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Don't Visit New Construction / Builders Without Representation!

As a consumer - did you know that when you sign into a new construction community by yourself - that you lose your ability to be represented at a later date on that same property (without any cash out of your pocket)? It is a dirty little secret that the builders never tell you about. Of course - they don't. If you sign in on their sign-in sheet without an agent - they get to save 3-4% (what they would have paid out to the agent's brokerage.)

When you sign in to new construction - the builder has you by the yin yang. If you visit again later - with your preferred Real Estate representative - they won't get paid if you purchase in that community. If you have a buyer agency agreement with that rep - you'll have to pay your agent out of pocket - because the builder isn't paying out.

On the other hand - lets say you had a buyer agency agreement for 3% with your agent - and the builder pays out 4%. Guess who gets the extra 1% when you sign in as being represented by that agent? You do - the buyer! That is one great advantage of having a buyer agency agreement. (The other advantage is that it spells out your agent's responsibilities to you in writing. You know if dual agency is possible or not for example.)

Builders LOVE IT when buyers come in unrepresented. That means that they can charge their normal rate for the property - plus save paying out a 3-4% commission for example. They don't discount the property by that - to the unrepresented buyer. So - as a buyer - it is lose/lose proposition.

You also lose out on:

--knowing about extra incentives that you may not have known about - that could have been offered that the agent has seen offered in the past.

-- an agent ensuring that you are getting the best possible price vs. other properties in the community, and analyzing the re-sales there and in nearby areas - to make sure you don't over-pay.

-- an agent helping you through the home inspection phase (there should be at least two inspections for new construction... one before the drywall goes up, and one at the end.)

-- an agent helping you with the many other details that will ensure you get to closing smoothly.

-- If your agent helps you "loan shop" (not many of them do unfortunately) - that is another thing you miss....saving tens of thousands over the life of the loan - and perhaps having lower lender fees.

Posted by Rick Hauser, ABR, CNE, GRI Exclusive Buyer Agent - 100% Buyers on 03/28/2007 01:05 PM

Comments (19)

builder, new construction, chicago, unrepresented, signin, commission, buyer agency, buyer agent, inventives, agent

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19 Comments on Don't Visit New Construction / Builders Without Representation!

MAR

2007

Great post, never EVER visit a builder without representation. There are SOO many pitfalls you need to make sure you avoid.

Ralph Nudi

BLOG BLOG BLOG is the new BLAH BLAH BLAH

Excellent point Rick. I didn't realize that.

Excellent article. I did not realize that.

Good points. We have such an abundance of local builder subdivisions and I'm sure this happens alot. Consumer drives through the neighborhood, decide to stop in to the sales office and well, the rest is history. Sadly, many buyers have no idea of what can happen without representation. Thank you for posting this : )

Many buyers don't know that working directly with the builder can cost them. A good buyer's agent can educate them on all of the points that you mentioned, talk about teaser prices (starting at $299,000 can mean SO many different things) builder incentives, the true cost of builder "upgrades", etc.

I worked with a gentleman who wanted to buy new last year and together we looked at new homes as well as the resale versions of the homes he liked. After a number of weeks, he realized that purchasing new would cost an additional $20,000-50,000 over purchasing the resale home and bought the resale property instead. In another new home purchase, it was found that there were 31 items incorrectly installed or not working at the time of the inspection.

Interesting topic. I have a very difficult time believing, especially in today's market, that a builder would take that approach.

I visit new contruction and "sign in".

I visit again with my agent.

Builder says "no pay agent".

I tell builder either pay or I walk.

Do you TRULY believe the builder would allow a bona fide qualified buyer to walk because he wasn't with me on my "first visit"? Forget what the "sign in" states....that can be torn up in two seconds.....

Hi Stan - unfortunately - that happens most of the time (saying "no pay agent"). Could they make an exception? Sure. Do they? Typically not.

