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Hi, sorry if this has been discussed before, couldn't find anything on a search.
Basically I'll be building a new home soon. The builders have been giving us various estimates. The real estate company gets 5% commission rate. Is it likely my estimate has this built in, meaning I am paying the full 5% fee? If so, is this something that is negotiable with the builder? The builders are asking for either 10% or 12% fee to build the home (saying that I will pay cost + 10-12%).
Are you building in an established subdivision with onsite real estate agents? If so, then most likely yes, the commission is already built in by the builder/developer. Although I have seen it otherwise -
Say if you bought from an onsite agent, and you didn't have a buyer's agent, then most likely they still have a set percentage built in.. but sometimes a builder will deal with you a bit. Just depends on how it is structured with the developer and onsite agents.
If you own your piece of land and an agent helped you find it and is expecting a commission, then that is different as well. Just depends what transpired between the builder and agent - but that doesn't sound like what you are expressing
Are you building in an established subdivision with onsite real estate agents? If so, then most likely yes, the commission is already built in by the builder/developer. Although I have seen it otherwise -
Say if you bought from an onsite agent, and you didn't have a buyer's agent, then most likely they still have a set percentage built in.. but sometimes a builder will deal with you a bit. Just depends on how it is structured with the developer and onsite agents.
If you own your piece of land and an agent helped you find it and is expecting a commission, then that is different as well. Just depends what transpired between the builder and agent - but that doesn't sound like what you are expressing
We are building in an established subdivision with onsite agents. My guess is that the community's/agent's commission is being built into my price and the builder will keep all of their 10-12% fee but I wasn't sure how negotiable this was since another agent told me typically the builder pays commission fees.
One of the hats my dad wears is as a custom builder. He often prices as cost + a percentage. Cost includes such things as permits, interest on the construction loan, closing costs, & commission. 10% is about ballpark for what he wants to make on the house for income, but these days, that margin usually isn't there for appraisals.
So if you had asked me this question 5 years ago, in the peak of the market, I would have guessed that the agent's 5% would be included in the cost before the builder's profit, meaning that it was added to the purchase price, and ultimately you were paying it.
But today, with the margins so slim, unless you are in an area that is still booming, I really really doubt the house will appraise for labor & materials cost + 10% builder profit + 5% agent commission + closing costs. So I would be forced to assume that is hard cost + 10% and the agent will get paid from the builder's profit, and the builder will just make a few % profit.
Either that, or you are paying cash or at least more than 20% down.
We haven't built a house in over a year for this exact reason. Appraisals in my area are coming in at UNDER HARD COST on new construction in most price ranges. That is, less than the cost of materials and labor. So they would have to lose money on every house they build.
Without knowing your market, it is impossible to say for sure either way, though.
Hi, sorry if this has been discussed before, couldn't find anything on a search.
Basically I'll be building a new home soon. The builders have been giving us various estimates. The real estate company gets 5% commission rate. Is it likely my estimate has this built in, meaning I am paying the full 5% fee? If so, is this something that is negotiable with the builder? The builders are asking for either 10% or 12% fee to build the home (saying that I will pay cost + 10-12%).
Thanks!
I'm confused. It appears that you are asking 2 different questions rolled up into one.
-What exactly are the "estimates" given to you by the builder? In my experience (as an onsite agent) the price is what it is. There really isn't a lot of estimating unless you're doing a lot of custom options.
-The seller (builder in this case) pays the commissions
-Depending on what the "estimates" you speak of are in all likelyhood the real estate commissions are not a part of your pricing. Many of the builders I have worked for pay commissions out of a seprate account or budget. So they basically assume that real estate commissions are going to be paid on every transaction. Now with that being said, every builder I have worked for will not negotiate on price with it comes to a pre-sale (built from scratch). It's unethical to offer a buyer a better price just because they don't have a realtor representing them. I'm also pretty sure it's illegal but that kind of stuff is above my pay grade.
-When you say that "the builders are asking for 10%-12% fee to build the home" do you mean thats what they are asking for in a deposit? Because deposits have absolutely nothing to do with real estate commissions.
Thank you, Lacerta, that was quite helpful. BiggJoe, sorry if I wasn't clear in my question.
