Updated August 31, 2021
Don’t let the pristine facade or shiny appliances of a model home deceive you: buying new construction will be as complex as any old real estate transaction, if not more so. Plus you’ll need to navigate the fine print of builder-friendly contracts, resist the temptation of fancy upgrades, maximize resale value, and trust that a bunch of boards and concrete will become a suitable place to live on budget and on time.
The median cost of building a new home is $390,500, so you may be considering this option because at first glance it’s not much more than the average price of a resale home. And don’t forget about rising materials costs and builder escalation clauses that could add thousands to a home’s base price. These are all areas where a knowledgeable buyer’s agent who’s got lots of new-build experience and local builder connections can be invaluable. And if you thought buying new construction without an agent would save you a few bucks in commission, think again.
It’s customary for the builder to pay the agent’s fee (though this is changing in today’s market, we’ll discuss more on that below), so hiring pro help here is kind of a no-brainer. We talked to agents, builders, and other top industry experts to develop this guide that’ll help you make the most out of working with an agent on your new-home purchase and to find out what they can do for you.
In this article:
The value of a real estate agent in buying new construction
Decoding the fine print of new-construction paperwork
Are builders still willing to work with buyer’s agents in a hot seller’s market?
Assistance finding the best financing for you
Separating reality from model-home fantasy
Working with an agent from the beginning
Things to consider if you buy a new home without an agent
The value of a real estate agent in buying new construction
The process of buying new construction vs. a previously owned home differs in several key ways. Your new construction will be customized to your specifications, and can take anywhere from 10 to 16 months on average to build.
Whereas an agent of a previously owned home will help you through finding a home and making an offer, they’ll focus on these main things when you’re working with a builder:
Advocate for your best interests
The builder’s real estate agent can be a good resource in the new construction process, but don’t forget they’re representing the builder in the sale. Seller’s agents in new homes work hard to maintain relationships with the builders, and at the end of the day, they will prioritize the builder’s interests over yours.
With a real estate agent in your corner, you’ll have someone on your side who is invested in your happiness with the home.
“The builder is working for the builder and their staff is working for the builder,” explains Pam Charron, a top Sarasota, Florida, agent who’s represented buyers in many new construction sales. “Obviously builders want happy customers at the end of the transaction, but they are looking out for themselves. If you hire a Realtor® as a buyer’s agent, our goal then is to help protect you.”
A seller’s agent doesn’t want the buyer to have a bad experience, but their fiduciary duty lies with the builder. Because of the structure of commission, the seller’s agent is legally obligated to serve their client’s best interests.
Comparable data and deep knowledge in the area
An agent comes to the new construction process with key area knowledge: they know how much homes cost and the going rate for different construction projects. They’ll be able to tell you if you’re getting ripped off on the sale price or if a builder overcharges you on granite countertops. Armed with this information, they negotiate on your behalf from a position of power.
A buyer’s agent will help you think through things like your budget and the cost of each upgrade. They also know how to spot a deal and may even be able to leverage their past experience with a builder to negotiate the home price, free upgrades or financial incentives, even in this market.
Sylvia Gaffney, a high-producing agent in Riverside County, California, with more than 20 years in the business, recently negotiated a reduced list price for a client in Southern California. “Once they (clients) decided which plan they wanted and which upgrades, I was able to negotiate from there.” An experienced agent knows the complicated dance around new build negotiations and when the timing is right to ask for deals and freebies.
Buyer’s agents are also there throughout the build process and will request regular construction progress updates. Or, if the builder asks for a delay in construction, a buyer’s agent will push back and try to keep the builder on schedule. Their first priority is your happiness.
Decode the fine print of new-construction paperwork
Purchase contracts aren’t standard legal boilerplate. “Many times we can’t change specifically what’s in a builder contract, which is oftentimes very builder-friendly,” Charron explains, “but we can connect buyers with a local attorney to help them through that process.”
Your agent will comb over the contract and bring up any issues to the builder and seller’s agent. Your agent will also know the right time to bring in an attorney.
Without an agent or attorney representation, you could inadvertently agree to some costly terms:
Unrealistic escalation clauses
Just like how an appraisal or inspection can cause a re-negotiation of the purchase price of a resale home, a builder escalation clause can greatly impact the final price of a new home.
