The builder sphere may look limited from a distance, but once you immerse yourself in it, you’ll find that it offers solid growth and high-quality referral potential. There’s also an added element of respectability that you get from working with builders. Builders are extremely loyal once you prove you can
be trusted as a partner to help sell and close their homes on time.
To build a builder business with a strong foundation, originators must understand five
things: the new construction market landscape, strategies for building relationships with
builders, how to identify the right builders to target, basic fundamentals of the homebuilding business itself, and interest rate and product issues that are important to builders.
New construction has always been an important part of the real estate market, making up about 10 percent of purchase business nationally, depending on your market. In
the South, new construction can account for upward of 20 percent of sales, while in the
Midwest it is about 5 percent to 8 percent.
Even in the slowest of markets, people have always desired new homes, but the amount
of purchase business can define the visibility of new construction. During the post-crisis
refinance boom, when purchases made up roughly 20 percent of total loans, new construction was frequently ignored as a referral base because of the relative low percentage
of newly constructed homes — as well as the fact that not a lot of people were moving
or buying homes.
Today, the number of homebuilders and condo developers has rebounded, and new
construction is surging. Inventory is low across the country and homebuyers want more
options. The tables have turned. Purchase financing this year is now more than 50 percent
of total originations.
Knowing the landscape lets you know how to improve your numbers. Supplying a
fast-growing sector of the industry with this essential component of the business is an
Originators can take both creative and straightforward approaches to developing relationships with builders. One good place to start is with your existing Realtor partners. You
may find that a Realtor you do business with also does business with a builder but perhaps
hasn’t mentioned it or looped you into the opportunity.
One challenge is that mortgage originators and Realtors tend to think transactionally.
Builder relationships are different. They aren’t so much about doing one deal, but about
the longer-term game plan. Builders want to know that their chosen mortgage-lending
partner appreciates the effort and coordination it took to get the house built or the condo
readied for their customer.
You also can go direct to the source. Plan visits to model open houses or condo sales
centers in new developments and get to know the sales people. These people are essentially the eyes and ears of the builder, so if you make inroads with them, word has the tendency to work its way upstream to management and ownership.
When looking to build relationships with builders you need to do it in the field first —
and be aggressively creative. Show your face on a Saturday. Be likeable and be available. Always be ready to talk to a difficult customer. Maybe the builder has a relocation
customer who is tight on time and needs to get prequalified. If the builder’s go-to loan
officer is unavailable, this could give you a chance to be a hero.
When it comes to deciding which builders to approach in your area, start “medium.” Look
for an operation that builds 30 to 100 homes a year. Generally speaking, these builders
won’t have an in-house lender, but will be big enough to self-finance and not require a
customer to obtain a more complicated construction-to-perm loan.
Look for builders who appear to appreciate the importance of having a preferred lender
program in place. These builders will respond to originators who can show them creative
ways to drive additional customer traffic to their sales centers; help with backlog loan-pipeline management; offer dedicated builder-loan processing, appraisal panels and
closing services; and share in the cost of special events and marketing, etc. Some builders
won’t get it — but you can’t win every battle.
Bigger builders who do 200 to 1,000 homes per year or more will be in tune with this
value proposition, but likely already have lender partners. Being a “back-up,” or supplemental originator to a national or large regional builder isn’t a bad place to be, however.
The amount of loans not captured by the builder’s regular stable of lenders or in-house
mortgage company can be shockingly large.
Five things to know when
working with builders
Construction market landscape
Strategies for building relationships with builders
Right builders to target in
Homebuilding business attitude
Power of extended rate locks
58 Scotsman Guide Residential Edition | ScotsmanGuide.com | December 2017
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