I have purchased land in a community that certainly isn't "booming," but they are not hurting terribly either. The estimates I speak of were when several builders gave us quotes on a possible floor plan. All of the homes, unless they are spec homes, are custom built to exactly the way you want it. When we compared the different estimates, it was definitely comparing apples to oranges as some builders use different "standard features," almost like going to a car dealership and comparing a basic Cadillac to a basic Malibu. Now when the home plan is finalized and all custom features are taken into account, then I expect that the price is final.
My guess is that the 5% commission fee is built into the "cost" of the home, meaning that I'm footing the entire commission fee as well as paying the builder his 10 or 12% (I use these values because some builders used 10%, another stated 12%). If this is not normal, then I will raise this topic to each of the builders and see what their response is.
No, I am not referring to a deposit. Their fee as I understand means if they build a $500,000 home and their commission fee is 10%, then I owe them $550,000 and that I'm not really getting a $500,000 home, but a home that is roughly $480,000+5%=$500,000 (catch my drift?).
But it really would have to be a $550k house because if it appraises for that, then that would be the cost to buy a similar house, and if you had to rebuild it, it would cost you the same amount to rebuild it, because all builders charge a fee (that's the only way they get paid for their time and knowledge). So it still is a $550k house (unless it doesn't appraise at value).
But yes, you have the rest of it right. The builder should give you a list of the specifics on the house (spec sheet), saying that at the quoted price, here is what you can expect. It may include budgets for some items, so if you go over that, you would have to pay the difference, or if you stay under, you should get a credit. Budgeted items usually are limited to just things you get to choose, like carpet, tile, lighting, etc. I have also seen people build the entire house at "Cost + Profit %" because the house is so custom that they can't even make a reasonable estimate ahead of time.
BiggJoe makes a good point. Whether you have an agent or not, the builder may not discount their price because of ethics issues. It also hurts them if they then want to use the house later as a comp but the new house has an agent who is getting paid. The builder probably just makes a bit more profit if you don't have an agent, so in that case, might as well have the agent.
Building the commission into the cost used to be normal in my area. I just can't say whether it is normal for your area or not in this market. I suppose another way of looking at it is that as long as you are having an appraisal done, it doesn't really matter which side it is coming out of, since the house has to appraise. I would make sure that there is a clause in your contract protecting you if it doesn't appraise at value, though, especially since you own the lot. Otherwise, you will have to pay the difference out of pocket. (assuming you aren't paying cash anyway)
But it really would have to be a $550k house because if it appraises for that, then that would be the cost to buy a similar house, and if you had to rebuild it, it would cost you the same amount to rebuild it, because all builders charge a fee (that's the only way they get paid for their time and knowledge). So it still is a $550k house (unless it doesn't appraise at value).
But yes, you have the rest of it right. The builder should give you a list of the specifics on the house (spec sheet), saying that at the quoted price, here is what you can expect. It may include budgets for some items, so if you go over that, you would have to pay the difference, or if you stay under, you should get a credit. Budgeted items usually are limited to just things you get to choose, like carpet, tile, lighting, etc. I have also seen people build the entire house at "Cost + Profit %" because the house is so custom that they can't even make a reasonable estimate ahead of time.
BiggJoe makes a good point. Whether you have an agent or not, the builder may not discount their price because of ethics issues. It also hurts them if they then want to use the house later as a comp but the new house has an agent who is getting paid. The builder probably just makes a bit more profit if you don't have an agent, so in that case, might as well have the agent.
Building the commission into the cost used to be normal in my area. I just can't say whether it is normal for your area or not in this market. I suppose another way of looking at it is that as long as you are having an appraisal done, it doesn't really matter which side it is coming out of, since the house has to appraise. I would make sure that there is a clause in your contract protecting you if it doesn't appraise at value, though, especially since you own the lot. Otherwise, you will have to pay the difference out of pocket. (assuming you aren't paying cash anyway)
Great, thank you for the advice. I am speaking to a local banker on Monday about a potential construction loan and will raise that very point about the house appraising at that value. The homes have been retaining their value somewhat but it's hard to say since there are so many discounts out there and I'm paying nearly full price.
Depends on the builder also though. Most of your "stock" builders pay the commission from their marketing budget. You can go round and round on if the buyer pays the commission. It comes off the sellers net, but the buyer provides the funds. Make your own conclusions. Chicken or the egg? Bottom line, it would have gone into the buiders pocket and you'd have no representation, or you can representation and the builder makes a little less. They don't typically give it to the buyer because it hurts their appraised values when they reduce price.
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