New Home Construction / Buyers Agent

In My Humble Opinion
1

So I’ve put myself in a bit of a bind. I’ve been getting ready to enter the real estate market, and while I wasn’t initially interested in new construction, I ended up looking at model homes at a few developments in my area, basically “kicking the tires”. I was not working with a realtor yet, figuring that was premature, not planning on actually buying for a few months.

The situation now however, is that I have selected a realtor, and am very interested in new construction. The problem is that once you visit and put your name down with a development (or email them), the builders will refuse to deal with you through your broker. I thought this might be easy enough issue to force, but I’ve been told by at least one builder, they flat out will not deal with me through my broker. I have visited or contacted nearly every builder/development of interest to me.

What I’m hoping dopers will help me to understand:

  • How important is having a realtor represent me for new construction? Obviously a fair amount of their service is finding homes, which isn’t needed in this case. But to me, going into this kind of negotiation for a big ticket purchase, it seems crazy not to have somebody in your corner.
  • Are their other good routes to representation? Should I hire a lawyer instead?

It seems ridiculous to me that diligence in investigating the real estate market would set me up for this kind of difficulty!

2

Besides just showing you houses the buyer’s agent makes sure the seller follows all the laws and regulations for selling their house, new or not. They also know the area and different things outside of standard forms that might pertain to the house or area. They probably have a pretty good idea of who the good builders are and whose houses have problems down the line or who cut corners on construction.

If you really want your own representation you can offer to pay a buyer agent fee yourself. The builder is probably fine working with an agent as long as he doesn’t have to pay an agent. You can have the contract written so the fee is written into the contract and is paid with your mortgage.

When you buy any house through a Realtor the commission is ultimitely paid by the buyer through higher sales prices so this is no different. Talk to a realtor and they’ll know some way to work it out.

3

You can actually use a realtor for new home construction? I didn’t know that, especially since some of the builders’ websites seem to be against working with an agent. I’ve never gone through the process of having a new home built for me (though I’m thinking of doing that when I retire in a few years), but I figured everything, including mortgage and closing paperwork, was handled by the builder and the mortgage company they worked with.

4

I’m confused about whether you have a seller or buyer’s agent.
Most real estate brokers work as seller’s agents; they’ve got a bunch of properties they’re selling, and access to the listings of other agents, and will run open houses for the houses they’re selling and often will take you to show a house that another agent is selling. They are working as salespeople for the sellers (always remember this, no matter how friendly they’re being to you). The only obligation you have to them is to not help the seller cheat them out of their commission if and when you do buy a house. You’re completely free to go to several different seller’s agents, just like you’re free to walk into several different stores and talk to the salespeople in each store, and then go buy something from Craigslist without going through a salesperson at all.

Some agents will work as buyer’s agents: you pay them and they’re working for your interests, not the seller. Generally, you’ll sign a contract saying that you’ll pay them when you buy a house whether or not you find the house through them. In that case, you’re free to negotiate without them, but of course you’ll still have to pay them. If I had a seller’s agent and someone didn’t want to deal with the agent, I’d first wonder why, then get the agent’s advice, and possibly negotiate with the seller myself, but run everything by the agent before any agreement.

5

Regarding whether I have a buyers or sellers agent, I was expecting my realtor to act as both. They will definitely be helping to sell the house I currently own, and the plan was to have them help me buy a house as well. I have to pay them a higher commission to sell my house if they don’t end up being my agent for buying as we’ll. Does that make sense?

6

Using a realtor for new construction seems to be something you can easily do with or without. The builders tell you you don’t need them (and don’t want to pay the fee) and agents insist you should have somebody represent you (and want the fee).

7

We bought our house new. It was nothing more than a vacant lot when we signed the paperwork.

We looked at lots of model homes and many of those builders tried to get us to sign with them, but our real estate agent told us not to do this - if we did, she no longer had the right to assist us.

Why use a real estate agent when buying a newly constructed home?

First of all - costs YOU no additional money, the builder has to share the commission.

