If you’re a real estate agent negotiating a new construction home deal for a client, there’s several important factors to consider.

What all is included in the build and what’s an add-on? Are the builders willing to offer incentives to sweeten the deal? Is the price really non-negotiable?!

These are some of the top questions both you and your client will want to find the answers to. In this brief 5-Step guide, we’ll help outline the facts and recommended approach to negotiating a new home deal for your client.

As a result, you’ll be able to navigate the new home sales process with greater ease and confidence. You’ll also be able to further improve your reputation as a smart, savvy, responsible new home realtor.

Foundational vs Active Steps in Negotiation

Before we dive in, there’s an important distinction worth mentioning: foundational vs active steps in negotiation.

As you’ll see, the first two steps in the negotiation process are foundational. As an agent you’re always expected to have answers to questions related to buyer’s rights. Similarly, you’re always going to keep up with current inventory and general market trends! This is where the New Home Buddy platform can help give you a competitive advantage.

If the first two steps in the negotiation process are foundational parts of doing your role as a new home buyer’s agent, the next three steps can be considered active. These are steps that require you to actually conduct specific research, make offers, and manage details of the transaction (such as add-ons and inclusions).

1. Research the state of the market & current inventory

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When a client mentions they’re considering buying a new construction home, your first job is to assess the current state of the market. Active agents usually have a good pulse on the state of the market in general already.

However, when it comes to new homes, inventory supply and demand can change at a moment’s notice. Before telling your client that you’ve “got the perfect location and floor plan for them!“, you’ll want to check on current builder inventory to see what’s available.

Looking for current and upcoming availability for new construction homes in San Antonio? Sign Up on the Agent Portal for FREE!

If a client is on the fence about whether or not to pursue new construction and inventory is low, they might be better off purchasing a resale home. On the other hand, if supply is high then builders will be eager to sell.

High inventory gives you, the buyer’s agent, more leverage when negotiating. Therefore, in a high inventory market you’ll want to act fast once you get a new home client to take full advantage of the incentives and discounts a builder might offer.

After all, builders are losing money every day a house or lot is sitting empty. If you know a particular community of new homes has been selling slowly, that might be the perfect place to strike a deal. Of course, you only want to do so if it’s in the best interest for your client, and meets their needs.

2. Understand the buyer’s rights

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As we mentioned in a recent article, it’s a good idea to keep sample builder contracts on file for review. You’ll want to do this because unlike resale home contracts which are typically 9-15 pages, builders have their own proprietary contracts that are 50-80 pages on average.

So you can bet there’s tons of details and specifics regarding the buyer’s rights in those contracts that are unique to each builder! Having sample contracts handy will serve as a great quick reference point when you need to find out quick answers for your clients.

Specifically, you’ll want to look out for any important deadlines relating to when a buyer can terminate the contract without forfeiting their deposit money.

Put another way, a buyer’s earnest money generally becomes “hard” or nun-refundable after the loan contingency deadline. For new construction homes, this earnest money deadline can be pretty strict (within 2-3 days after the contract is executed).

Additionally, there’s very few provisions that allow the buyer to terminate without losing their deposit. One exception would be if the builder is unable to complete the build in the timeline agreed upon. Another exception would be if the buyer’s loan somehow gets declined (if it was out of the buyer’s control).

So while there are fewer new construction home deadlines to manage overall compared to resale homes, they are nevertheless very important to keep track of.

Communicating the buyer’s rights to your client and the deadlines they can expect to follow is a crucial part of your role as a new home buyer’s agent. Ultimately, you’re unlikely to be able to negotiate the rights set forth in the builder’s contract.

3. Retrieve the initial listing information

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Step three, retrieving the initial listing information, is the first “active” step in negotiation. You need to get a good gauge on the initial listing price to determine how or what to negotiate!

Fortunately, New Home Buddy has up to date floor plans and pricing information for you to quickly see what’s available in San Antonio. If you’re outside of San Antonio, you can contact builders directly to learn about what floor plans are available or coming soon.

This is the stage where your negotiation with a builder begins. Therefore, it’s best to gather as much information about your client’s wish list beforehand so you can an accurate, comprehensive quote right away.

Anchoring

One of the best things you can do in a negotiation setting is to be the first one to set an asking price. This psychological effect, known as anchoring, demonstrates that the first number presented dictates the gravitational pull for the rest of the negotiation.

