I’m not going to tell you the Top 10 Reasons you need a realtor to buy a new home.
What I will do is explain how the sales process works from the builders perspective.
First an important distinction. Buying a new construction home bears little resemblance to purchasing an existing home beyond the fact there’s real estate involved. Not understanding the difference can cost you tens of thousands of dollars.
Who Does Your Realtor Really Represent?
When buying a new construction home in Idaho, the builder will be represented by a real estate agent 100% time (interesting isn’t). The Realtor has a fiduciary, moral and legal duty to represent their client. In this case the builder. That means getting the builder the best possible sales price and contract terms.
When you work with the seller’s real estate agent that can fall under two categories. “Dual Agency” or “Unrepresented Buyer”. Being categorized as an unrepresented buyer translates to a fiduciary responsibility to the seller, builder, and not technically representing you in any shape or form.
Dual Agency means the Realtor is representing you and the builder. Look at it this way.
The Realtor in this situation is a good friend of the home builder. After-all, they have known them for years. Their families have had dinner with each other many times. They have been to each other’s kids’ baseball and soccer games. They were together for holiday and office parties. They celebrated selling out the last subdivision they worked together on. After which the builder presented the agent with the most valuable real estate agent award. Doesn’t mean much to the rest of the world but it shared a special significance between them.
Without a doubt, this builder is the agent’s biggest client. More than likely this is the agent’s only client. Builders don’t like employees representing there the competitors or getting distracted representing many smaller sales.
The builder’s agent, who still has a fiduciary duty to the seller, is now going to explain the risks of buying in that development and play hardball with their friend and employer to save someone they may have just met a few thousand dollars. Or more realistically tens of thousands of dollars at the seller's expense?
But I Will Save Buying From a Builder Without a Realtor
Actually, you won’t. Here are the four reasons why.
- It is of the utmost importance that the home builder retains the value of their community, builders hate cutting sales prices. It sets a precedence for every sale that takes place afterward. Well, the last buyer got a discount I want that too.
- Common in large new home communities. Builders already have a pre-set marketing budget. The commissions that get paid to a buyer’s Realtor is included in that budget. If a buyer forgoes their own representation, either the seller’s agent or the builder themselves will keep that money.
- The builder may be counting on the fact that some people won’t have their own representation. They have figured it into their marketing costs and home prices. Their bottom line is counting on it.
- The agreement the builder has with their employee the agent is for a set commission amount whether the agent procures the buyer or another agent does. The seller’s agent may make double the commission but from the builders perspective, the cost is the same.
The idea that you will somehow save without using a Realtor to buy a new construction home is the best, worst kept secret in real estate.
How Do You Know You Are Getting a Good Deal
Recently I meet someone through a local event. They happily announced they were having a new home built in a popular community. Out of habit, I asked who their Realtor was. It was the agent for the builder, they didn’t have their own representation. I said I really liked that community (I do), congratulations to you. They said I got a terrific deal. I wanted to say how do you know? I said good for you.
I know a handyman that writes “special discount” on every invoice.
The question how do you know remains. For some local home builders, a garage door opener is considered an upgrade. For others, it’s a sink in the laundry room. What comes standard can vary from builder to builder, subdivision to subdivision or even model to model in a particular community.
Comparing apples to apples can be incredibly difficult if you are not familiar with the new construction market.
How do you know? Unlike with existing homes, 80% of new construction homes never hit the MLS until after they are sold. The list price is the negotiated purchase price not the original asking price for the home. On paper, the home sold for 100% of the asking price.
New Home Prices Are Non-Negotiable
The common argument you hear is new construction home prices are non-negotiable. Really? This is a common misconception that many people believe. This usually originates from the builder’s sales representative at a model home. Either because they insinuated or flat out said it. The surprising thing is many people go along with it.
If the home wasn’t new construction, and the agent representing the seller told you that would you believe it?
Options, Options, Options
One of the advantages when buying a new construction home is you get to pick the floor plan, building lot location, kitchen cabinet styles, fixtures and paint colors. It can be a real thrill to design your new home just the way you want.
In a subdivision that is developed by the builder, the base price of the home typically includes a “standard” building lot. Other building lots are available for a “premium” or “elevation” fee. Keep in mind the price you will be offered the building lot for may be at market value or nowhere near it.
Picking out flooring, lighting, and other finish options is typically done at the builder's design studio. Large builders have their own space and staff. Smaller builders will sometimes contract this out to a third party.
Before you get to your two or more commonly three design meetings, you will be given a cost sheet. The cost sheet varies from builder to builder but typically includes items that need to be determined before construction begins. Should the home be wired for sound, will there be a central vac, the placement of a wall between the second and third bedrooms?
What it won’t include are the costs for the other 99% of the decisions you will be making. These prices won’t be online or in any other form because “they change on a regular basis” and we want to make sure you have the “best and the latest” options available to you.
Since I’m on a roll with quotes, when you see remarks in home listings that say “better than new” or the ironic “compare to new and buy the value”, the translation is “I overbuilt for the neighborhood in the design studio.”
While you shouldn’t make every decision based solely on resale value, you will likely be living in the home for years, it’s wise to not completely ignore it.
The List Price Isn’t the List Price
Home builders are running a business. They don’t make decisions, including pricing decisions, the way a typical seller does. Not completely grasping the difference is a common mistake for a new buyer. If they are a large builder, the price you pay may have to do with the fact their bosses boss said they have to hit a certain profit margin or a total number of homes sold by a specific date.
For smaller builders it may have to do with the fact the interest rate on their bank loan increases if they haven’t sold the home by a specific date, i.e. repaid the loan by the end of the month.
Even in a hot real estate market it’s not uncommon to see the builder offering a discount of $3,000, $5,000 or $10,000 if the buyer closes by a certain date.
Sometimes the builder will make the discount public but the majority of the time the discount is listed in the private MLS remarks. Many buyers will never be aware of it. If you are not already aware of it the builder or their Realtor is under no obligation tell you about it. Frankly, why would they?
The Bottom Line
While there definitely are some unscrupulous builders out there, the fact is most are reputable, fair and honest. The issue is less about the builder taking advantage and more the buyer not knowing what they don’t know, and what they should be asking.
A home builder, like any other business, is out to make a profit and what you don’t know won’t hurt them.
That’s where the value of a Realtor that knows the local market and is experienced in new construction comes in.