Thursday, February 25, 2021 / by Sam Gerardi
Thinking of Building your "new" home?
Buying a new home is exciting. You get to build your dream from the ground up, choosing your lot, your model, interior finishes and upgrades. But like any home purchase, buying new construction is serious business, an expensive transaction with many financial implications – current area comps, long-term value, lot position, area utility, "included" features and upgrades that add Value (& ROI), loan options and more all require consideration.
That’s why it’s a good idea to obtain representation from a Realtor® when considering a new home purchase to answer your questions objectively and protect your interests.
Builder sales reps represent the builder.
Most often builders have their own agents on site to answer questions, assist people who walk in, and ultimately help with a purchase. Builder reps provide a valuable service: They can explain differences between models and floor plans and share information about financing options, upgrades and specials. But it’s important to remember that builder reps represent the builder, as they are contractually obligated to do.
“Realtors are trusted local resources for real estate information and can help home buyers navigate the increasingly complex home-buying process,” said National Association of Realtors President Gary Thomas. “The buyer agency agreement ensures the buyer that his or her Realtor will represent the interests of the buyer alone and not the seller.”
Common Misconception: "Going to the builder will save you money"
In most cases this is not only incorrect but may have the reverse results, and actually cost you money. All builders factor in marketing and commission expenses (if they wish to stay in business). In fact, many depend on local agents to bring their buyers. Even when they have an in house sales team the motivated buyers in the market are typically working with an agent.
A Local realtor will know the local comps and be skilled at discussing how the new construction home will measure up over time based on current trends. Additionally, your Realtor will be a voice of reason when selecting options and upgrades that may or may not bring long term value to your home at time of resale. Regardless what HGTV says, those upgrades are tied intimately to the norm of the area comps - that is to say that a $50,000 kitchen may be overboard for the area and return a street & an appraisal value of ~$10,000 when you go to sell. See my post regarding appraisal factors - http://gerardigroup.com/home-appraisals/
Some builders offer a hook to "save" you money
One of the less discussed scenarios a builder may use to avoid working with Realtors is that they either own their own brokerage or partner with an agency to list your current home at a "discount". What's worse is the sell it or we buy it scenario - like Las Vegas, the cards are stacked for the builder. If it is a discount on sales commission you are seeking, many local realtors will offer you a break on selling your home if you buy a new home with them. Why is this important: are they builders or realtors, and is it simply a shell game to distract from the core issue = how much does the new home cost and what is it worth in today's market?
Another tactic is using their lender...
Of course, what could be easier than buy direct from the builder, visit a hopped up model, drink their cool-aide and ... (drum roll) use their lender. These should send the hair up on the back of your neck and launch all the red flags in your brain as it is a distraction away from the price. Why is this an important: While the appraisal process is supposed to be arms length, the builder's lender has skin in the game and the only thing between the buyer and the closed sale is the appraisal... the one that may be at least partially bias.
Bottom Line, you need ALL the info you can get your hands on
The cost of building is going up in both materials and labor. Buying a home is the most important financial decision most people will ever make. A local professional realtor can assist you with understanding the value of your investment before you take the plunge. Since Realtor fees are paid by the seller (in this case by the builder), consulting a Realtor should be a first step. And when it comes to selling your home, note that 3% of the commission typically goes to a buyer agent - this is true with builder broker's taking on your home. So, what do you really save? Without all the data available to you, you may be risking more than a point or 2 in commission.
For additional information, contact Sam @ the Gerardi Group for market analysis, return on investment values and current trends.