This becomes the basis for the negotiation! Ultimately, whatever that initial listing price is for a home, the price will only fluctuate a small amount relative to that base number.

In the case of new home construction, builders are the ones who set the initial price. This means that as a buyer’s agent, you’ll want to do some comparative research by looking at similar floor plans/communities to determine whether their asking price is reasonable, or whether you think there’s any room to negotiate.

Another approach you can take is to contact the builder directly and set the initial price your client has stated. That’s probably your best bet for “anchoring” the deal from a listing price perspective.

For more information on anchoring, check out the book Thinking Fast and Slow by Daniel Khaneman.

4. Know what and when you should negotiate

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When it comes to negotiating new home transactions–or any negotiation for that matter–it’s all about leverage. Understanding what and when you can negotiate is just important as how you go about it (see next section).

To help you determine what and when you can negotiate, check out the checklists below!

What can you negotiate?

Here’s some common things you can consider negotiating:

  • Financing: Builders often have preferred lenders who are willing to cover some or all of the closing costs
  • HOA Fees: Some builders are willing to pay your homeowners association (HOA) fees (if applicable)
  • The build itself: This is unlikely to happen with big name builders, but is more likely with fully custom builders. Asking if they have any “spec” homes available is also good option for savings
  • Lot premiums: Some lots of land are more desirable than others. If that’s important to your client then you can try to negotiate that, or “get a deal” by simply choosing a cheaper lot
  • Upgrades: This probably the most common area where you can negotiate a good discount. However, make sure you encourage to your client to only choose upgrades that will increase the value of their home long term!

Many builders are reluctant to negotiate the listing price of a home. Why? Because they don’t want to decrease the value of the homes in the community they’re developing!

This doesn’t mean that it’s impossible to negotiate the listing price, it just means you’ll have more success negotiating upgrades or other inclusions.

From the builder perspective, this is ideal because it allows them to maintain the value of homes in the community, while also satisfying the buyer. By only offering discounts on things like the upgrades, this ensures fairness and good will with buyers who already purchased other homes in the community.

When can you negotiate?

Most builders will insist that their base prices are non-negotiable, and generally this is true. However, it’s not always the case.

You’ll know it’s a smart idea to try to negotiate the price with builder when:

  • Recent reports indicate that new home sales are declining in your area
  • An entire development community is nearing the final stages, and only a few lots remain
  • The builder has several unsold “spec” homes in their inventory
  • It’s the end of the month, or the end of the fiscal year

If the timing is right and any of the above statements are true, then you have enough leverage to negotiate!

5. Determine if you’re entering a collaborative or competitive negotiation

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We’ve covered the what and the when for negotiating new home sales, now let’s discuss the how. When it comes to negotiating a new home sale, ideally these transactions result in win-win (cooperative) scenarios.

However, there’s also plenty of transactions that are win-lose (competitive) scenarios. Basically, there’s a winner (someone who gets what they want), and a loser (someone who concedes).

You want to recognize very early on whether you’re dealing with someone who is a cooperative or competitive negotiator.

Dr. John Lowry is credited with highlighting this distinction in negotiation style, a distinction author Donald Miller writes about extensively in his 2021 book Business Made Simple:

“If you are in a collaborative negotiation mode and you sense the person you are negotiating with is in a competitive mode, you should switch to competitive immediately. Why? Because they are not looking for a win/win, and in order to create a win/win scenario, you need for them to join you.”

Competitive vs Collaborative Approach

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Is the builder you’re contacting hungry to make a sale? Maybe you know that they’ve had a particularly slow month and need to find more buyers asap.

Or maybe you’re using New Home Buddy and can see that there’s only two lots left in a development community, in which case the builder is definitely eager to make a sale. These are opportunities for you to be competitive!

On the other hand, you might have a client who isn’t quite sure about what all they might want in their new home in terms of add-ons. They might have trouble making up their mind until they see all the options that are available to them.

In that case, you might want to enter a negotiation from more of a cooperative perspective by agreeing immediately to whatever initial listing price is set by the builder, and wait to negotiate until your client decides on all the features they want in their new home.

