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Do I need an agent if I am buying new construction?

This particular question has caused more controversy in real estate than almost any other. In most cases, the agent working for the builder has a listing contract with the builder that is very similar to the one you sign when you list a home for sale. There is an agreed upon commission that will be paid for each home that is built regardless of who brings in the buyer. Just like when you list your home for sale the agent has agreed to share part of that commission with another agent that brings a buyer that ultimately builds a home and closes. So, if the builder representative does not have to pay another agent, guess who gets all the money? You got it, the builders rep. This is commonly known as a hogger. You figure it out.

Now let’s talk about representation, this gets a little tricky since each state is different but there does seem to be a common thread throughout the country. I will speak to Minnesota and you can do your own due diligence for your particular state. Going back to the fact that the representative for the builder has a listing contract with him/her, that contract is actually a representation contract that talks about compensation in it. Part of the contract requires that the representative gets the best price and terms for the client (builder). Their job, in essence, is to pull as much money as they can out of your pocket. In Minnesota you do have the option of having the builder’s agent represent you as well, known as Dual agency. This reduces their abilities to basically a facilitator, which doesn’t help you a whole lot.

There are times when the builder has chosen to represent themselves, kind of like a For Sale By Owner. I have run across several of these in my career where the builder tried to “give them a discount” if they didn’t use me and a couple have actually chosen that route. In both instances the mistakes that were made far outweighed any potential commission paid. Understand that I am not saying that all builders are bad or malicious in their intent more so it helps to know that they are looking at the project through a builders eyes, they will always look for the more efficient way to do things ultimately saving time and materials. Unfortunately, they are not always tuned in to what is needed and expected for the price range of the home you are building. A good Realtor will always look at the home you are buidling with an eye for what it will be like when it comes time to sell the home combined with their knowledge of what is important to you. In both instances above where the client chose to deal directly with the builder when the time came to sell their home there were definite design flaws that cost my client far more than any perceived commission savings.

I have talked a lot about the perils of not using an agent in a new construction transaction, what about the benefits? If you have chosen a good Realtor that has taken the time to understand what you are looking for in your new home they will help you make design choices on the layout asking in-depth questions about your day to day life. I don’t think you will ever get it 100% right yet there is nothing worse than getting into your new home and realizing that the traffic pattern from the kitchen to the dining room or family room is annoying and if only you had known that a couple of feet adjustment on the center island would make all the difference in the world.

The other significant benefit is understanding that the builder makes their best profits from the upgrades. We are talking about those things that are not included in the base price like fireplaces or air conditioning as well as upgrading from the base package of flooring and countertops, light and plumbing fixtures etc. If you have an agent that is knowledgeable they will be able to help you make decisions on what you have the builder do and in lots of cases what you may want to do after you move in can save you thousands. I am certain that each time I represent a client this one area becomes a significant saving. The bottom line from my perspective falls right in line with the saying “penny wise and dollar foolish”. I understand trying to be frugal but with a transaction of this size and the consequences of making some choices costing thousands of dollars and headaches in the long run, I don’t know why you wouldn’t want someone on your side.