APR

2007

Rick-They are pretty good here in Hawaii right now because they are trying to sell some houses. In the past, you could not get away with being the agent who went in on the "second" visit. It just wouldnt cut it. I took a buyer in today to sign a contract. The builder gave the buyers 3% back for closing costs, $1,000 Home Depot Gift Card, an extra $1,000 bonus for closing costs and prepaids. In addition, my commission was 4%. I am taking the extra 1% that I would not normally get and paying for the first year of my buyers maintenance fees (it is a single family home that is part of a CPR). I am certain that if this was the buyers second visit, they still would have paid the incentives. Aloha!

APR

2007

addressing Stan: You as the Realtor may want to walk away, but if it is the house the client wants, you can't force them to walk away. (Which is typically what is happening in this scenario.)

Rick, this is great information. I am a buyers agent and know for an absolute certainty that I get my clients the best price on new construction. These "salespeople" often tell the public that prices on new construction are non negotiable. I always offer a lower price or some options at no cost and usually get it.

APR

2007

Stan - This happens more often than you think! Builders salivate at the thought of an unrepresented buyer and unfortunately nickel and dime them every way they can to maximize their profits. Depending on the person working the desk they may or may not let the agent come in at a later time, and like Charles (above) noted, the "non-negotiable" sales price somehow seems to become negotiable when you have an agent.

Great post Rick!

SEP

2007

The builders stand pat on the sign in on first visit thing. Believe it or not, they care not if you say you won't buy from them if they don't pay your agent. Even my very best friends, they will not pay if I do not accompany them on their first visit. Rules is rules! And yes, you indeed will fall in love with the homes and sign their documents and buy that house with no information other than what they provide to you.

SEP

2007

Rich, I will check out what you say with some of the local builders. I had not known this before, and I ama member of the local HBA (Associate member).

MAR

2008

Excellent - so would it be possible to post something a long these lines on our own individual 'localism' sites? It really is helpful info.....We as realtors know it...but you put it very clearly and concisely so the public can 'get it!' ?Thanks....Liz

I think Liz that is an excellent idea. I know there is a lot of new construction in my area. I even lost a client because of this.

Thanks Liz - I try to put it very clearly and concisely so the public can 'get it!' -- but I don't think they will "get it" unless HUD issues some educational information about it perhaps - and even then - the majority of the population isn't hit. I don't think that NAR wants to piss off the builders by making the public aware that they need an agent BEFORE they tour new construction. What kills me is that there is little or no disclosure from the builders about this to the consumer - when they sign in. They don't tell them "congratulations - you just signed in -Gotcha now sucker! Good luck finding an agent that will work for free to represent you here. You could always pay them 3% out of your own pocket however. But of course - we aren't paying out the 3% that we would have paid to an agent. We need to make some profits right now you know.."

Are there exceptions where they might pay out on a 2nd or 4th visit if the buyer procured an agent - and the buyer refused to buy unless the builder paid the agent? A few - but not many. Hawaii has always been more laid back of course :-)

Blanket statements for new construction just are not true. Maybe this has happened in some areas. I have worked with builders since 1994 and never had one that took this approach. I think it is a "local market" thing. In my area if a builder is listed in the MLS they must have a document attached to their listing that spells out their commission information. Some require registration of the buyer's agent prior, some require that the buyer's agent bring their agent on the 2nd visit, some the 3rd. In the over 10 years I worked as an agent selling new construction never once did we "take" the commission from a buyer's agent. Even if they didn't follow the rules.

They do that in our area also. Some builders are very strict about it. Our lawyer says they can't enforce it but our MLS is weak and lets them put it in anyway. It comes down to "procuring cause". To me, if someone just walks in the door and looks around and I spend time with him, no biggee. If I had to sell him, get him qualified and then an agent walks in to write, then we have a problem.

MAR

2008

Rick:

This is so true. On average, I've found the difference between being represented and not represented when dealing with a builder can cost the consumer as much $50,000 in sales price in our Northern VA market. And I've heard the pitches from the builder reps about how the buyers will get a better deal without an agent. DON'T BELIEVE IT. THEY DON'T WANT US THERE TO NEGOTIATE ON YOUR BEHALF.

OCT

2008

There are some builders in Northeast Florida taking away the customers of Realtors, even those customers who have signed buyer agreements. It happened very recently to another agent in my office. BEWARE!

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