Whatever the case may be, you want to enter a negotiation willing to cooperate, but prepared to compete. Use your best judgement and always act in the best interest of your client. After all, your entire reputation with the builder for future transactions is also at stake!

Conclusion

Negotiating a new home transaction can be tricky, but also very rewarding!

By having a solid foundational understanding of the state of the market, availability, buyer’s rights, and inventory, you’ll be well equipped to help your client get a great deal. New Home Buddy is the new web platform designed to help you do exactly that!

Once you have a good grasp on the market and current trends, you can actively negotiate with confidence! Evaluate what you think you can get your client. Consider approaching the builder with an anchor price, and determine your negotiation style (competitive vs collaborative) asap.

As a result, you’ll be able to further establish yourself as a smart, savvy realtor who has extensive knowledge of builder deals, and someone who can get a terrific deal for their clients.

So if you’re a licensed real estate agent in Texas who wants to take their new construction home sales to the next level, sign up for a FREE agent account on New Home Buddy today!

If you’re a buyer’s agent who wants to sell new construction homes, there’s many unique challenges you’ll encounter. Builder contracts, finance timelines, and compensation all work differently compared to resale homes.

There’s so many factors at play when negotiating between the builder and the buyer, it’s difficult to think about your own needs as the realtor. After all, the last thing you want is to spend a ton of time and effort negotiating a deal only to find out your buyers won’t qualify or you won’t get the compensation you’re expecting!

Below are five important tips to help you get more familiar with new construction home sales. These tips are essential for helping you represent your buyers to the best of your ability, and ensuring that you’ll receive compensation for a new home sale you help facilitate.

1. Keep sample copies of builder contracts on file for review

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If you’re just starting out selling new construction homes, one of the first surprises you’ll encounter is the difference between builder contracts and resale contracts.

In many states, builders are able to substitute normal resale contracts with their own proprietary contracts. Attorneys typically draft these custom contracts with extensive language that favor the rights of the builder.

As a result, builder contracts for new construction homes can be between 50-80 pages on average, whereas resale contracts are typically only 3-15 pages on average.

The length and complexity of builder contracts is a major reason why you should keep sample copies of these contracts for all major builders in your area.

Having these sample contracts handy allows you look up their standard clauses and statements at a moment’s notice depending on your clients questions or concerns. In addition, you won’t have to waste time bugging a builder rep with a million questions or ask for a speculative contract for a client who “might” be interested.

2. Make sure you clients will qualify for financing months in the future

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Another unique challenge with selling new construction homes is helping your clients deal with financing.

Most mortgage lenders can’t lock-in an interest rate beyond a 90 day closing date period without taking on what they consider to be substantial risk. So considering that most new construction homes can take anywhere from 4 to 18 months to complete, this can make financing especially tricky. Furthermore, you don’t want to spend months of time helping a client only to discover they won’t be able to finance their new home after all.

Here’s a few questions you should ask to ensure that your clients will probably have good financing options months in the future:

  • Looking at your client’s debt-to-income ratio, were they barely able to qualify in the first place?
  • If interest rates were to increase by 1%, will your client still be able to qualify?
  • Is your client open and willing to use a builder’s preferred lender?

If a buyer is barely able to qualify at the current interest rate, this should raise some red flags. There’s no telling whether or not they’ll be able to lock in a better rate in the future, and should consider buying a resale home instead. However, if the buyer has enough cushion to purchase even with a 1% rate increase, that’s a good sign!

Lastly, many builders have ownership stakes with specific lenders and title companies. Therefore, builders will often require buyers to use these specific companies in order to receive the discounts or incentives. they offer.

So if your client is intent on only using their own bank or lender, you’ll want to make sure everyone is clear on how that decision will impact their final cost. Typically, buyers will opt to just follow the builder requirements to receive all the benefits.

3. Confirm that your client lists you as their agent on builder registration cards

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One important question to ask your client right away is: “have you already toured a model home from this builder?”

When buyers tour a model home, they’re usually asked to fill out a registration card. Builders primarily use these cards to follow-up with potential buyers similar to an open house. However, builders can also use this as a tracking system for lead sourcing.

These builder cards may include questions like “how did you hear about our development?” or “are you represented by a buyer agent?”. If your client fills out a registration card without supplying your name and information as the procurement source, then the builder may chose not to pay you a commission.

