Should I use a buyer's agent for new home purchase? (commission, contracts)

[Mjames]

My Wife and I are trying to decide if we want to use a Buyer’s agent to help us purchase our new home.

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Specifics:

--Will buy new home in a development. Home will actually need to be built.

--We will be relocating across the country and will not be available to inspect the home while its being built. We probably will be out of the country, but will be back to sign papers when needed.

--We visited the developments where we will be purchasing without a Buyer’s agent almost 6 months ago.

--We want to negotiate the best deal possible. I actually have a lot of experience negotiating contracts and supplier agreements, but not for real estate.
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What are the pros and cons of using a Buyer’s agent in our situation? Can we use a Buyer’s agent since we already visited the developments and looked at the models? If we decide to use a Buyer’s agent, how do we pick which agent to use when we are not local to the area?


If we decide not to use a Buyer’s agent, we would like to hire an inspector to inspect the home as it is being built. Any suggestions on how to locate an inspector to use during the whole building process?

The price range of the home will be somewhere between $350K and $450K.

Many thanks in advance for comments and suggestions.

[walidm]

I would suggest hiring a RE Broker to represent you. Your agent is there to represent your best interests so please present your interests in certain terms during the interview process. You may wish to employ a broker who can send you a picture gallery of progress as your home moves through the construction phases. In NC you can hire a broker at any time. You should always hire an inspector. You should make similar arrangements of expectation with the inspector, however keep in mind he/she is not a licensed broker. If you know an agent, he/she should have referral services set up and be able to help you find an agent in the area of the country where you wish to move. The agent should be able to provide an analysis of your new market to help you negotiate.
Hope this helps - Good luck!

[geoffandliz]

Tough call. We had the same decision to make. The realtors will always argue that they can negotiate a better deal, that's their job. The buyer always thinks they got a better deal, with extra incentives without one. Who really knows the truth? I did ask the mortgage broker in her opinion, being she sees lots of deals run both ways................she said the buyer with no realtor. Now, I do think as a buyer, you need to push hard for extras. We did. We also shopped around ourselves and did all the leg work though over the course of several months. If we did not have that luxury, a realtor in the know sure would have been helpful. But in our situation, we were able to look at all the builders in a particular area, and then narrowed it down on our own.

The only thing I will definitely be doing, thanks to C-D , is getting a home inspection even on new construction. I can say that was not advised before when we built and had a buyer's agent. Did it make a difference, who knows until we sell.

Liz

[garth]

Originally Posted by Mjames

What are the pros and cons of using a Buyer’s agent in our situation?

Whether you use one or not use one will depend on your experience and confidence in your abilities in the dealing with a new home purchase. In either case, just remember that the new home agent is not your friend. They are hired by and for the benefit of the builder.

A pro would be the negotiating experience provided by the agent and their knowledge of the area. They may even have an handle on what people ave been getting for discounts and incentives that you may not have considered or asked for if you did it alone.

A con would be the buyer's agreement. Be sure you read it thoroughly. Does it have any benefits for you, or is almost very clause written to protect the interests of the agent? I think you might be surprised.

Also, check out the commission section. What if it's written that the buyer's agent will be paid 3% but the new home development is only paying outside agents 2%? Who makes up the dfference? Too often it will be you, paying the agent an additional 1% on top of the house price.

Conversely, what if the builder is actually paying 4% for agents to steer their clients to the development? If 3% is written in the buyer's agreement, what happens to the extra 1%? If you think it will be applied to an additional discount on your house, you might be surprised at the real answer.

The bottom line is that if you have done a lot of house deals, you can probably do well by yourself on a new home development. Only you know of your capabilities, ability to negotiate, and willingness to hit the builder hard in a slow market . . . if it is a slow market in that area.

You wil also be able to stress to the agent that the builder is not paying an outside commission. That's 3% right off the top, even before you start negotiating a discount, upgrades, closing costs, additional landscaping, paid HOA fees, etc.

One of the best things about dealing with a builder, is that emotions are often less of an issue. Whereas a homeowner usually brings all kinds of emotional garbage to the table, a builder is more likely to just look at the numbers. That gives you the benefit of hitting them hard without worrying about them getting emotional and offended.

Can we use a Buyer’s agent since we already visited the developments and looked at the models?

If your visit was recent, they might give you a problem. However, you said your visit was 6 months ago. I doubt that they would have any standing to refuse to cooperate with your agent . . . as long as they are currently cooperating with agents in general.

BTW, that brings up another issue. When the markets were hot, it was common for builders to not cooperate with outside agents. However, this is a different market in lots of places. I would imagine that there might still be non-cooperating builders still out there, but it's probably not an issue.

If it does turn out to be the case, you'll have to pay the buyer's agent their due, since it won't come from the buider. That might be something to consider before you sign on the dotted line with a buyer's agent.

Also, don't trust that a buyer's agent will let you out of the contract with them. Some nice agents have said that they will let a buyer out of a contract, but be sure to remember that verbal statements mean absolutely nothing in real estate. I would insist that such a statementwas in writing, as an addendum to the buyer's contract.