Secondly, a good real estate person knows lots of the pitfalls you wouldn’t know - certain things to check during construction, what to buy and, more importantly, what NOT to buy as “upgrades” during construction. For instance - an upgrade to better doors throughout the house was a good deal - far cheaper than waiting and then removing and putting in better doors later (and you would be surprise to count how many doors are in any house!). But don’t get the upgraded appliances (way overpriced and you can get better and cheaper appliances from any Lowes or Home Depot or Sears.) Will you need that upgrade to a water softener? Will you need a bigger water heater? Will adding the fireplace be worth it? Things like that.

Lastly, when the house in finished and you are ready for that final walk-through, your real estate agent knows exactly what to look for. If you find problems in time, the builder has to fix them for free - but later, it is your problem. We found lots of (mostly minor) errors, but enough that it took them an additional three days to fix everything; from bad paint jobs, loose hinges and other cosmetic as well as substantial construction errors.

For instance - she had us turn on every tap in every sink full blast, and then flush the toilets non-stop. Why? Because often, during construction, the sewer line is installed from the street to the house (by the city) before they actually connect the house to the sewer line and dirt/rocks get accidentally shoved into the sewer during construction - blocking it, but not enough to be noticeable immediately. Sure enough, this was true in our case and they had to bring a special plumber who spent about 3 hours cleaning that sewer connection. I can only imagine having to pay to have for that out of my own pocket a few month/years later!

So - yeah, having a real estate agent in your court doesn’t cost you any extra and it is nice to have someone who knows all of the little things you would never think of.

BTW - one thing we all missed:
In our bathrooms, after about a year, there was discoloration on the floor around the toilets? When I checked, I found that they had forgotten to put on the screws to the toilets holding them to the floor! They had been sitting there, held only by gravity! Thus the slow bit of water leakage that eventually caused damage to the bathroom floors.

So, I can see where builders might not like having to share commissions with a real estate agent, and most certainly don’t like to have them in your court for their expertise, but I would tell them to fuck off and insist they accept the fact or forget the sale.

8

What DMark said, my Mother is an agent and one of the pitfalls that traps new home owners is property tax/escrow. When the builder bought the lot its value was a lot less than it is with a new house on it, the original value is what you will pay in property taxes for the first year, your property tax bill may triple the next year when the value of the house is included in the bill. This is not universal and won’t happen in every case but that is the kind of pitfall a Realtor can save you from.

Capt

9

An agent can represent you in a real estate transaction, much like an attorney can do in court. Would you go to court without an attorney on your side, but one on the other?

Commissions are negotiable. The builder may, but doesn’t HAVE to share ANY commission.

With regards to defects in plumbing, construction, etc., you should not rely upon a real estate agent to detect things he/she is not qualified for. A home inspector is the best choice, and more specialized inspectors are usually available (chimneys, electrical, sanitary, etc.). Allowance for these inspections and tests should be included in the Offer to Purchase, in writing, and agreed to by all parties in advance of any inspection or test work.

As always, this is the case in my state and may be different in yours.

10

I have heard it said ( and i guess i agree) that there is no such thing as a buyers agent. They all get paid by the seller.

Find an experience, reputable builder and you won’t need an agent.

11

You are correct - my bank insisted on a home inspector so he went through the house thoroughly as well - but he was looking for construction errors and other things less cosmetic. The real estate agent was the person who was noting slight “dings” on the kitchen cabinets, sloppy paint work, correct connections of appliances, checking to see if all the electrical plugs worked, garage door system installed correctly, etc. - all of the things that were then immediately repaired (for free) by the builder.
I would have walked in there and just said, “Wow!” and not really noticed all of the small things until I stumbled across them over the next days/weeks/months.
All I am saying is that a real estate agent has been there, done that - and knows all of the little things from experience that you, as a first time newbie, would never think to look for or know. And if you are not paying them out of pocket, why on earth wouldn’t you want to have someone walk through your house with you and point out all of the little things right off the bat?!

12

I’m not disagreeing with you, DMark, just elaborating your posts.

And to set the record straight, a real estate agent is required by ethics and law (at least in my state) to reveal anything that could be considered a defect that he/she knows about.

Sometimes gray areas are: What is a defect? and confidential info vs. requirement to disclose. In general we like to err on the side of caution, and disclosure is considered better than concealment or feigning ignorance. The buyer is entitled to have all the relevant information in order to make a fair offer. Caveat Emptor is not the rule in the real estate business, and a deliberate cover-up is likely to get you sued.

