Do I Need a Buyer's Agent to Purchase From a Builder?

Paul, an excellent reminder to the consumers to use a buyer's agent to represent them in a purchase of a new home from a builder.  Builder's contracts are notoriously one-sided in favor of the builders -- much more so than the standard resale contract.  In Virginia, the attorney that I worked with for several years specializes in helping people get out of some of the unconscionable builder contracts.

Paul, well written and very good points.  I bought a home years ago.  I wasn't a Realtor then and learned the hard way.

Paul-- great article for the public. You really have it going on!! Great stuff. I checked out the National Open House directory. I emailed them, shall see what happens next. Thanks for the tip.

Dia Duit Paul,

I have read contracts that builders have written up for buyers and have no idea why they still sign??  I would suspect that these contracts are never fully explained.

Brian, I bet it's a safe assumption that your former colleague has more business than he knows what to do with.  There is rarely a shortage of disgruntled buyers with their new-build contracts.  I appreciate your comments.

Thanks, John.  I have heard quite a few agents cite such an unpleasant occurence as the very reason they decided to become Realtors.  They wanted to prevent other people from having to go through similar heartache. 

Candace,good for you!  I'm thrilled to have you on board!  Make use of those unrivaled blogging skills and help us get the word out!  Thank you for the kudos on the article as well.

Dia Duit Patrick,

There are certainly some onerous clauses in those contracts.  I think most buyers assume that they are stuck with the same contract regardless, so don't see the value an agent provides.  While the builder will insist on their paperwork, certain aspects which a buyer would never think to question may very well be negotiable.  Especially in a slow market.  Thanks for commenting, as always. 

By the way, my parents went to an Irish festival in Flagstaff, AZ awhile back.  They brought me back a really cool tee-shirt.  I have worn it several times.  The last time I had it on, I got a couple of funny looks, so I went online to finally look up the meaning.  I had assumed it was a band name or something.  Suffice it to say that I was very surprised what "Pog Mo Thon" turned out to mean!

Paul - This is a good, solid post that I think you should consider putting into Localism as well.  In Texas, most of the builder reps are not even agents, just employees of the builder (license not required).  I have always had some similar info on our website.  Good job, my friend.

Jason: I debated the very question of whether it was locally pertinent enough for localism, or if it was just general info.  Thanks for settling the debate.  I'll stick it in localism.  By the way, is it wrong to say that the picture in the article made me think you had an evil, car selling twin out there?  Or maybe some black-sheep uncle that the family never mentions at gatherings?  I want you to have your wife take a picture of you in a cowboy hat, chomping on a cigar.  I'll post the two photos side-by-side and let our fellow addicts determine the relationship!

Really great points Paul.  Unfortunately builders often shut out agents for buyers if they haven't registered their client before the buyers look at it.  Buyers need to insist on working with their own agent.  The builder is NEVER looking out for the buyer.

You said a mouthful, Ginger.  The guy at Sears who wants to sell me a new refrigerator is incredibly friendly and helpful as well, but I have no illusions that he isn't merely trying to hit his numbers.  If there was one way to sum it all up for buyers, I would say:  Do you really think an employee of the other principal in a deal is your ally?"

Was I talking too fast?

No, Ginger, I was just listening too slow ;)

PAUL:  While this isn't something that I deal with much on Long Island, since new construction is at a minimum, I have purchased new before from a builder and it was not a good experience.  On Long Island, everyone has attorneys, so it isn't as risky, but you bring up a very good point.  I notice around here that some of the builders actually open up a brokerage with the same name so that people feel like they're dealing with an agent, but they're really dealing directly with the builder.

Great post Paul,  a wise buyer would want his REALTOR to negotiate with him to save as much as possible.

Paul, Excellent post.  One additional recommendation that I make to my clients is to have a home inspection prior to close. 

From my experience, many builder contracts will allow the inspection, but do not require the builder to make any repairs as a result of that inspection.  At the same time, the assurance of knowing that there appear to be no major defects prior to closing, and the opportunity to see the condition of the purchased home from the eyes of an independent third party are invaluable to a new home buyer.

Adam:  Funny how a builder will jump through hoops to make you feel all warm and cozy, isnt't it?  Opening up a separate brokerage just to give the impression of a buffer?  Wow.  That is really pushing it.  We don't have a tremendous amount of new construction in Scottsdale.  The remaining buildable land is in North Scottsdale, and is very pricey.  We do, however, have development in NE Phoenix, the SE Valley cities, Glendale/Peoria area, South and West Phoenix ... basically everywhere else.  I run into so many people who share their tales of woe with a builder.  I thought it was important to inform buyers of the dangers of conducting any Real Estate transaction with their own agent representing them.  Thanks for commenting, Adam.

Absolutely right, Keith & Robin.  I think that many times it just boils down to the buyer being unaware of the need for representation and the possible consequences of proceeding without a Realtor.  If I were not an agent and I stumbled upon a new development, I might not think twice about checking out the models unescorted either.  It would seem a hassle to either call my agent and wait for him to show up, or go home and schedule a visit and another time.  If I was fully aware that I would be on my own, without my agent, if I did go through the models by myself, though?  I would absolutely wait for my agent.  I think the same holds true for John Q. Public.  Buyers just need to be informed. 

