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).
Let’s 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. Let’s
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 &
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
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 that’s 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.
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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