Notice that this doesn’t require an agent to inspect or investigate or crawl on the roof or in the attic, looking for defects, but if something is obvious in a cursory inspection, or is known from past experience, it must be disclosed.

Notwithstanding, if I am a Buyer’s Agent, I am going to provide opinions, within the limits of my knowledge, of conditions as I see them. If I am working for the Seller, I am under obligation to present the property in the best light, which means I have to walk thru with blinders on. It can be a difficult line to toe.

Wrong, wrong, wrong, and very bad advice. Please read my posts in this thread carefully.

13

This is just not true. An agent only gets paid if someone (either the seller or the buyer) has agreed to pay the agent (and any decent agent will insist on a signed contract specifying this).

This isn’t quite true. There are buyer’s agents. But it’s uncommon, and you’d definitely know if it you had hired a buyer’s agent, so it’s good advice to remind yourself that the agent showing you houses is a salesperson, not working for you.

The real reason I popped in is to say that there’s another option besides blindly trusting the builder or paying a commission to a buyer’s agent: hiring a lawyer or agent on a per-hour basis. I’d only get a lawyer experienced enough to know what kinds of structural issues to look for as well as potential issues relating to subdivisions,etc., but it could still be cheaper than a % commission on the sale price.

14

Depends. I can be showing houses in a pre-agency mode, when my relationship has not yet been established. I can show houses while acting as a Buyer’s Agent. I can show houses as a Seller’s Agent (or sub-Agent). The status of any Agent is determined by written, signed agreements. If you are in any doubt, read the contract or ask your Agent.

Not bad advice, and I always advise a Buyer or Seller to consult an attorney if there is a legal question.

However, an attorney might not be the best choice for a real estate transaction to represent you. An attorney will likely charge by the hour, but an agent will charge by a commission (which might be paid for by the Seller). This means you can calculate what your costs will be in advance with an agent (could be zero), but it’s open-ended with an attorney (never zero).

And unless an attorney specializes in real estate law, don’t assume they know the field. In my experience as a Real Estate Agent who has sold 2 properties to attorneys in the last 2 years, and sold 2 other properties owned by attorneys, they were sadly unequipped with the specialized knowledge that I had. Worse yet, they didn’t know what they didn’t know. I daresay they were better represented, in these cases, by an agent.

As always, YMMV, and it may be different in your state.

15

I’m sure it must go state by state, but when I bought both of my houses in Michigan, I used a buyer’s agent. I walked into a Remax before I bought the first house, indicated that I was looking for a buyer’s agent, and they let me talk to a guy, and I decided to use him. I used him for the second house, too. When I sold the first house, I used a different seller’s agent, though.

The standard in Michigan for MLS listings is 6% commission, and the standard language in all of the MLS listings is an equal 50%-50% split (i.e., 3% to each agent at closing). So my buyer’s agent earned 3% on both of the houses that I bought. I didn’t pay this out of pocket; commission is part of the seller’s closing fees (yes, I ultimately pay it, etc., etc., but it’s buried in the house price).

My seller’s agent for the first house sold to a customer without a buyer’s agent, so he earned the whole 6%. When I was investigating FSBO on the first house, I could have had a company put in an MLS listing for me for a flat fee; I’d still be on the hook for the 3% if the buyer used an agent. Because the MLS is a monopoly, anyone who would have spotted my home in the MLS would certainly have had a buyer’s agent.

Because tract houses aren’t listed on an MLS and the developer is selling direct to the buyer, there’s no provision for a buyer’s agent. I suppose that you could, as mentioned above, offer to pay the buyer’s agent directly. But for, say, $6000 of my money, I’d rather use that to pay a lawyer than a buyer’s agent for a new development property.

For a pre-built (used) home, though, I don’t think I would ever do it without a buyer’s agent. It might mean you can’t drop in uninvited to an open house you see, or spontaneously call the 800 number on the signs in front of the house. But you shouldn’t have to! Get the address, tell your buyer’s agent, and he or she will do all of the followup for you!

16

I doubt that each agent received 3%, but their companies did. Most likely the agent received half of that, and the company-agent split is governed by the language in their employment contract. More productive agents usually demand a greater share of the pie.

