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New Home Purchases & How Not To Get Bent Over

By
Real Estate Agent with RE/MAX Compass 0524642

New construction homes are an easy product to sell, especially to first time buyers. Here's a list of ten things you should remember when buying from a builder.

 

1. The builder will do everything in their power to monopolize the transaction. They want the loan, the inspection, the appraisal, the Title Company and they'd love for you to not have a Realtor. These combined factors maximize their profits, not yours.

2. If it's not in your contract then don't expect it to be true. This really happens when sales counselors promise neighborhood amenities and even proposed streets & thoroughfares.

3. Sales Counselors are not Realtors and they are not bound by any Code of Ethics. The New Home business has litte oversight when compared to Realtors who are overseen by the Texas Real Estate Commission.

4. Many sales counselors will SHOVE you their preferred Realtor. In essence, this "Realtor" really works for the builder and NOT you. The builder will provide the selected Realtor a steady stream of potential clients and in return they will expect the Realtor to keep their mouth shut when the buyer buys the new home. The agent will typically list your home for only 3% so they can get PAID on the buy side - with the builder. A Realtor's job is to always represent the best interest of the buyer and ONLY the buyer.

5. Builders have a tendency to shark a buyer for the loan throughout the buying process. They'll say things like. "We'll provide 3% towards closings costs if you use our lender!" That 3% can equate to big dollars. Of course they'll make that money back, and the some. The builders APPRAISER will rarely torpedo a deal and undervalue a home as this would kill the transaction. An OUTSIDE lender, one the BUYER chooses won't be so lenient when it comes to true value. NEVER use the builders appraiser.

6. Builders also have a preferred home inspector. This inspection company is also getting their bread buttered by the builder with truck loads of inspections. This steady stream of business is valuable to the inspection company. HIRE YOUR OWN INSPECTOR!

7. Sales Counselors know their market, their neighborhood and that's about it. They do not have access to comparable sales on the multiple listing service. They cannot provide you savvy real estate advice about the home you have to sell. In many cases they do not even know what homes are "reselling for" in their own community. Again, they don't have access to "comps" on the MLS.

8. What NEW homes are re selling for is critical. You don't want to pay $225,000 for a BRAND NEW HOME when you can get one that 1-3 years old for $190,000. You'll be upside down on the home for a LONG TIME.

9. Sales counselors have quotas. If they don't sell X amount of homes they'll get fired. Realtors are independent contractors. We have to sell too, but we aren't under the gun of getting fired everyday. Most sales counselors last about 1.5 years per company they work at. As soon as the subdivision is built out they are assigned to a different community to start the process all over again. You, the buyer, are left behind with whatever decisions you make. Realtors want your business for life. Sales counselors typically want your business today as the likelihood of you buying another new construction home with the same sales counselor is almost ZERO.

10. Often buyers will buy in new communities only to find out that the developer has changed their minds about the vacant land by their new home. It isn't uncommon for shopping centers, gas stations and tire shops to pop up on that "giant vacant lot" the builder told you would be a reserve. Remember, if it's not in the contract then don't assume it's going to be built.

 

Not all builders are shoddy or unethical. I have always had great experiences with David Weekly, Lennar, Trendmaker, Meritage, Pulte and a few others.

I always tell my buyers to avoid KB Homes, Centex, Obra, Perry and a slew of others. I have endured one too many bad experiences. The horror stories seem to never stop.

Always do your research. Don't be impulsive or quick to sign. Hire an agent that isn't a puppet for the builder. Perform your own inspections, use your own lender and never let a sales counselor who used to be a Realtor tell you about the market. There's a reason they "used" to be an agent.

Posted by
Greg Nino
Realtor
RE/MAX Compass 
Direct & Text 7 days a wk: 832-298-8555 
 
 
Realtor since 2004
Mediator & Arbitrator for the TX Assoc. of Realtors
Member of the Professional Standards Committee for the TX Assoc. of Realtors
Arbitrator for the Comptroller's office for the State of TX for Arbitration of Property Tax Values

 Member of the RE/MAX Hall of Fame & Platinum Club

 

The information contained in this blog is believed to be reliable and while every effort is made to assure that the information is as accurate as possible, the author of this blog, and its comments disclaim any implied warranty or representation about it's accuracy, completeness or appropriateness for any particular purpose. All information is copywritten and the property of Greg Nino.  

Comments(42)

MeLisa Minter, Realtor
Minter Real Estate Services - Taylor Lake Village, TX
Bay Area Houston Real Estate Agent

Ok, as a former new home sales consultant, I have to say that you hit the nail on the head in so many of the above points.  It used to astonish me that about 90% of the buyers would come to the builder without a realtor.  All they saw was the $10,000 in upgrades, flat screen tv and free media for the media rooms.  At that time I didn't know the risk they were taking in coming to a builder without a realtor, because I worked for the builder. 

My weekly goal was to sell at least 3 homes per week.  This was nearly four years ago... when anything went,  so of course, my weekly goal was easily attainable with all  the crazy incentives we offered.  $500 total move-in...roll everything in, including that washer and dryer.  And people did it! How crazy was that!