An escalation clause protects the builder in the event of rapidly increasing materials costs so they don’t lose money on the transaction. In a builder escalation clause, if the prices of specific materials increase while your home is under contract, you’re on the hook for a portion or all of the cost.
If you’re not careful, you could end up paying a lot more than you bargained for that new home. Soaring lumber costs in particular have increased the total price of a new home by $30,000 on average since spring 2020. Costs are also on the rise for steel, millwork, plumbing fixtures, cut stone like marble and granite, and paint.
An experienced agent can help a buyer recognize and understand the financial ramifications of an escalation clause. They can also help negotiate ways to minimize your risk, like requesting an option to void the contract if the total price exceeds the original price by a certain percentage.
Using shoddy building materials without your knowledge
In 2016, one of the largest home building companies in the country set aside over $400 million for buyer legal claims around poor craftsmanship and construction, even when the materials were clearly outlined in the contracts.
Signing a contract without an understanding of material quality could lead to a long legal fight with your builder — like a Texas couple who only won a defect case with their builder after 14-year battle. A buyer’s agent with experience in new construction can request for more detail on building materials, something you as a buyer aren’t trained to spot.
Construction delays with no end in sight
Barring a natural disaster or other unforeseen circumstances, a builder should complete your home in a reasonable amount of time. But some builders won’t even include a completion date in their contract. In those cases, buyers will have a challenge holding their builders to a time frame.
However, an agent with experience in new builds can help create a fair timeline for the build, including padding for inclement weather or construction delays.
An unreasonable payment schedule
You will likely be required to put anywhere from 5% all the way to 33% of the total cost of the home upfront and then make subsequent payments throughout the process. Without a seasoned agent by your side, you could be agreeing to a payment schedule that conflicts with the structure of your loan.
Changes to the scope of work
Nearly every construction contract will have a “change of work” clause included. This clause explains the process in which a builder can change construction at any point in the project, and how they must inform the buyer.
However, depending on the contractual boilerplate, they might sidestep change order proposals altogether, or amend the clause to give limited notice to the buyer. A new-construction buyer’s agent will have experience with changes in scope, and can help suggest a process that’s easiest for you.
Waiving your right to legal recourse in the event of a dispute
You’ll have little to no legal recourse on any of the above issues if you sign away your right to legal recourse. A buyer’s agent could also help you hammer out a builder’s warranty that would cover defective material and labor as well as keep both sides from costly legal fees if problems arise.
While you hope none of the above occurs, a real estate agent with new-build experience, with the help of their attorney connections, will look for these elements in a contract and make sure that the agreement benefits both parties. Most importantly, they’ll ensure that you’re protected if the builder fails to uphold their end of the bargain.
Are builders still willing to work with buyer’s agents in a hot seller’s market?
The financial relationship between builders and agents has a tendency to evolve as the market cycles through periods of high and low demand. In today’s hyper-competitive seller’s market, it begs the question: Do builders need buyer’s agents and are they willing to pay them?
You may prefer working with an agent to look out for your interests, but some builders are revising their commissions structures, effectively knocking them out of the picture in a new home transaction. Some are even eliminating commissions entirely.
Fortress Home in Chicago, Illinois, stopped offering its 3% agent commission in April 2020. “We found that we were able to find people looking to build a home consistently and at relatively low cost using paid online advertising,” says Volodymyr Barabakh, owner of Fortress Home. “This allowed us to essentially cut out the middle person and go straight to customers.”
It’s not all doom and gloom for buyer’s agents, however. Many builders have learned hard lessons from recessions past and understand the value of working with agents who consistently bring interested buyers through their doors — in booming markets and during leaner times.
While there are a few notable builders that have removed agent commissions, it’s not a significant trend, especially among larger national builders with annual sales volumes in the thousands.
“Representatives from top builders have shared with me that they’re really surprised that these builders did this,” says Jody Kahn, senior vice president of research at John Burns Real Estate Consulting. “The day is going to come when these builders that stopped paying commissions need to tap into the broker community, and some of those folks are not going to be willing to work with them.”
Data shows that on a national level, 71% of builders have no plans to remove their broker commissions programs — most are keeping their agent commissions or are simply considering a reduction. According to Kahn, builders’ changes in agent fee structures include:
- Calculating the commission from a home’s base price (removing options and upgrades)
- Moving from a percentage to a flat fee
- Reducing the fee percentage
Some builders are even taking this opportunity to strengthen their agent relationships by soliciting feedback about their commissions program.
