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I'm hoping to buy a newly built house in a central neighborhood. A realtor mentioned that the new construction in this part of town is very popular and is likely to sell at or very near its list price. The builder has a good reputation and I'm confident that they will do a good job, subject to an independent inspection of course. In any case, I don't believe that a realtor is any more likely to identify construction problems than I am. So I began to wonder, what value is this realtor bringing to the transaction to justify a 3% commission? I'd prefer to cut the price by 3% (or even a bit less) and skip the realtor entirely. What value are they offering in this scenario? Am I likely to have problems getting the builder to discount for the commission savings?
I'm hoping to buy a newly built house in a central neighborhood. A realtor mentioned that the new construction in this part of town is very popular and is likely to sell at or very near its list price. So I began to wonder, if I've already identified the property, why should a realtor earn 3% of the sale just for inserting herself in between me and the builder? I'd prefer to cut the price by 3% (or even a bit less) and skip the realtor entirely. What value are they offering in this scenario? Am I likely to have problems getting the builder to discount for the commission savings?
A buyer's agent can do a lot of the legwork, inspection stuff, document organizing for you at no cost to you.
The builders usually have their fee (to the realtor) budgeted separately from the house price. So it is not costing you in the price of the house, either.
With the crappy housing market, this may have changed, but overall, you don't lose out by getting an agent.
The builder won't offer you a discount just because you aren't using a realtor. They pay the realtor out of their marketing budget. We used a realtor to buy new construction because he was paid by the builder so when we sold our home, we only had to pay 3% commission to him instead of 6%. It worked out better for us. Do you have a home that you are selling, if so I would use a realtor. Don't expect the builder to offer you 3% off just because you came in without a realtor. It doesn't work that way. You should still try to negotiate but not having a realtor does not factor into their decision.
Stan, what do you mean by legwork? I prefer to coordinate and review the inspection myself, and I expect that my mortgage broker and title agency would handle most of the document organizing.
I find it hard to believe that the realtor is getting 3% but that it is not somehow reflected in the total transaction cost. I'm the only person bringing dollars into this transaction, so if she's getting paid, I'm pretty sure that I'm ultimately the one paying it. Why does this not translate into the sales price?
although for the most part honest, it is (imho) important to know new home sales staffs are not bound by any code of ethics and are soley in the business to get a unit closed and processed -- they owe the customer (notice this is not a client) nothing -- involving a realtor creates a fiduciary relationship (must look out for YOUR interests) and the buyer becomes a client -- a realtor would insure you don't pay closing costs that are the seller's responsibility, aren't buying something that's overpriced for the market/area, and provides insight into builder process and practices -- should you seek financing outside the builder's "preferred lender", a realtor would help protect you from preditary (sp?) lending practices -- we also insure you get and keep the leverage on the builder during the construction process and they are accountable for meeting commitments, deadlines, etc. -- at different points during the transaction, a buyer's agent will be managing between 15 and 20 other individuals on seperate tasks relating its successful completion -- and the seller won't give up the 3% --
I find it hard to believe that the realtor is getting 3% but that it is not somehow reflected in the total transaction cost. I'm the only person bringing dollars into this transaction, so if she's getting paid, I'm pretty sure that I'm ultimately the one paying it. Why does this not translate into the sales price?
Believe it! It's a marketing budget. Whenever an agent isn't used on a deal, that money goes back into their marketing and they throw us, the agents, a huge party once or twice a year. The more times an agent isn't used, the more money they have to spend to market to us to make sure we bring them more buyers in the future. So, if you don't use an agent, bigger end of the year party that you're not invited to...
I'm hoping to buy a newly built house in a central neighborhood. A realtor mentioned that the new construction in this part of town is very popular and is likely to sell at or very near its list price. The builder has a good reputation and I'm confident that they will do a good job, subject to an independent inspection of course. In any case, I don't believe that a realtor is any more likely to identify construction problems than I am. So I began to wonder, what value is this realtor bringing to the transaction to justify a 3% commission? I'd prefer to cut the price by 3% (or even a bit less) and skip the realtor entirely. What value are they offering in this scenario? Am I likely to have problems getting the builder to discount for the commission savings?
My agent was able to negotiate additional items when issues came up. They basically insulate you from dealing directly with the developer. My agent got me a sprinkler system, urethane garage and much wider driveway. Was it worth the extra cost? As others have said not using an agent wont get you a discount. A good agent will know which things to negotiate for and how to get them.
when interviewing an agent, think about the role you want them to play and then ask them for specific examples of when they were successful. In my case it would be something like, give me some examples when the builder messed up, what you got for the buyer and how much was it worth. Give me specific examples of when you saved money for the client by finding something the client didnt know about.
Most agents (probably 99%) wont be able to answer these, so interviewing may take more time than you have.
Well, in short, unless you are a very experienced buyer and know everything about the area and neighborhood in which you are purchasing, you can do damage to yourself because of the realities of "you don't know what you don't know" when purchasing new.
That said, hiring a Realtor who doesn't know what he doesn't know either will be of zero benefit to you. Let's face it, there are a lot of lousy Realtors out there who haven't a clue about how to negotiate the best price on a new build, nor do they know how best to advise you in lot selection, price point and upgrade considerations. These things all matter a LOT when you eventually resell.
