Buying a new home and don’t want a Realtor to represent you? Some people think that not using a Realtor will save them money on their home purchase, though don’t appreciate how a home builder negotiates. My office put on a class where a former production builder discussed how hiring a Realtor (at zero cost!) as a buyer’s agent can actually save you money.
Myth: Since the seller has to pay a buyer’s agent commission, if there’s no agent, they can pass on the savings to me.
This isn’t how builders in Austin work in my experience. Austin is known by builders as a “Realtor town” which means a high proportion of buyers are represented by a licensed agent for their new home purchase.
For the sake of argument, let’s say this figure is 70% of all new home buyers, and the builder has 100 homes to sell, with an average price of $400,000. In the financial model for the development, the builder then estimates that 70 of their homes will sell with an agent and they allocate $400,000 x 3% x 70 in their budget to pay Realtor commissions for the project. Realtors are just another marketing outletfor the seller to find a buyer. The builder is expecting to pay for buyers agents and has it factored into the home cost.
So why can’t they just take 70% of the commission off the sales price of the home for an unrepresented buyer? One of my clients described it as “market forces”which is a polite way of saying that this would really annoy the Realtor community. Builders will always offer the same incentives and negotiate to the same price to buyers with and without an agent.
Otherwise if Realtors found out that a builder was offering a discount to unrepresented buyers (an incentive not to work with any agent), the seller would be shooting themselves in the foot. They’d be endangering 70% of their business which does come from agents. This may sound a little sinister – that there’s some kind of real estate price fixing cartel – and in some ways it is. “Market forces” sounds so much more innocuous.
Myth (for most people): I can negotiate with the builder myself.
Maybe this is true, depending on your line of work, cultural background and negotiating experience. For most people, it isn’t. The sweet, beautiful and innocent builder sales representative is a trained negotiator. This is what they do every day. As a Realtor, this is what I do every day too.
I attend training and get titles like “Certified Negotiation Expert”. It’s not the same as going to trial and representing yourself – you probably won’t go to the Big House for an extended period if your negotiations don’t work out well – but you will end up paying more if you don’t negotiate well. A larger mortgage is your financial prison if we push the analogy just a little too far.
The first rule in negotiation is to have a poker face, as it’s impossible to get a good deal on something that the seller knows you really want. Most people who aren’t represented give too much away when they see a home they can picture themselves happily living in. It’s natural. Body language changes, smiles come out, they get a little giddy. If the well-trained builder representative can figure out what you’re thinking, it’s going to be easier for them to come out ahead in negotiations.
Myth: The builder’s sales person says I don’t need an agent
Of course they’re going to say that – why would they want to have someone battling and negotiating on your behalf. If you walk in off the street and don’t have an agent, they’re going to want to get you to sign right there. Why would the builder want to have an advocate for the other side who will tell you to get a third party inspection, when they could just tell you that you don’t need an inspection as it’s already passed the City inspection?
Myth: The builder’s representative is on my side
Now let me preface this by saying that the representatives I work with are excellent people. Without exception, the builders representatives at the Mueller Development in Austin uphold the utmost standard of ethics and professionalism in our mutual dealings. In other parts of Austin, most of them care about your experience and want you to tell all your friends about how easy it is to buy a home. Not all of them though. In the same way that there are often 9000 Realtors in Austin and they’re not all great either.
The bottom line is that the builder’s representative is hired by the builder to protect their interests and not yours. The definition for a successful negotiation? Maximize your benefits and satisfy the other party. So you may be satisfied, but you won’t get the best deal you can possibly get. They may tell you they’re throwing things in to see if their manager will let them get away with it. Which is a tactic designed to make you think they’re on your side. They aren’t.
The definition of buyer representation is this: the agent has a fiduciary duty to their buyer to best serve their interests, i.e. get you the best deal, and to give you the best advice possible.
Myth: I’m an attorney and can represent myself and collect the agent’s commission.
If you are an attorney, you can certainly represent yourself. Some builders will let you collect commission, others won’t. Your mileage may vary.
Summary: In my experience, working with a buyer’s agent will get you better terms than being unrepresented. While the builder’s representative will make the process smooth and easy, a Realtor will be on the buyer’s team at no cost to the buyer.
Garreth Wilcock is a mobster Realtor specializing in negotiation and represents buyers of new homes.