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What Happens When There is a Low Supply of Existing Homes

Because of the current low supply of homes, sellers have a great deal of leverage in a transaction. To avoid having to bid with multiple buyers with bids running well above asking price, many home buyers seek out a newly constructed home. There are some nuances of buying a new construction home, one of which is who should the buyer get to represent their interests. Unfortunately, many buyers go to a builder’s model home in a subdivision and “negotiate” with the representative in the model home. The low inventory in the market provides less opportunity for negotiation – or does it?

Who Does the Model Home Representative Actually Represent?

Most individuals in a model are of two types, a builder’s representative or a licensed agent. A builder’s agent is generally a person employed by the builder and paid to sell the builder’s homes. By law in most states, unlicensed reps cannot legally represent “you” as the buyer. Since they can’t legally represent “you” and since the builder compensates them, who do they owe their allegiance to? It certainly isn’t the buyer!

As for the “agent,” that is someone that the builder or listing agent hires to assist in selling the builder’s homes. As sitting in the model home awaiting buyers to come in is an “opportunity” for most agents, they are reticent to actively represent the best interests of the buyer in fear that the builder will eliminate their “opportunity.” In short, they are going to look out for the builder and themselves first, not the homebuyer. Additionally, many times the agent is also working with the same brokerage as the listing agent for the builder. That puts an agent representing a buyer in an immediate position of being nothing more than a scribe to complete the necessary paperwork. Legally, they can’t serve the best interests of both the builder and the buyer.

The listing agent certainly can’t and won’t represent the buyer.

Your Own Agent Makes a Difference

You will not save on the purchase price by using the builder’s representative. You will not get more or better appliances because you buy from the builder’s representative. The only ones who benefit are the “builders” and the rep or agent selling model homes. The builder may save commissions or the agent or rep may make more commissions.

It is significantly better for a buyer to have an agent who represents them. It makes a big difference to have someone that can and will properly advise them and knows the building process. Also, it helps to have someone objectively analyze the builder’s history and understand the changes this current market climate has produced. They can assist you with understanding your options if the builder increases the price, knowing if closing can reasonably occur when represented, and determining if the home will appraise at the price you require. These steps can dramatically affect the loan approval, the loan interest rate, and the cost of the loan. An experienced new homes agent can help you determine if using the builder’s preferred lender is really in your best interest.

How Do I Know if My Agent Knows New Homes?

When researching an agent to help you purchase your new construction home, ask the following questions:

  • How many new home purchases have you done?
  • What experience do you have with new home lending?
  • How well do you understand the building process? How did you learn it?
  • What experience do you have with new home lending?
  • How familiar are you with how loans are priced?
  • What is your process for buyers when buying new construction?

Keep asking until you get an agent with the right answers! It could make the difference between moving into your new home or starting the process of looking for a new home all over!

For representation when buying a new construction home, contact Grind Real Estate Group and we’ll make sure you get the best deal.

Who represents who?

Let’s start by understanding what makes purchasing new construction different than other home sales. If you are dealing with someone sitting in a model home or that works for the brokerage listed as the selling brokerage, you are dealing with someone who is loyal to the builder. Legally and practically, they cannot provide you with advice on the purchase. At least, not advice that is in your best interest. Worse yet, many buyers think that by dealing with the builders’ representative, they will save money or get benefits that would not otherwise be available.

You can be certain that when dealing directly with the builder’s representative it will not save you money or get you extras that were not otherwise available. The builder simply gets to keep more money. They can’t afford to reduce the price of the home because it affects their ability to maintain appraised value for other homes. A good buyer’s representative can negotiate you the same extras. If purchasing new construction, you need a licensed real estate agent that understands new homes.

What difference does representation make?

Plenty. Is it really in your best interest to use the builder’s lender? Sometimes it is, sometimes it isn’t. Make sure to perform a thorough analysis of the different costs, interest rates, and loan payments.

An experienced buyer’s representative understands the process of building, completing, and closing on new construction. It dramatically impacts when you lock your interest rate, what rate you pay, and when you will be able to move in. A buyer’s representative assists you in monitoring construction. This is meant to assure you that your new home is ultimately what the builder represented and promised. It is now more critical than ever to be able to accurately project when you will be able to close, when you can give notice or close on your other home, and when you can begin to incur costs to move.

In the current market, your representative should conduct a thorough analysis of the terms.

  • Can the builder simply cancel the contract?
  • Can the price you negotiate increase at the decision of the lender?
  • If so, did you plan for that contingency with your lender so you are not left without a home? Then there is the ability of the home to appraise for the amount you are paying.

Your agent should be able to provide you with a comparable market analysis. This demonstrates the reliability of getting the necessary appraised value.

Lastly, get an agent who understands the process of building. They should know what a finished product should look like. They should also be present when you do the inspection of the home and/or the final walk-thru. Someone representing the builder simply cannot afford to be pointing out the flaws of the product they are selling. Getting it right prior to closing keeps the leverage with the buyer.

Get an expert to represent you

Most real estate agents don’t fully understand new construction and the subtleties involved with representing new home buyers. Find out how many new home buyers they have represented. Ask about their building expertise. Make certain they understand new home lending. You will be glad you did.

For representation when buying new construction, contact Grind Real Estate Group and we’ll make sure you get the best deal on your new home.