Paul,

Buyers don't need an agent. It's nice if your an agent, which I am, and you bring in a buyer and collect an easy paycheck. I have also seen new home builders give more incentives to buyers by not using an agent because they don't have to pay a commission. In my experience most builders agents I have met are extremely ethical and very well trained. Just like in resale there's good and bad agents.

Mike Lewis

Dru, your clients are lucky to have your services.  I always insist that my buyers have homes inspected, whether new or resale.  I likewise find that most builders will allow it, regardless of whether it is specifically called for in the contract (generally not).  I have only had one recent experience where the builder would not allow a pre-closing inspection.  Such practice does not help a builder's reputation.  This is another critical factor that buyers must lean on agents for: knowing which builders they ultimately want to do business with.  Model homes are always easy on the eyes, but it helps to have an objective agent on your side that has had experience with the various builders.  You want to know whether you the home you are expecting is going to be properly delivered.  Thank you for your comments, Dru.

Interesting perspective, Mike, but I couldn't disagree more.  Of the transactions I have been involved in this year, the most difficult have been with new construction.  Several rounds of renegotiation after price decreases, issues with financing through the "preferred lender," construction issues, delays, etc.  I'm not sure how you do business, but I don't just drop my buyer off with the sales rep and wait to get paid.  The perception of the "easy paycheck" is just not accurate unless the agent puts it on autopilot once the contract is signed.  I have put in far more time and energy on these transaction recently than any typical resale transaction.  To toot my own horn, I have negotiated some amazing incentives and price reductions for my clients on these deals as well.  Had to go all the way to the builder's company president in one instance to get it done, but I got it done.  As to the ethics of the builder's agent, that really isn't the point.  The salesperson is acting ethically by fully representing the builder's best interest, not the buyer's.  It would be unethical for this person to put the buyer first.  I am not questioning ethics.  I question the intelligence of proceeding without representation when the other party has professional representation.  Most buyers are leery about purchasing directly from a listing agent on a resale property, but oddly never consider this when purchasing new.  As for any builders that provide additional buyer incentives for proceeding without an agent, I have never encountered one in my neck of the woods.  Why would they risk alienating the sales force of Realtors for such a comparatively minor cost?  That's not an intelligent home builder.  From a buyer's perspective, if the builder is willing to save a few bucks by cutting out an agent, what other cost-cutting measures can I expect in the construction of my new home?

Paul - Great post. Not only will it not cost the buyer a penny more to have you involved, you may actually be able to get them more than if they tried going it alone. Good stuff!

Thanks, Tom.  I really cannot fathom why a buyer wouldn't want the added value of professional representation when a good agent will actually SAVE them time, money and heartache.  The notion that a better deal is available to go it alone is pure folly.

Well, here in Hawaii there is just so much buildable land....going with an agent for what little new construction is going on is A MUST. A lot of agents are under the impression that that first initial visit is the only thing they have to do...geez.

Sally, Amazing, isn't it?  Sign here, and I'll see you in 12 months!  Unbelievable how some choose to conduct business.  Thanks for dropping in with your comments. 

Q: When acting as a listing broker or licensed sales agent for a property, and you are approached by an individual without representation interested in purchasing it, do you recommend to the potential buyer that they should seek professional assistance before proceeding with the purchase of your listing?

A: ...

Dia Duit Paul,

That is classic.  My stomach is hurting right now.  LOL!!!  Next time you get an Irish shirt email me.  I have your back.

Lance, I see that your company is devoted to New Home Marketing, so I can see why this topic struck a chord.  

A:  I inform the prospective buyer that I represent the seller, and the seller only.  I am ethically bound to provide fair and honest treatment to all parties, but I have a fiduciary obligation to represent the seller's best interest.  If they wish their own representation, they should secure the services of a buyer's agent.  If this costs me one side of the commission, so be it.  Is this the answer you expected?

I'm going to hold you to that, Patrick. 

Paul, I agree.

It is in the best interest of a prospective home buyer to have proper representation regardless of the seller.

Thanks for the National Open House link....I've sent over my info so we'll see what happens!  Thank you again!

Outstanding Joyce!  I'm excited about having you on board!  At last check, we are up to participants in 14 states.  Work your sphere of influence and help as rally the troops!  Thanks again, Joyce.

Anyone interested in participating in the November 4th National Open House can visit www.national-open-house.com. 

Lance, thanks for coming back to reply.  Glad we're in alignment. 

Paul,  A couple years back my husband and I looked at a couple of preconstruction places for ourselves as an investment...I couldn't get past how those stupid contracts read!  It might as well had been written like this:  We're getting what you got regardless of what we do, when we do it, how we do it and if we do it.  I passed everytime...THANK GOD!  Market turned south and we would've been standing in the same line as many other people I know!

The image just about sums it up, Shannon!  I don't want people to get the wrong impression that I am asserting all new construction transactions are disasters waiting to happen.  I have had plenty of new builds that went just fine.  But when they go wrong, boy do they go wrong.  It is always a wise choice to have representation to ward off as many potential crises as possible, and to have an agent by your side if and when things get dicey.  I appreciate the comments and the laugh, Shannon.