From a builder perspective this makes sense. They only want to pay you, the realtor, if they can determine that you were in fact the one who initially brought the buyer to them.

Therefore, make sure you ask early in the process whether or not your client has already toured a model home or filled out any lead forms. Your entire commission is at stake!

4. Understand exactly how the builder will compensate you

Early on in the process, you’ll want to make sure you’re clear on exactly how you’ll be compensated by the builder. Typically, you’re commission will be based on either the home’s base price, or on the final purchase price.

As you can probably guess, builders prefer to pay realtor commission based on the home’s base price. Most of the time, builders only offer a fixed percentage on the base price, and that doesn’t include anything related to landscaping, structural upgrades, lot premiums, etc.

In other words, the more add-ons a buyer decides to get, the more profitable that will be for the builder. As the buyer’s agent in this scenario, you’ll likely have to do a lot of extra negotiating and communicating on the buyer’s behalf without reaping any of the benefits.

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The good news is that even though your compensation will likely be a percentage of the base price rather than final purchase price, builders will often offer you a higher percentage rate than you would get on a resale deal to compensate for that loss.

However, if the market is cold and builders are sitting on a lot of excess inventory, you may be able to receive a final purchase price commission (see next section).

Early on in the process, you’ll want to understand exactly what percentage you can expect to get and whether or not it’s on the base or final purchase price.

5. Pay attention to current builder inventory and the state of the market

Negotiation with the builder plays a vital role when it comes to facilitating new construction home deals. Often, it can feel like you’re subject to only play by the rules that the builder puts forth.

So when can you as the buyer’s agent start gaining some leverage? When inventory is high, or the market slows down!

If a builder is sitting on inventory or seems extra hungry to make a deal happen, the perks will follow. This might come in the form of renegotiating how your commission percentage works, or it could be in the form of discounted upgrades to your client.

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Keep in mind that builders aren’t as emotionally attached to their homes as resale home owners tend to be. For builders, it’s more about the bottom line and what’s going to best for them from a sales perspective; pure and simple. You’ll want to carefully consider the state of the market before recommending new construction homes to your client.

That being said, builders know that they’re losing money every day their inventory sits vacant. When the market is saturated with resale homes, that’s when it’s an especially smart time for you to pursue new construction home sales for your client. As a result, not only will you and your client be able to negotiate a great deal, you’ll also be helping the builder offload excess inventory as well.

Conclusion

For buyer agents that want to sell new construction homes, the transactions can seem very complicated or confusing. While it’s true that the new home buying process has it’s unique challenges, it can also be very rewarding for both you and your clients!

New homes are attractive to buyers because it basically guarantees that they won’t have to pay for repairs or maintenance for at least a few years. The discounts and incentives also make buying new construction homes a smart investment decision.

As a buyer’s agent, you can also benefit from having relationships with builders and knowing what they offer. This level of transparency and connectivity is what New Home Buddy is designed to help with. You can stay on top of inventory, spot market trends, and be the first to know about the best upcoming opportunities all before they’ve been listed anywhere else.

So if you’re a licensed real estate agent in Texas who wants to take their new construction home sales to the next level, sign up on the New Home Buddy Agent Portal today!

If you’re a real estate agent, chances are you’ve heard about or even sold new construction homes. Although it probably sounds pretty obvious to you, some people might not have heard about new construction homes, or simply don’t know what that term means!

As an authority in the real estate market, your clients are depending on you to have all the answers and negotiate a great deal. So if you’re ever in a position where a client asks about the new home buying process, it’s a smart idea to make sure you and the client are both talking about the same thing before doing a bunch of unnecessary research.

After all, you don’t want to waste a bunch of time finding or creating floor plans for your client only to find out they have a totally different idea of what a “new home” is!

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In this article, we’ll provide a basic definition for the term “new construction home”, and outline some important talking points worth bringing up with your clients.

As a result, you’ll be able to peak the interest of clients, and hopefully sell more new construction homes easier than ever before!

Definition

Simply put, a new construction home is a house where the buyer will be the first person to live there after it’s built (newly constructed).

New Construction Homes definition by New Home Buddy
New Construction Home – Definition by New Home Buddy

Other terms for “new construction home” include:

  • new home
  • soon-to-be-built home
  • newly built home

You should be aware that oftentimes people use these terms interchangeably when referring to completed or future builds.

