Do you need your own Buyer’s Agent to build that new construction home?
Don’t let the pristine facade or shiny appliances of a model home deceive you: buying new construction will be as complex as any resale real estate transaction, if not more so. You’ll need to navigate the fine print of one-sided builder-friendly (not buyer-friendly) contracts, resist the temptation of fancy upgrades that put you over the top for neighborhood value, and trust that a bunch of boards and concrete will become a suitable place to live on the timeframe promised you.
You’re also paying a premium for buying new: on average, building a new home can cost up to 30% or more than the average price of a resale home.
These are all areas where a knowledgeable buyer’s agent with new-build experience can be invaluable. Most importantly, if you thought buying new construction without your own agent would save you on your home price, think again.
It’s customary for the builder to pay the buyer’s agent fee (I’ll discuss more on that below), so hiring your own agent to be your fiduciary is a no-brainer. Just follow this guide to help you make the most out of working with me on your new construction purchase and to find out what I can do for you.
The value of having Kimberly Davis as your agent in the new construction process
The process of buying new construction vs. a previously-owned home differs in a few key ways. Your new construction will be customized to your specifications, and can take anywhere from 10 to 16 months on average to build.
Whereas an agent of a previously-owned home will help you through the process of finding a home, making an offer and getting you to closing, I’ll focus on these items and many more:
Advocate for your best interests IN NEW CONSTRUCTION
The builder’s real estate agent can be a good resource in the new construction process, but don’t forget they’re representing the builder in the sale. Seller’s agents in new homes work hard to maintain good relationships with buyers; however, at the end of the day, they will prioritize the builder’s interests over yours. A seller’s (builder’s) agent doesn’t want you to have a bad experience, but their fiduciary duty lies with the builder. Because of the structure of commission, the seller’s agent is legally obligated to serve their client’s (the builder’s) best interests over yours.
With your own real estate agent in your corner, you’ll have your own fiduciary on your side who is invested in your satisfaction with all aspects of the building process. A buyer’s agent will help you think through things like your budget, the cost of each upgrade, and even how the floor plan you choose will bode for future resale. Or, if the builder asks for a delay in construction, a buyer’s agent will push back and try to keep the builder on schedule. As your agent, my first priority is that the building process progresses as promised, your expectations are met, and that you close on time.
It can never be emphasized enough: the builder is working for her or himself, and the builder’s agent/staff are working for the builder. Obviously builders want happy customers at the end of the transaction, but they are primarily looking out for themselves. Once you develop a relationship with the builder, it may be uncomfortable for you to call the builder to task. If you hire me as your agent, my goal then is to help protect you, and you can let me be the “bad guy.” Just like you wouldn’t operate on yourself and would instead hire an expert surgeon, it makes sense to hire someone to represent you who has more experience in new construction than you yourself possess.
Decode the fine print of new construction paperwork
Builder contracts aren’t generally standard TAR (Tennessee Association of Realtors) contracts. Many times we can’t change all the specifics of what’s in a builder contract, which is oftentimes not buyer friendly. By hiring a buyer’s agent who has years of experience in resale and new contracts, I can alert you to provisions of the contract that may not be in your best interest, and may be renegotiated.
I will comb over the contract and bring up any issues to the builder and seller’s agent. I will also know if and when it’s time to bring in an outside attorney, as well as when to let things slide and save money on any external legal representation. Without your own representation, you could inadvertently agree to some disastrous terms:
(a) Construction delays with no end in sight
Barring a natural disaster or other unforeseen circumstances, a builder should complete your home in a reasonable amount of time. However, some builders won’t even include a completion date in their contract. In those cases, buyers will have a challenge holding their builders to a construction timeframe. However, as your agent, I will communicate with the builder to ensure schedules are adhered to as much as possible.
(b) An unreasonable payment schedule
In most states, a contractor or builder can’t ask for more than 33% of the total cost of the home upfront, and without a seasoned agent by your side, you could be agreeing to a payment schedule that conflicts with the structure of your loan.
(c) Changes to the scope of work and building materials
Nearly every construction contract will have a “change of work” clause included. This clause explains the process in which a builder can change construction at any point in the project, and how they must inform the buyer. However, depending on the contractual boilerplate, they might sidestep change order proposals altogether, or amend the clause to give limited notice to the buyer.
(d) Waiving your right to legal recourse in the event of a dispute
You’ll have little to no legal recourse on any of the above issues if you sign away your right to legal recourse. This is a provision of the builder’s contract that needs to be given serious thought.
Separate reality from model-home fantasy
When you get to hand-select so many elements of your home, you’ll be tempted to go overboard. In some instances, the highest profit margin for builders is in the upgrades — so caution is recommended here.
Think long-term about resale
You’ll be the first person to ever own this house. But if you make it completely 100% yours, outfitted to all of your eclectic personal tastes or the latest fads, you could face challenges down the line if you ever decide to resell, or if your family has to sell the home as part of your estate.