One way to get around that is to only agree to a buyer's contract for a very short time (like 1 week) or only on a specific property. It also allows you to see if the buyer's agent can do what they said they can do. If they turn out differently than you expected, it's easy to find someone else when you're not locked into them for many months. If they turn out as advertised, you can always extend the contract.

If we decide to use a Buyer’s agent, how do we pick which agent to use when we are not local to the area?

For me, there's only one answer to that question. Go there and interview people face-to-face. Also, take a look at their contracts before signing and then check out whether any complaints have been filed against the agent. There may be other ways to accomplish the same thing, but don't think anything equally substitutes for a good old-fashioned face-to-face.

If we decide not to use a Buyer’s agent, we would like to hire an inspector to inspect the home as it is being built. Any suggestions on how to locate an inspector to use during the whole building process?

Definately get an inspector and don't rely on your agent as a god substitution. First, it's not their job. Second, they're usually not trained as home inspectors and are likely not liensed as such, if licensing is required in your area.

There are a couple of Home Inspection professional organizations that can lead you in the right direction. Here's link to a couple:

NACHI

NAHI

I would make sure that the home inspector is a member of at least one of these organizaions. They have continuing education requirements and standards they are supposed to meet. Nothing is a guarantee, but it's better than just pulling a number out of the telephone book.

Another resource would be a recommendation. Often I think that is the best way work. However, I would be careful of a recommendation from a real estate agent. They might be primarily concerned with the sale going through, so they would recommend a less intensive inspector, rather than recommending a thorough inspector who might find problems and ruin the deal. It's just an issue of considering the motivation of the source.

I hope that's helped a little. I'm sure others will add other good sugestions for you, too. Good luck.

[Brandon Hoffman]

An agent may or may not be able to get you a better deal. As a matter of fact, you'll probably pay the same regardless but an agent can help protect you on a mortgage, the legal wording on a contract, during the inspection. It won't hurt you to work with an agent, but it could help you. The real benefit will be if there are any problems or disputes they'll be there to let you know your choices and work on your behalf.

I'd say definitely get a buyer's agent.

[kevcrawford]

There is no con to working with an agent. The builders won't give you 3% off without an agent. They pay the agents out of a separate fund set aside for commissions. Not out of the proceeds of your house. The builders will tell you that you'll get a better deal, but it's a lie. Someone I know got into a contract without me because a builder was saying that to them. Then they started having problems with the build. I went into the builder for him, told him to put me on the contract so I could help him deal with these problems. They put me on the contract, we got them to drop the price more because I knew of a builder down the road offering a little better deal and made them match it, I was able to help them get repairs done before they moved in and saved my clients a lot of time and money.

Agents know what deals are being offered out there, can pit your builder against another one offering better incentives, can help you negotiate allowances, can help you get inspections done (something builders don't want you to do) and hold the builder's feet to the fire to make sure they get the job done right!

[walidm]

Funny how a buyers agency agreement is a neg. How did that come about? The agreement is there to clarify the working relationship between the client and Broker, and when discussed and properly explained is the beginning of a great relationship...the foundation of trust.
Tell you what...find out if your state requires Working with Agents....the first broker who explains it to you (before you ask) give them a serious look.

[Brandon Hoffman]

Originally Posted by walidm

Funny how a buyers agency agreement is a neg. How did that come about? The agreement is there to clarify the working relationship between the client and Broker, and when discussed and properly explained is the beginning of a great relationship...the foundation of trust.
Tell you what...find out if your state requires Working with Agents....the first broker who explains it to you (before you ask) give them a serious look.

Good advice here IMO. A buyer agency isn't a negative if done properly. As a matter of fact it can and should be a benefit to both parties (agent and client).

[ch123]

Get a buyer's agent that will rebate you back part of the commission. It's not too tough in today's market to find one.

[Eric Young]

When I'm representing a buyer, occasionally I think I've negotiated a much better deal with the builder than the buyer would have gotten on his own, but in most cases, I think my efforts result in only marginal price savings and sometimes none at all for the buyer.

I do think, however, that the value is far more in the ability to recognize the land mines in the builder's contract, the ability to determine whether use of the builder's lender is or is not advantageous, making sure interest is earned on the deposit and credited to the buyer during escrow and whether or not to call for an independent appraisal.

I've helped so many friends get out of builder contracts this year (that they signed one or two years ago), I've half-seriously thought of starting an Un-Real Estate Company and charging to get people out of the deals they made when the market was hot and regret now.

One friend had a $100,000 deposit on a Miami condo (she signed it in 2005 - the building is being completed this month), a couple others had contracts on Vegas hi-rises that were contracted in early '06...

Finding loopholes to wiggle out of in builder contracts is NOT easy work...and even after you find them, there's still the matter of getting the deposit back without spending a comparable sum on lawyers. Builders are never keen on returning money, but they are especially loathe to doing so now.

The builder usually doesn't even know there's a loophole in his contract but, even if he did, it would be naïve to think the builder's agent would point them out to a buyer.

I may not always be able to negotiate a better price, but I can absolutely always negotiate a far more fair contract.

My personal suggestion, MJames, is to interview local agents and try to find three that think contracts are fun. Show each of them a builder's contract and ask where the landmines are...who ever finds the most gets your business.