There’s a common home buying myth that if you are purchasing new construction, you don’t need a realtor – you can just work directly with the builder. While that is an option, working with a realtor can save you thousands of dollars and it’s important to know why!
Who Does a Realtor Represent?
When buying a new construction home, the builder will be represented by a real estate agent 100% time. Interesting that even builders choose to have a realtor represent them, isn’t it? That’s because a realtor has a fiduciary, moral and legal duty to represent their client, aka the builder. That means the person in charge of negotiation and processing the transaction is working to get the builder the best possible sales price and contract terms.
When you decide to work directly with the builder and their real estate agent, you will most likely be categorized as an “unrepresented buyer.” This means that the builder’s realtor still has a fiduciary responsibility to the seller (the builder) and not to representing you in any shape or form. They essentially will explain elements of the contract, if asked, and will direct you where to sign.
But I Will Save Money Buying From a Builder!
Actually, you won’t! The idea that you will somehow save without using a real estate agent to buy a new construction home is the best, worst kept secret in real estate. Here’s why:
- When selling their homes, it’s the builders top priority to retain the value of their community – which means getting top dollar for their homes. Builders hate cutting prices as it sets a precedence for each following sale.
- Builders already have a pre-set marketing budget when planning out their communities. The commissions that get paid to a buyer’s real estate agent is included in that budget. If a buyer forgoes their own representation, 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.
- As a home buyer, 90% of the time your real estate agent is actually free. The sellers (the builder in this case) is actually the one that pays the commission fee of a buyer’s agent. Sure, you may have to cover the cost of your agent’s transaction coordinator (commonly known as a TC fee or Admin Fee), but that 3% commission comes out of the seller’s pocket.
New Home Prices Are Non-Negotiable Anyways.
One of the most common things you hear when looking at buying a new construction home is that the price is non-negotiable. This is one of the biggest misconceptions that unfortunately, 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? Of course not! You know home prices are negotiated all the time.
Home builders are running a business. They don’t make decisions, including pricing decisions, the way a typical seller does. 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 if the builder “doesn’t budge” on their list price, there are several ways to get a good deal with buying new construction. A real estate agent whose loyalty is to you, their client, and not to the builder knows how to negotiate these “deals” into the contract. This can be things like taking advantage of special promotions or including things that would have otherwise been upgrades.
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 goes under contract on a home by a certain date. Sometimes the builder will make the discount public, but the majority of the time the discount is only listed in the private MLS remarks which is accessible only by real estate agents. 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. Because frankly, why would they? Again, the builder’s real estate agent has a fiduciary responsibility to the builder not to you.
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 real estate agent that knows the local market and is experienced in new construction comes in. A home purchase is one of the biggest purchases you will ever make – don’t you want to get the best home possible, for the deal possible? Of course! So you want a real estate agent in your corner.
BONUS: Read our blog post on the most important things every Idaho homeowner should know.
