Use Realtor for New Construction?

[Kluch]

Originally Posted by Big TR

There's no such thing as a free lunch. Recording fees, lender fees, title fees, escrow monies, etc., are all part of the purchase price of the house.

Look at it this way....Instead of paying $400,000 for a finished house plus closing costs, you are paying $412,000 with no closing costs.

Imagine a scenario where Franklin, Tennessee charges each homeowner $1,000,000 to transfer a home. You have two houses across the street from one another, with one in the city and another just outside of Franklin. The houses' cost to build plus builder's profit totals $400,000. Each builder might tell you they are paying all your closing costs, but guess which one is going to sell for $1.4M?

All they are doing is inflating the "value" of the home you are purchasing.

So I checked with our lender on this because I figured there was a good chance you were right. Turns out the closing costs are being paid out of the builders profit so, yes, you're right, "there's no such thing as free lunch" for someone. In this case, it's not us, which is nice.

[Big TR]

Originally Posted by Kluch

So I checked with our lender on this because I figured there was a good chance you were right. Turns out the closing costs are being paid out of the builders profit so, yes, you're right, "there's no such thing as free lunch" for someone. In this case, it's not us, which is nice.

The "builder's profit" simply includes the closing costs grossing up the sales price. Again, if the closing costs were $1,000,000, the price of your house would simply be $1,000,000 higher.

You are paying the closing costs one way or another, regardless who "pays" at closing. This is a common misconception among home buyers. Short term cash flow is confused for total cash outlays over 30 years.

The reason I keep beating this dead horse is because the final price of your home is inflated by several thousand dollars because the builder is "paying" the closing costs. They may be using very expensive title companies and mortgage brokers who are affiliated or are subsidiaries of the builder. They may be charging substantially more on the costs than you could find your own.

It's all part of hidden profit for the builders. They tell you "Hey, no closing costs if you use our closing company and our preferred title and mortgage companies. You can use your own, but then you have to pay all the costs yourself." The builder knows going in that nearly every single buyer is going to take the $0 cash out of pocket option. So they make the sales prices higher to compensate for this cost. You'll probably be signing a disclosure form that says "Builder is affiliated with X, Y and Z, and may be paid referral fees, etc from X, Y and Z. You are fine with this arrangement."

A savvy real estate agent might be successful in beating up the builder to allow the buyer to use their own professionals at closing and get the net costs down.

[heartwilsoncounty]

Originally Posted by Big TR

A savvy real estate agent might be successful in beating up the builder to allow the buyer to use their own professionals at closing and get the net costs down.

A good real estate agent would know to do this.