I've encountered some very good onsite sales people over the years. The good ones will run circles around an unrepresented buyer who doesn't know the right questions to ask or the right strategy to employ. They have one mission, to sign you for the highest possible price and get you to buy as much in (high profit) upgrades as possible.
Your best deal on a new home will be on an inventory home that has been sitting a while. You get to see what you're getting, and you get to avoid the entire construction process. This is also the home with the most negotiating room because the builder wants it off the books.
What I tell my new home buyers is that we're going to make at least three offers and then walk away before we start learning where the builder's bottom dollar is. This can happen in a few days or it can take a few weeks. The more patient party gets the better deal. I love the typical phone call after that third try, "I just talked with our sales manager and .. I can't believe he's doing this ... we've never done this for anybody ... but he's given my authorization to come all the way down to $x. So do you think we can make this happen?"
Sold. But that price was not ever going to be available to a 1-visit buyer.
Don't over-spend on upgrades or accept upgrades in lieu of a better price. $20K in "free upgrades" is not the same as $20K off the top of the price. The upgrades are generally 1/3 to 1/2 the builder's actual cost, so take the price reduction instead.
Stick to the average/median size and value for the neighborhood. If the neighborhood is 1800-2800 sqft homes, stick to 2200 sqft and stay at a lower price point. If you want a 2800 sqft home, go find a neighborhood where the homes are 2500-4000 sqft and buy the 2800 sqft home. The bigger homes lose value faster in soft markets and appreciate slower in rising markets. Stick to the middle or lower end for the neighborhood.
Don't pay big lot premiums unless you can place a personal immediate cash value on the better lot. In other words, you won't get all your premium back on resell. New home builders get much bigger lot premiums than do the resellers of those same homes a decade later, so it's a lousy investment unless you really want the better lot and can afford it.
Find a Realtor who knows ALL the ins and outs of dealing with all these issues, as well as changing school boundaries, road infrastructure issues, property taxes (are there water bonds, etc?), percentage of buildout remaining, current resale market (often much better deals than buying new - see Tera Vista, Belterra, Steiner for examples), etc, etc, etc.
Well, in short, unless you are a very experienced buyer and know everything about the area and neighborhood in which you are purchasing, you can do damage to yourself because of the realities of "you don't know what you don't know" when purchasing new.
That said, hiring a Realtor who doesn't know what he doesn't know either will be of zero benefit to you. Let's face it, there are a lot of lousy Realtors out there who haven't a clue about how to negotiate the best price on a new build, nor do they know how best to advise you in lot selection, price point and upgrade considerations. These things all matter a LOT when you eventually resell.
I've encountered some very good onsite sales people over the years. The good ones will run circles around an unrepresented buyer who doesn't know the right questions to ask or the right strategy to employ. They have one mission, to sign you for the highest possible price and get you to buy as much in (high profit) upgrades as possible.
Your best deal on a new home will be on an inventory home that has been sitting a while. You get to see what you're getting, and you get to avoid the entire construction process. This is also the home with the most negotiating room because the builder wants it off the books.
What I tell my new home buyers is that we're going to make at least three offers and then walk away before we start learning where the builder's bottom dollar is. This can happen in a few days or it can take a few weeks. The more patient party gets the better deal. I love the typical phone call after that third try, "I just talked with our sales manager and .. I can't believe he's doing this ... we've never done this for anybody ... but he's given my authorization to come all the way down to $x. So do you think we can make this happen?"
Sold. But that price was not ever going to be available to a 1-visit buyer.
Don't over-spend on upgrades or accept upgrades in lieu of a better price. $20K in "free upgrades" is not the same as $20K off the top of the price. The upgrades are generally 1/3 to 1/2 the builder's actual cost, so take the price reduction instead.
Stick to the average/median size and value for the neighborhood. If the neighborhood is 1800-2800 sqft homes, stick to 2200 sqft and stay at a lower price point. If you want a 2800 sqft home, go find a neighborhood where the homes are 2500-4000 sqft and buy the 2800 sqft home. The bigger homes lose value faster in soft markets and appreciate slower in rising markets. Stick to the middle or lower end for the neighborhood.
Don't pay big lot premiums unless you can place a personal immediate cash value on the better lot. In other words, you won't get all your premium back on resell. New home builders get much bigger lot premiums than do the resellers of those same homes a decade later, so it's a lousy investment unless you really want the better lot and can afford it.
Find a Realtor who knows ALL the ins and outs of dealing with all these issues, as well as changing school boundaries, road infrastructure issues, property taxes (are there water bonds, etc?), percentage of buildout remaining, current resale market (often much better deals than buying new - see Tera Vista, Belterra, Steiner for examples), etc, etc, etc.
Steve
I so agree with what you said about buying a home of average size/value. A lot of people bought a large floorplan in Meridian in one section. The model was a stunner so people bought up that Meritage model in droves. However, those plans are now sitting on the market as resales and no one is snapping them up. They are oversized on small lots. They keep decreasing their prices. Too many of those floorplans in one section and very hard to sell!
This really is a different situation as the sales reps are just employees of the builder and could careless about the final price as they're just an order taker.
With a custom build, you usually talk directly with the builder and they're more emotionally invested in the home, and you're more than likely not going to get as far in negotiations with your emotions also involved, whereas an agent can take out the emotion and get to the bottom line quicker and with less offense to the builder, if offense is the right word. Many times, these custom builders get really offended when an unrepresented buyer comes and tries to negotiate and low ball their their "baby".
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