“We greatly value our relationships with the broker community and are always looking to improve our program,” says Mark Kesling, sales manager for Pacific Lifestyle Homes in Oregon and Washington.
From 2020 to 2021, the company reduced its broker percentage from 2.25% to 2% and from base to finished price to make it simpler for agents. “We made the change to 2% on finished [price] as it was clearer based on broker feedback. Although we decreased the percentage by a quarter point, on average we are paying a bit more on each transaction using the finished price for the commission calculation.”
Separate reality from model-home fantasy
When you get to hand-select so many elements of your home, you’ll be tempted to go overboard. In some instances, the highest profit margin for builders is in the upgrades — don’t count on them to suggest faux marble countertops over the real thing.
“Consider doing cosmetic or easy design upgrades post-construction rather than with the builder,” says Michele Mazine, owner of Nest Advise, a firm that helps buyers through the new home options and upgrades process. These are few examples of upgrades don’t bring enormous value to your home, but they’ll yield high profits for your builders:
-
Lighting
The lighting upgrades builders offer are typically generic, and you can easily replace lighting on your own, or for a lower cost with an electrician. -
Crown molding
This design choice is an expensive upgrade, but doesn’t cost much for builders to install. On the back end, this elaborate molding won’t add to the value of your home. -
Smart home features
Unless they’re included, consider opting out of a home security system and a video doorbell to avoid overpaying at the design center. Be sure your home’s infrastructure supports your plans—Cat-5 or Cat-6 cabling and ethernet ports in rooms with computers or smart TVs should be the minimum. -
Upgraded carpet
Most flooring is often overpriced if purchased through the builder, according to Mazine. “Consider simply upgrading the pad, which will help standard carpet last longer and will likely feel more comfortable when walking on.” -
Knobs and pulls
You’ll save money in the long run if you upgrade these on your own post-construction. Builders don’t always have an extensive inventory of options, and it’s something you can change easily on your own.
“The first thing is sitting down and looking at a budget of what is realistic,” Charron says.
After you complete the home, additional costs like landscaping, window treatments, and appliances will come into play. New construction homeowners pay between $3,000 and $15,950 on average to build out the landscaping of their property., though some builders may include front-yard landscaping or be willing to negotiate partial landscaping. With those numbers in mind, Charron works with her clients to create a holistic budget for their new builds.
Think long-term about resale
You’ll be the first person to ever own this house. But if you make it completely 100% yours, outfitted to all of your eclectic personal tastes or the latest trends, you could face challenges down the line if you ever decide to sell.
A report from the National Association of Home Builders shows the average buyer these days stays in a house for about 13 years. That’s a lot of time for the hottest styles to fade.
An agent can help advise you on decisions like whether bold backsplash tiling will last or if you’d be better off with classic white subway tile. Dedicated home offices are popular right now as more people work remotely, and an agent can help decide if it’s better to option the space into an additional bedroom by adding a closet for better resale value.
Charron also gives the example of a buyer who never took baths, so she built the new house without one. Trouble is … that makes a house tough to market down the line. People with kids (or those who enjoy a great bubble bath) will be disappointed.
Assistance finding the best financing for you
Some builders work with preferred lenders or have their own lending companies. This can make financing a new build easy, but won’t always result in the best deal for you.
An experienced new-construction agent helps you weigh the benefits and drawbacks of your lender and loan options, which may include:
- Banks or credit unions in the area that offer good terms for new construction
- Different types of home construction loans, such as:
- Short-term home construction-only loans, which cover the costs of the land purchase and building costs. You’ll either need to pay the loan off when construction wraps or apply for a mortgage.
- Home construction loans that auto-convert to traditional mortgages once the home is complete.
Communication between you and builder
Staying in constant contact with your builder can be a full-time job. “Having a Realtor gave me peace of mind,” explains Angela Worley, who purchased a new build in 2018. “She would even drive to the lot and take pictures for us to update us,” noting that the builder’s agent didn’t do a sufficient job of keeping them in the loop on the construction progress.
A seasoned agent with experience in new builds can give you invaluable insight during the process. Whether they’ve done business with those particular builders, or are aware of other comparable communities in the area, they can provide a wider context to your transaction. They might have an existing relationship with your builder, easing any tensions that might arise.