A report from the National Association of Home Builders shows the average buyer these days stays in a house for about 13 years. That’s a lot of time for the hottest styles to fade. As your agent, I can help advise you on decisions such as whether bold backsplash tiling will stand the test of time, or if you’d be better off with classic white subway tile. You may want your Primary Bedroom upstairs, while real estate trends show us that aging Baby Boomer’s want large, luxurious main floor Primary Bedrooms. You may never take baths so you build a home without one. Trouble is… that makes a house tough to market down the line. People with children (or those who enjoy luxurious bubble baths) may pass your home over.
Assistance finding the best financing for you
Some builders work with preferred lenders or have their own lending companies. This can make financing a new build easy, but won’t always result in the best deal for you. I can suggest different lenders to you (in addition to the builder’s preferred lender), in order to garner the best deals and incentives.
Inspections – What to look for?
Initial home inspections once your home is near completion are crucial. I have inspectors who have saved my buyers thousands of dollars by finding issues that we have required the builder to correct prior to closing. As disgusting as it sounds, I’ve had inspectors find bags of McDonald’s stuffed down HVAC supply vents, as well as vents that workers had urinated down. I’ve also had my inspectors discover HVAC, plumbing and sewer lines that were left unconnected under the home.
Other pitfalls may be structural issues (yes, I’ve had new builds that were constructed so poorly that we required the builder to bring in structural engineers to correct their work).
One detail that builders include in new construction is that they install the initial plumbing for a radon mitigation system. However, if you don’t have an agent advising you to get a radon inspection prior to closing, you may get stuck with having to install a radon mitigation system at your own expense rather than requiring the seller to do this prior to closing. Do you know that, once you have your inspections and make the builder aware, they, by law, are bound to disclose all of those issues with the next buyer if you decide to walk away from your purchase? This may be a good incentive for them to make necessary repairs prior to closing.
…and then there’s that dreaded Blue Tape Walkthrough just before closing. (Actually it’s more dreaded by the Builder, especially when I am involved, because this is the opportunity for the Buyer to address cosmetic and other issues just prior to closing and moving in.) Being inexperienced, you won’t know all the things you need to look for. In addition, Builder representatives tend to dismiss your observations and objections at this point because they are ready to be done and move on to the next home! However, this is a very important final step in the process of your new build, and it’s critical you have your agent there, advocating on your behalf.
Builder’s 1-Year Warranty
Yes, builders in Tennessee are required by law to offer the buyer a 1-year Builders Warranty. These warranties vary by builder, and I, as your agent, can help you assess the Builder’s Warranty to ensure you are covered during your first year of ownership.
Staying in constant contact with your builder can be a full-time job. Having me as your agent can provide peace of mind. You may not be able to drive out to check on the property on a consistent basis. I can drive to the site and take photos to update you and keep you in the loop of how your home build is progressing when you can’t get there.
I have had instances on new builds where I discovered that the builder was installing the wrong brick on the house, and where they had framed the front windows incorrectly. These things do happen! In both cases, I was able to fight for my clients to get these situations corrected.
Who foots the bill? Why you need to work with an agent from the beginning.
If you’re considering working with an agent on your new build, don’t delay the decision. The further you get into the home shopping process, the more challenging it becomes to bring in an agent. In fact, if you’ve already registered with a community, it might be too late. Some builders are very agent friendly, and some are not. If you go into new construction and register without your agent, the builder may keep the commission he was previously offering to a buyer’s agent, and make you pay out-of-pocket for your own.
Some agreements with new builders won’t include an agent’s fee for the buyer, but most builders have the buyer’s agent fee built into the price of the home. This can easily be found in the property’s MLS listing. Builders want cooperating brokers/agents to bring buyers, so in most cases will offer a commission to your agent. If you think that, by not bringing your own agent to represent you, the builder will take that amount off the price of the home, think again!
Builders want the comps for their homes to remain consistent. Nearly 100% of the time, they will NOT allow a reduction in price. They may give you a few upgrades, but usually not equal to the amount of the buyer’s agent commission. They love it when you don’t bring an agent because they get to pocket the extra money.
New construction is a complicated and expensive process, and is a different world compared to resale. The experience a knowledgeable buyer’s agent brings to the table is worth more than you’d save by not bringing one.
Upfront Buyer NEW CONSTRUCTION Costs:
Finally, other than your downpayment and closing costs (closing costs generally run about 3-4% of the loan amount; downpayment determined by Buyer and Lender), you’ll need to have money upfront for the following items (prices are approximations and vary by Vendor):
Earnest/Trust Money Determined by Builder
(this amount is applied to your downpayment at Closing)
Upgrade Fees (usually payable in advance and
non-refundable) Determined by Builder
Credit Check $50-75
Home Inspection$400-600 avg
Structural Engineer (opt)$200-250/hour
In summary, I have assisted many buyers since 1997 in the new construction process. If you have any questions, please feel free to contact me at 615-593-0305 for your new construction home.