Phase 1: How does the process of buying a new home work and why do some Builders/Developers have Real Estate Agents and others have Builder Sales Agents?
- Builder's sales agents are representatives of the builder, and are paid to create those sales. Builders generally hire their own sales agents to keep their sales costs reduced. Many are on straight salary or some form of commission incentive for each sale they make, but many are not licensed real estate agents. Regardless of the fact that their job is to “sell you” on a home, they do still remain the MOST knowledgeable about the products, the same way the home owner knows their home best when they are selling it. In the past, some would use high pressure tactics to persuade you buy with them, but over the past decade or more the amount of available information to consumers makes the average buyer far more informed (remember all that great research you did – now you’re putting it to use). The more knowledgeable consumer. I.e.: YOU, doesn’t fall for the high-pressure tactics of the past. The Builder Sales agent will be left having to impress you with the quality of product they build, the features offered, the price point, the size of lot, location, builder incentives and more. Remember you have choices, and the sooner they know that you know that the better.
- Know as well that many Builders determine that if YOU walk into their show home or sales centre without a Real Estate Agent initially they may not allow you to bring one after the fact as many require the Real Estate Agent to “introduce” you to them. This actually makes sense as they need to ensure you came through their door because of the thousands in advertising they spend and not have a Real Estate Agent who shows up after the fact because they are your friend. If you want a Real Estate Agent to assist be sure to have them to the appointments and set up the meetings before you walk in to that builder.
- Make sure the Builder sales rep is getting you the information you need, but remember lots of builder's agents are paid less than real estate agents make in commission; so they need to sell more homes. Speed of information and getting to the next client will be important to them as well. Come prepared with your questions and know you can always schedule another appointment.
- Based on your research you may feel you need to use the services of a Real Estate Agent ( Buyer's Agent ) to represent you. But how do they get paid or does it cost you the buyer?
- Real Estate Agents make their income from commission usually paid by the seller. However, in new home sales many Builders commission varies or may not even be available. Some only offer a reduced commission or many times none at all as they have their own sales force and their sales and marketing are doing the job for them, plus they are trying to keep their overhead costs low to keep your home price reasonable. You may even find your agent trying to get you to consider a used home and giving lots of reasons not to buy a new home…simply to make their commission process easier. Be sure they are clear that you want a new home and that commission they will get paid is their responsibility and not yours.
- In fact, although the seller pays the commission, sometimes it becomes the responsibility of you the Buyer to pay for the agent's fee . Your Real Estate Agent will likely ask you to sign a Buyers Contract – (5 things to know about Buyer Brokerage Contracts), one that essentially has you commit that the seller will pay them but if not then YOU agree to make up the difference. Yes, you read that correctly, that YOU pay the difference. Well if you’re buying a new home, there is a good chance this may come into effect due to different commission from Builders, so be very sure to understand what your signing and what services you are being provided before you do.
- You have likely done all the research and know more than the Real Estate Agent does about the project, but a key advantage they may bring is the negotiation aspect. They may be able to understand if there is a chance to get more money off the deal. The harsh fact is that most Builders have already figured out their pricing and in fact added a real estate commission into it to cover the cost when you bring one. Their flexibility on the price may actually be determined on whether you have a representative or not. However, were not saying don’t use the agent. They can bring more worth than just negotiating price. They know the questions to ask which may be as simple as if they furnace is cleaned prior to possession (trades people kick sawdust into the vents) or if the Real Property Report is registered with the City and has a stamp of compliance and so much more. The key part is being aware and asking lots of questions before you decide so you can get YOUR best deal.
- You may choose to just negotiate a Service Fee with the Real Estate Agent who then comes in not acting as an agent, or simply as your “friend” in the process and you can then inform the Builder there is no agent and push for a reduction in price due to no commission. Not sure if many agents will do that but you can always ask, remember you likely have more information than they do if you have really done your research. Another option is that You may also get your agent to agree to share a portion of their commission with you upon purchase since you did all the research and finalized on the Builder, all they are doing is assisting in the end, so why get the full rate?
Real Estate agents do however carry a fiduciary responsibilityto investigate the required information to disclose the positives as well as the negatives about the transaction. The Builder's agent works for the Builder, so will generally only focus on the positives. It’s your choice, but you know best what works for you and negotiate those fees.