By the way, I will be reblogging this.  Great post.

Nov 27, 2010 03:47 PM
Phil & Celeste Pafford
PaffordHomes.com, Corona CA - Corona, CA
Corona Short Sale Broker

Yep, 25 years ago our builder had land reserved for a park... 8 years after we purchased our home... our developer was long gone... park still not built... squabling broke out... bad deal all around. ;-)

Nov 27, 2010 05:12 PM
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Wow and I thought I kept it real.  Congrats on the feature Greg.  I try to impress these points to buyers as well.  There is so much going on with a new home purchase - I think more than with a resale home.  Thanks for taking the time to detail it out.

Nov 27, 2010 05:31 PM
Laurie Mindnich
Centennial, CO

Greg, here is a bottom line with builders (btw- Pulte owns Centex now):

Each subdivision is entirely the result of the builder crew (superintendent, trades) on site. A buyer should knock doors in ANY new home community before buying, and get the opinion of those already living there. Even in the same division, with the same builder, one community can be stellar, while the one down the street, with a different superintendent, can be horrible.

Buyers are better off working with their own *competent* Realtor- unfortunately, most came in stating that they weren't working with a Realtor. I never had issues using a recommended agent for the sale of buyers homes, because we used local, experienced Realtors. I also rarely had an issue with the in house lender: if a buyer insisted, they could bring in the total cost of the outside lender of choice, and the builder would match. Amazingly, when the loan paperwork was carefully reviewed, the cost for the outside loan was often HIGHER than that of the builders mortgage company- just in hidden fees, not points, which were more obvious.

I haven't been on site in several years- I'd guess that the imploded market has probably created some genuinely horrific experiences for buyers, particularly with money tight builders.

On site people spend up to a year with YOUR buyer, seeing them far more often that you or I will, as a participating Realtor. Puppets? Disagree with that kind of disparaging statement. But, love your honesty.

Nov 28, 2010 12:16 AM
Ron Parise
LocateHomes.com - Cape Coral, FL

Just as its advisable to use a buyers agent when shopping for and buying a resale home (because they represent the seller, not  the buyer),  its advisable to use a buyers agent when dealing with a builder.

Please note I said "advisable" not necessary. Your chances of finding a good and true builders rep that looks out for the buyers interest is no different than finding a listing agent with the same qualities.

I will say however that I have worked with buyers buying new homes and have never encountered a builders rep that wasn't completely honest and straight-forward with the buyer. I cant say the same about my dealings with listing agents

Nov 28, 2010 12:34 AM
Joel Gwillim
CIR Realty - Condo Specialist - Calgary, AB
Associate - REALTOR®

I once showed a new home to my client though a supposedly reputable cooperating home builder.   The sales representative handed me one set of feature sheets, and another to my customer.   My client, feeling perfectly comfortable having me represent them, just passed her set back on to me.  When I arrived back at the office I found her package was loaded with extra incentives which were not in my package, such as "Why pay a REALTOR® when you can use ours?" Talk about sneaky scoundrels. Where will they stop with their tricks?

Nov 28, 2010 12:58 AM
John Zappia
Maine Custom Realty - Portland, ME
Maine Custom Realty

Well, being a building contractor, and coming to RE brokering from a builders' perspective...sadly, I've come across far more unethical brokers than any of the builders I know in my area...it's like any business, there are some good brokers and some not-so-good brokers...personally, I've built custom homes on a handshake i.e. no P&S Agreement, with my own capital, and had them close with no problem...I hold off on signing a P&S until the house is almost done...I know, I know, it's not orthodox but it gives me full-control of my investment without a chance for a breach-of-contract...I still do everything I can to appease the buyer during construction but I don't have to deal with any personality conflicts, or anyone elses terms, other than my own.  What they get is a house financed by me (an interest payment built into the agreed upon price) and a house built the way I said I'd build it...I've done these with no broker involved and I'd bet the buyers would build another house with me anytime....one buyer asked me "how do I know you won't sell it out from underneath me?"...my response >> "because I said I wouldn't"...sometimes you just have to trust somebody...it can be that simple.

Nov 28, 2010 01:00 AM
Dee Bundy
Fort Collins Realtor @ C3 Real Estate Solutions - Fort Collins, CO
Helping You Make Colorado "Home"

Great list, Greg.  I'll be reblogging it.  Thanks for sharing!

Nov 28, 2010 04:29 AM
Karen Crowson
Coldwell Banker Residential Brokerage - Rancho Bernardo, CA
Your Agent for Change

Greg, perfect timing on this one. I'm taking clients to a new home development today, and one of the incentives offered is about using the builder's lender. Will be sure to point this out to them.

Nov 28, 2010 04:39 AM
Michael-Edward Cruz
Pacific Sotheby's International Realty - Newport Coast, CA
Michael-Edward Cruz - Newport Coast & Bay Front

Thanks for the post, I enjoy working with builders in Carlsbad but I can use this as a guide as to why they should use me for their purchase of a new home. 

