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The most common misconception about New Construction transactions

New Construction:
This is not an attempt to discredit homebuilders or onsite real estate agents who represent the builder.  They are some of the best real estate professionals you will ever work with.  However, this is an attempt to share some facts as it relates to protecting your interest in a new construction real estate transaction.

The Big Misconception:
Most homebuyers think that having representation during a property purchase will cost them more money because of real estate commissions.  So they choose to go it alone and negotiate the purchase of their home with the onsite agent or listing agent who only represents the builder or property owner, instead of seeking out a licensed real estate professional to act on their behalf. 

About Real Estate Commissions:
Real Estate commission is financial compensation that licensed real estate professionals receive from the sale of real property.  Real Estate commission works basically the same for new construction, land purchases, and resale homes (resale homes are homes that has previously been occupied by someone other than the buyer.  There is a no builder involved just the homeowner and the listing agent who represent the homeowner who is selling the property). 

Letís focus on new construction for now, even though this can apply to land purchases or resale home purchases:

When a builder prices a home usually real estate commissions are included in the price of the home as a marketing fee or marketing expense.  Letís say a new home is priced at $150,000 and the commission being offered to the onsite real estate agent who listed the property for the builder is 7%.  If the onsite real estate agent representing the builder sells the home without the involvement of another licensed real estate agent, the onsite agent representing the builder will be financially compensated at closing a full 7% commission of the $150,000 selling price of the home. If the home buyer is represented by a licensed agent the commission will be split equally between the agent representing the builder and the agent representing the buyer (In the real estate industry this type of commission split is referred to as a co-op).  3.5% commission which is half of the 7% is paid to the onsite agent who represents the builder and 3.5% commission will be paid to the licensed real estate agent who represents the buyer.

How you benefit from representation:
There are many benefits to having a licensed real estate agent represent you.  We will only discuss some of the more obvious ones:

1) Savings To You
Are you getting what you're entitle to have ... both in quality and value? Your experienced agent knows what you should receive and what "extras" might be available.

2) Resale Value, Property Appreciation & Profit
Give your investment the best opportunity for appreciation at resale. Questions concerning site location, the builder, covenants (When you're buying a home, it's important to understand the restrictive covenants and other deed restrictions that are in place for the real estate you want to buy, because they dictate how you can and cannot use the property), home design and decor are important. Your buyers agent knows you are building not only for today ... but also for tomorrow.

3) Understanding what you are signing:
Any agreement you make with a builder or the builders onsite agent must be written down. This written agreement, or contract, must document the rights, obligations and responsibilities of both you and the builder.  It will show how earnest money is treated in the event of a breach in the contract in addition to other critical items.  Most builders will have you signed their custom contract.  A licensed real estate professional representing you should review this contract prior to your signing, to make sure that your interest is protected.  Your licensed real estate professional will advise you of any changes or amendments to the builders contracts thatís needed on your behalf.

4) You Are Represented
With your real estate agent, YOU are represented! Your agent's experience, knowledge, and reputation represents strength and leverage on your behalf.  Remember, the on-site agent in the subdivision represents the builder not the buyer (YOU).

The most common mistake buyers make:
It is important that you as a buyer be proactive in securing proper representation when purchasing your home.  To often, licensed real estate professionals receive calls, usually from a first time homebuyer who realize, only after signing the contract that the agent representing the builder or seller is not representing their best interest. The issue could be a minor misunderstanding like the color of the electrical power jack covers in one of the rooms or it could be a major misunderstanding like disagreeing with the material being used to build the home. 

At this point in the process our advise to the buyer is limited since the buyer as already signed the contract.  We usually recommend that the buyer try to work it out with the onsite real estate agent and the builder, or we may suggest that the buyer hire a real estate attorney to review the contract along with the issue at hand. This can be quite expensive to a first time homebuyer who may have limited finances. Proactively securing the service of a licensed real estate agent to represent you in the beginning stages of your purchase is priceless, especially when you are faced with important issues concerning the construction and purchase of your home. 

Why have representation? 
The purchase of real estate is probably the largest single investment the average person or family will make in their life time.  The cost of having a licensed real estate agent represent you is zero!  Not having representation could cost you dearly.  Remember, any compensation given to real estate agents is recognized by the builder as a marketing fee and has no impact on the final cost of the home. Most reputable Builders desire, expect and encourage bilateral real estate agent participation. 
Every Buyer should have personal representation. Think of buying and selling as a court case. Would you want the same attorney that is representing the other side?


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Articles:
How To Choose A Realtor

New Construction
The Big Misconception


Evaluating Seller's Price

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