Charron shares the example of a client who wanted a pool in the backyard of the new home. The builder approved it right away, “but my experience said go back and ask what size,” Charron explains. In this instance, the pool the buyer was dreaming of swimming laps in was in fact a glorified plunge pool where you could barely doggie paddle.
It isn’t the responsibility of the builder or builder’s agent to keep you in the loop, but a buyer’s agent will stay in touch as construction progresses, and advocate for your needs as the buyer.
References and referrals
If everything goes 100% according to plan, great. If not, it’s nice to know you’ve got backup. Says Worley, “I wanted to make sure that the purchase of our home went smoothly and have the backing of our agent’s broker and the team of attorneys to handle it should something go wrong.”
Work with an agent from the beginning
If you’re considering working with an agent on your new build, don’t delay the decision. The further you get into the home shopping process, the more challenging it becomes to bring in an agent. In fact, if you’ve already registered with a community, it might be too late.
“Some builders are very agent friendly, and some are absolutely not. If you go into new construction and register without your agent, it may be difficult to have them come in later,” explains Charron.
Some agreements with new builders won’t include an agent’s fee for the buyer. That means if you’ve already signed with a builder and want to bring in an agent, you could end up paying the agent’s fee directly.
The structure will vary by builder, but at the start of your search it’s important for you to get a copy of the commission structure from the builder, so you know who’s paying your agent’s fee.
In most cases, if the property is listed on MLS, they’ll offer a fee, “but they don’t have to,” explains Charron. The fee is often up for discussion, and a good buyer’s agent will negotiate with the builder to include their commission in the sales price, in addition to the savings their experience will bring.
If you’re building what you buy, you might think, “Why would I need an agent?” However, new construction is a complicated and expensive process. The experience a knowledgeable buyer’s agent brings to the table is worth more than you’d save in commission or an agent’s fee.
The key is finding a pro who’s seasoned in the world of new construction. Don’t be afraid to ask:
How often do you work in new construction?
The agent should be able to speak to what percentage of their clients fall into this category, and an approximate number of total new-build transactions they’ve advised on.
Do you have a relationship with any local builders?
It wouldn’t hurt to work with an agent who’s on a first-name basis with builders across the city. An agent who has established relationships can ease the process, and shows a depth of experience across multiple companies.
What value do you bring to this transaction?
Buyer’s agents in new construction serve many different functions. An agent should be able to explain the process and how they can make it easier for a buyer.
Things to consider if you buy a new home without an agent
In the event you decide you’d still like to go it alone, it’s up to you to advocate for yourself. Builder’s sales representatives are often helpful, but they’re looking out for the company’s best interests. Do these seven things to prevent unwelcome surprises:
Research builders thoroughly. Ask friends, family, co-workers, and neighbors for their recommendations. Walk through a new community recently completed by the builder and talk to buyers about their experience. Read reviews and testimonials, and get a glimpse of the builder’s financials to check for any red flags.
Know what’s included in the base price. It’s easy to fall in love with the model, but they’re often equipped with expensive and optional extras. Get a spec sheet of what comes with your home plan so you can decide what to upgrade.
Establish a budget for options and upgrades. This is where you can easily add tens of thousands to the home’s base price. Prior to your design center appointment, decide how much money you can spend on your home’s personalization and prioritize accordingly.
Shop for your loan. Many builders require pre-qualification through their preferred lender, but you’re typically not required to use them. They may be able to offer the best deal through incentives, but do some research on other lending options before committing.
Get contract help. Read the fine print. Or better yet, hire a real estate attorney to do it for you so you don’t miss anything that leaves you vulnerable in the agreement.
Request a single point of contact. This person could vary from builder to builder and could be the sales representative or even a construction manager. Whomever it is, ask for the same person to communicate with you and establish a communication timeline throughout the build process.
Don’t neglect the final inspection. Take your time during the final walkthrough to identify any issues that need fixing prior to close. If there are any major items that need addressing, determine a reasonable completion date beyond move-in. Get the punch list in writing and request a copy for your records.
There’s a wide array of agents out there and new construction is a different world compared to resale. Taking the time to find the right agent to fit your needs can make the whole process smoother. They’ll be firmly in your camp so you enjoy a relatively stress-free experience building the home you’ve envisioned, from plan selection through final home delivery. HomeLight makes the complicated process of finding an agent easy by using data to match you with an agent that has a proven track record and relevant experience for your needs.
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