Nov 28, 2010 05:13 AM
Stephen Turner
House Broker Realty - York, PA
The BIG Guy of NEW HOME SALES

Thanks for the post, yet some items to keep in
mind. With about 90% of loans now being government loans, they choose the
appraisers. Not the builder or the banks. Also, it is OK to use a builder’s preferred
lender and to also compare that GFE to others. See if the builder’s bank can
meet or beat it, usually they will. Most builders are doing everything in their
power to find the best bank, suppliers and products for the customer. It also
keeps their process stream lined saving time and hassles for buyers. A Builder
should also Co-Op with realtors, they ones that don’t are usually the ones that
need to be avoided.

 

 

Nov 28, 2010 05:36 AM
Brian & Marie Spray
www.DFWAreaRealtors.com - Action Realty Group - Frisco, TX
Frisco TX Realtors

Greg - this is a great post and very helpful for people to know!!!  I'm also thinking I wouldn't tell folks to avoid certain builders - at least around the Dallas area anyways, unless they are one that has been struggling financially and may not finish the home or neighborhood as has happened in a few areas!  Personally I live in a KB home that we had built in '98 and we love it!  We bought with our eyes open - I wasn't a Realtor then - we knew the builder built 'bare bones' and upgrades were better off done by us after the fact.  The only thing I wish was better is that landscaping was an option, and here we are 12 years later and there are quite a few homes that never had any landscaping done at all!  Knowing this now I educate my buyers that this is a real possibility if they buy in a new area like this.

Brian

Nov 28, 2010 07:14 AM
Phillip Himes
Century 21 Paramount - League City, TX
Selling Homes in The Houston Bay Area

I agree 100%!!  It would be different if they offered a packaged deal that would save the client money, but they don't.  As a mortgage lender, I can't tell you how many clients I have closed after the builders lender offered them a loan much higher in closing costs and interest rate.  Once they had a challenger they got competitive, but how many people got taken advantage of that didn't shop around because they thought they couldn't.

Houston Mortgage Loans

Nov 28, 2010 09:39 AM
Evelyn Johnston
Friends & Neighbors Real Estate - Elkhart, IN
The People You Know, Like and Trust!

Wow Greg, a new hornet's nest huh? Great comments both for and against, but mainly they agree with you.  I have only sold one new home construction and it all was in favor of the builder.  But the Buyers are estatic! They love their home even after several years!

Nov 29, 2010 05:08 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

#1 is SPOT ON!! 

I had one "new home" a few weeks ago that we toured, and they were short selling on the parcel!!  Didn't show up on the MLS as a short sale, because they weren't selling the land, although the homes hadn't been constructed yet.  Hmmm . . .

Nov 29, 2010 06:12 AM
Stephanie Stringer
First Choice Loan Services NMLS#210764 - San Antonio, TX
Mortgage Loan Originator

Greg,  Awesome post.  You are a 100% right.  Since I am in lending,  the piece about the closing cost and appraisal is so true.   I just had one client give me the builder's gfe and I looked at it and told the client that I can beat the rate by .500% and wavie the origination.  The client was extremely excited so they were going with me UNTIL, the builder got word and notified their mortgage company and somehow their mortgage guru dropped the rate by .500%, waived the origination and added extra for the seller to pay in closing cost.  WHY did they not offer the going rate the first time????   They were making butt loads of money on the back end until I pointed that out to the buyer.   This builder / lender crap has to stop.  This was a smart buyer who shopped but what about the others that did not?

Nov 29, 2010 02:58 PM
Angelia Garcia
Pure Realtors - Dallas, TX

#42- so are you still doing the loan or did they go back to the builder's lender?

Nov 30, 2010 06:48 AM
John Axt
Prudential Gary Greene, Realtors - Spring, TX
Spring Texas Real Estate

Having lived in 4 different states in my life, I can tell those who do not live in Texas that this post rings true on many levels.  Builders love to love the Realtor until you bring the buyer to the door!  There is SOOOOO much new construction in the Housotn area (yes, even today).  Potential buyers tend to just WANDER in to the open houses and get awed with what they see.  They want to beleive that the way the builder maintains the model homes is the way they will receive theirs (Not).

Most often, the builder has two sets of pricing.  One for those with Realtors and one without.  you might like to think that the one when you have a Realtor is higher (Not).  As pointed out in the post, a true buyer representative is going to let you know what the property is actually worth when compared to the 1-3 year old home up for resale.  In most cases, the buyer ends up with a better deal when they are working with a Realtor!

So why do so many go directly to the builder?  It is all about razzle dazzle!

Dec 20, 2010 06:55 AM
Kristi DeFazio
RE/MAX Advantage - Colorado Springs, CO
Colorado Springs Rea lEstate 719-459-5468

Greg- My first home was a Centex home in Texas. We had some minor problems with it but overall they were o.k. I think this is worthy of a reblog. I don't know how I missed it the first time. Great post!

Dec 20, 2010 12:12 PM
Faye Y. Taylor
StepStone Realty, LLC - Floresville, TX
Country Living with City Convenience -Wilson Co TX

The buyers just like to drive around and "shop" on the weekends.  They do not realize how much they are putting themselves at risk by doing so without an agent.

Thanks for the informative post.  It was really good.

Dec 21, 2010 07:02 AM