Who pays what commission, how much and to whom is governed by the contract language between agents, seller and buyer. Any splits between companies are governed by agreements between companies and MLS. It’s not universal to be 50/50; our MLS has a 63/37 split, with the lion’s share going to the listing company.

The Multiple Listing Service certainly is a monopoly, but nowdays all listings are fed to multiple Internet sites. It’s no longer true that you must be an agent to have access to the data; all you need is a computer, although I have access to a few more details than the public does.

I’m not sure why “tract houses” wouldn’t be listed for sale with other properties unless the developer thinks he can market them better by himself. My company lists new construction sometimes even before the house is built and advertises that the buyer can customize as it is going up.

17

I have read several responses from people who are not in the real estate business, so I wanted to give the viewpoint of a real estate professional.

I have been a full time licensed real estate agent since 1993 and a real estate broker since 1995. I have worked for Coldwell Banker and RE/MAX for 12 years and have owned my own company for 8 years. I am also a Certified Real Estate Instructor and train agents to be good agents for their clients.

I am the first to agree there are good and bad real estate agents, you do need to interview two or three to find the one you feel comfortable and confident they will be representing your best interests and not just their own pocket book.

As for Buyers Agents and Listing Agents - most agents do both; some specialize in one or the other. As far as who usually pays the fees - everything is negotiable, but most of the time the Seller pays the fee and it is split between the Listing Agent and the Buyer’s Agent. Most Buyers do not pay a Buyer’s agent out of their pocket. The fee is paid by the Seller out of the price of the home through the use of a Market Evaluation of similar homes that have Sold in their neighborhood over the past 3 to 6 months. The price of the home has nothing to do with whether a home has real estate agent involved or not.

As for New Construction, you should select a good real estate professional to represent you BEFORE you start looking through Model Homes. Once you visit the Builders without an agent, they will usually not allow you to have an agent represent you without you having paying the agent’s fee. If you simply choose a good agent and have them with you when you are looking, the agent’s fee will be paid by the Builder and the home will NOT cost you any more or less than if you did not have an agent involved.

Most of the good builders work well with real estate agents and recommend the Buyers be fully represented. This reduces the risks to Builders of future law suits on Buyers feeling the Builder took advantage of them in the future.

NOTE: The Builder REPS work directly for the Builder and do NOT put your interests first (NO matter what they tell you). A licensed real estate agent who is working as Your Buyer’s Agent is required by law to fully represent you and put your interests first - be sure and work with a Buyer’s Agent who you have signed a Buyer’s Representation Agreement that clearly shows who they represent and who is paying their fee (Fee should be paid by the Seller or Builder - Not You! Be sure the agent scratches out the line in the Buyer’s Representation Agreement that says you are responsible for the fee if the Seller or Builder will not pay the fee) This will ensure you will get all the benefits at no cost of a professional agent helping you make good choices of the best locations & floorplans, so your home will be re-salable when you are ready to sell the home. The agent should also help you get all the upgrades that will make your home more re-salable as well and they should help you negotiate a lot of these upgrades at little to no cost to you.

Please remember, if you choose a good agent, there is no down side to you working with a real estate professional. I recommend you select a good agent, then follow their lead as to what to do next.

They will have you get pre-approved from a good recommended lender who they have worked with and know they will treat you right and usually cost you less than if you simply Google a lender and work with someone you do not know. NOTE: Interest rates they advertise are NOT the only issue – you need to compare apples to apples – this includes all their fees as well – so ASK them about their APR (Annual Precentage Rate) – this number takes into consideration all the fees as well as their stated interest rate.

Once you are pre-approved for a price range, the Buyer’s agent will show you existing homes as well as new construction homes that meet your needs and wants in your next home.

I wish you well in your home search.

Thanks,

Jim Hays
Hays Realty
214-207-9682

18

Only one problem with that. If no one pays the commission, how does the agent get paid? Most (including me) do not work for free.

19

Jim Hayes, thank you for the detailed information on using a real estate agent for new home buying and construction. I’ve only ever looked at new construction once (and went by myself) so I never knew that a realtor is used for that. That is very helpful for the future as I will be looking at a place to retire to in a few short years.