPEAKER_00: Let me be clear.
28:18
SPEAKER_00: What's the APR?
28:19
SPEAKER_00: What's the cost of buy down?
28:20
SPEAKER_00: What happens if you refinance?
28:22
SPEAKER_00: How much am I actually paying over the life of the loan?
28:24
SPEAKER_00: All these questions matter a lot more than these flashy incentive advertisements.
28:29
SPEAKER_00: And this is where the buyer agent roles become critical.
28:32
SPEAKER_00: The buyer agent should not be acting as a cheerleader for the builder's lender or the builder's incentives.
28:37
SPEAKER_00: The buyer's agent should be encouraging the buyer to compare options, compare rates, compare fees, compare terms, compare products.
28:44
SPEAKER_00: Because your duty is not to the builder's lender, the duty is to the buyer.
28:48
SPEAKER_00: As I close, I want to make something, again, crystal clear.
28:50
SPEAKER_00: This podcast is not intended to be anti-builder.
28:53
SPEAKER_00: Builders are essential.
28:54
SPEAKER_00: New construction is essential.
28:55
SPEAKER_00: The housing market needs builders.
28:57
SPEAKER_00: The economy needs builders.
28:58
SPEAKER_00: The public needs builders.
29:00
SPEAKER_00: This isn't about attacking builders.
29:01
SPEAKER_00: This is about protecting real estate agents.
29:03
SPEAKER_00: Because what concerns me is that many agents don't recognize the risk participating in these programs until it's really too late.
29:11
SPEAKER_00: These builder promotions all sound good.
29:13
SPEAKER_00: The builder bonus sounds wonderful.
29:15
SPEAKER_00: I know it does.
29:16
SPEAKER_00: The increased commission rates sound great.
29:18
SPEAKER_00: All of it sounds great until somebody files a complaint, somebody files a lawsuit, somebody calls a real estate commission, somebody starts asking for your emails and your text messages and wants to see all these flyers that they've been sending out about the$10,000 bonus, and that gets thrown up in front of a jury.
29:33
SPEAKER_00: So here's my advice Disclose everything, document everything, explain everything.
29:37
SPEAKER_00: If a builder is offering a bonus, don't take it.
29:39
SPEAKER_00: If they're offering additional compensation, don't take it.
29:42
SPEAKER_00: If they're offering you increased stepped-up compensation, don't take it.
29:46
SPEAKER_00: Don't participate in it.
29:47
SPEAKER_00: If you're a listing agent, have a conversation with your builder telling them it's against the law and you're not going to do these things.
29:52
SPEAKER_00: If something feels wrong, trust your instinct.
29:54
SPEAKER_00: I've been practicing law long enough to know this.
29:56
SPEAKER_00: The facts that create lawsuits usually look questionable at the beginning.
30:00
SPEAKER_00: People involved simply convince themselves otherwise.
30:03
SPEAKER_00: Don't be that person.
30:04
SPEAKER_00: Your license is too valuable, your reputation is too valuable, and your business is too valuable.
30:09
SPEAKER_00: Remember this: the builder's goal is to sell homes.
30:12
SPEAKER_00: Your goal is to protect your clients.
30:14
SPEAKER_00: Those goals often align, but when they don't, your duty is not to the builder, your duty is to the buyer.
30:20
SPEAKER_00: And if you'll always remember that, you'll avoid most of the problems that we've discussed today.
30:24
SPEAKER_00: All right, thanks for listening.
30:26
SPEAKER_00: I hope everybody got something helpful out of this episode.
30:28
SPEAKER_00: Please like it, share, and subscribe.
30:30
SPEAKER_00: Don't forget if you're watching us on YouTube to click that button, give me a thumbs up, and subscribe as well.
30:34
SPEAKER_00: Y'all have a great weekend, and we'll be back again next week with another episode of Addition.