Due to record low mortgage rates and more and more homebuyers entering the market, home sales throughout the country have been setting records. Bidding wars are now common place, sometimes going well above asking price. With a shortage of resale inventory becoming problematic in more and more areas, new construction is looking stronger than ever. According to the latest residential sales report jointly released by the U.S. Census Bureau and U.S. Department of Housing and Urban Development, builders pulled 60 percent more permits in April 2021 compared to April 2020.
New construction can offer a great opportunity to find the perfect home for your buyers, but purchasing from a builder is a lot different from buying resale homes. Here’s what you need to know about selling new construction homes.
Key Takeaways
- Understand the Role of a Buyer’s Broker: Buyers need representation when purchasing new construction because builder salespeople are focused on the builder’s interests, not the buyer’s. Brokers ensure buyers’ investments are protected and that all details and upgrades are correctly handled.
- Negotiation and Timing: Although builders may not negotiate on price, brokers can secure savings through concessions like closing costs or upgrades. Timing is crucial, as buying before new phases start can result in lower prices and instant equity.
- Beware of Additional Costs: Model homes often feature upgrades not included in the base price. Brokers should clarify what’s standard and what incurs additional costs to avoid surprises for buyers.
- Educate Yourself: Brokers should be knowledgeable about new construction elements such as design, blueprints, and construction methods. Shadowing experienced brokers can provide valuable insights into working with builders.
- Be Proactive and Informed: Regularly check for potential issues with builders and ensure all contractual and construction details are followed through. This proactive approach helps protect the buyer’s interests throughout the process.
Know exactly why buyers need you
When it comes to purchasing new construction, there is a common misconception among buyers that the process is pretty straightforward: walk into the builder’s office, pick a lot and design, and sign on the dotted line. What many potential buyers don’t consider is that the friendly and helpful salesperson working for the builder at a new-home site is representing the builder—and is there only to look after the builder’s best interests. As a real estate broker, it’s your job to know that buyers who are not represented by their broker are taking a big risk with what is probably their biggest investment.
Some new homebuyers also believe that if they do not use a buyer’s brokers for purchasing a new home, the builder will reduce the home price by the amount of the commission that would have been paid. This is simply not true. Builders don’t want to lower prices because that will have an impact on future home sales in that neighborhood. Furthermore, builders expect to pay commissions to buyers’ brokers, so they figure that cost into their marketing budgets. Buyers who opt out of working with their broker are not saving themselves any money. The commission that was not paid will go straight to the builder’s salesperson, or the builder will keep it as profit.
Chapel Hill, North Carolina, real estate broker Marianne Howell Wright points out another potential issue: If a builder is having financial problems, a broker is far more likely to recognize the telltale signs or to have heard from suppliers that the builder isn’t paying their bills. An initial deposit on construction can be as much as 10 percent of the purchase price, so there is a lot of money at stake.
Buying a brand-new home is a complex process. As a buyer’s broker, it is your job to ensure that you don’t overlook crucial details of the sale. You must make sure that upgrades and custom features happen as agreed. You will be there for periodic walk-throughs of the new home, both during construction and at closing. There are myriad items with a new build that can easily be forgotten. As long as you ensure the correct documentation is in place, there should be no problem getting the builder to correct mistakes.
Prepare to negotiate
The builder’s salesperson will usually give the impression that sale prices aren’t negotiable. Although there is some truth to that, as a buyer’s broker you know there is some leverage. Builders who won’t budge on sales prices, for instance, may instead offer to pay closing costs or provide design upgrades.
Another critical factor is the timing of the sale. Knowing when it’s best for clients to buy or to hold off can save your clients a lot of money. For instance, if a new phase of construction is set to start, this can mean the purchase price of properties from the previous phase is set to go up. Reserving a property before that can mean significant savings for buyers—as well as instant equity.
Unlike regular sellers, builders are not emotionally attached to their properties. They base their decisions on what is best for their bottom line. Time is money, and every day a builder has a home sitting on the market is a day they are losing money. As a buyer’s broker, you can seek out builder inventory that has been on the market for a while—and you can often negotiate a good deal.
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Realize there are always additional costs
Every builder is different, and what is standard for one might be an upgrade for another. Most builders incorporate the best design options in their model homes, so the model isn’t always representative of what buyers will get. The builder shows these options in their models because they are hoping buyers will like them and add them on.
Make sure your buyers know that these upgrades come at a cost. When touring the model home, find out exactly what options are standard and what upgrades are available for an additional cost. This will help to avoid any surprises later on.
Educate yourself on selling new construction homes
Learn about elements unique to the new-home market, including architectural design, blueprint reading, site design, construction methods and materials, and so forth. These skills will come in handy when it is time to help your clients chose the best lot or make sure the construction drawings match the home your clients are expecting.
If possible, shadow another broker who has first-hand experience working with home builders in your market. Not only does this provide you with an excellent way to get to know local builders, but you can also see close-up how the new construction process works.
The bottom line: New construction offers exciting opportunities for buyers. When selling new construction homes, make sure your clients know that you will protect their interests.
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