In other words, when someone is talking about a new construction home they could either be talking about a home that’s recently been built, OR one that will be built in the near future. You’ll want to make sure you clarify this difference with your client as soon as possible to make sure everyone is on the same page.

Now that we’ve defined new construction home terminology, let’s dive into some useful tips and talking points!

New Construction Homes – Tips & Talking Points

When it comes to new construction home buying, your clients may have a lot of unique questions. Here’s some tips and talking points to help you stand out as an expert realtor!

1. The seller is usually the builder

In traditional real estate transactions, the seller is another individual home owner or company with a listing agent. In new construction home transactions however, the seller is usually the builder. More specifically, you’ll engage with a builder company Representative (or ‘Builder Rep’ for short).

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Since you’ll be interacting with the builder rep directly on behalf of your client, it’s crucial for you to be an informed agent. Ideally, you’ll already know exactly what your client is looking for AND you’ll know that the specific builder your talking to can execute on the floor plan you client needs.

Typically, this can require a ton of comparative research on your end as a realtor. Not only that, but you’ll want to have a solid relationship with these builders already to get their prompt attention and feedback!

2. New home location: newly developed community vs building on a personal property

More often than not, new construction homes are built in a newly developed community or subdivision. Just think about all the times you’ve driven by and seen signs in up and coming neighborhoods for “new town homes starting in the mid-$500s!”.

However, in some cases a client may decide to build a home on property they own or purchase. This type of new home development is also known as build-to-contract. Although this is a much longer and involved process, it’s certainly a viable option if you can find a builder that specializes in this type of construction!

You might find that clients who wish to build on an empty lot they own will want more customization than what larger builder companies offer.

3. Understand your clients’ customization needs and budget

Before you spend too much time researching possible homes or communities that might fit your client’s needs, it’s important to understand exactly what features they’re looking for in their new home.

The degree of customization they’re looking for could very well determine which builders–and thereby which communities–they should consider. Will there be cases where clients might needs to compromise on customization to fit their location/lifestyle needs? The answer is “yes, quite possibly”.

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However, with New Home Buddy you can input exactly what their floor plan/customization needs are and see all viable results instantly. With our platform, you’ll be able to tell them immediately whether or not their wish list is realistic or not. As a result, they won’t have their hopes and dreams dashed later after you’ve spent days researching their wish list.

Semi-Custom vs. Fully Custom Build

So what’s the difference between a semi-custom and fully custom build?

Fully custom builds (also called build-to-contract homes) will likely be a longer process, as the client will need to coordinate and negotiate many details with a boutique builder prior to development.

Semi-custom builds are the more common option as most people who want a new home want to move in sooner rather than later. In these cases, you’ll help communicate the details between your client and the builder. This sounds like a lot of continuous work–but it doesn’t have to be!

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New Home Buddy provides realtors like you with the specific floor plan filter options for new home developments before they get listed anywhere else. All you have to do is plug in the needs of your clients, and you’ll instantly have access to the best new home floor plans from builders that match that search criteria.

These homes fall in the ‘newly developed community’ category mentioned above. So not only do you get first access to these homes, but they’ll also most likely be move-in ready within 6 months rather than one year or longer for a fully custom build.

4. Consider new construction build times

Another aspect of the new home buying process you need to consider with your client is when they need to move in to the new home.

New construction home build times can vary widely depending on several important factors:

  • Level of customization (see previous sections)
  • Size of builder workforce
  • Weather/seasonal factors
  • Landscaping needs
  • Availability of materials (increasingly important with the rise of supply chain issues from COVID-19)
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When it comes to new construction home build times, the fastest option is to explore new homes that were recently built.

The second fastest builds would be those that haven’t been built yet, but are in a newly approved community or subdivision. Homes in this stage are kind of a sweet spot, where customization is high and prices are relatively low thanks to early incentives offered by builders. Clients can expect homes in this category to be move-in ready in approximately six to nine months.

The third degree of build time is fully-custom builds. These builds have the most variation and unknown factors depending on a client’s needs. Therefore, the planning and actual build time could take years to complete.

5. Warranty & home Inspections are essential

Once you and your clients hone in on the details of new home (floor plan, location, builder), you’ll want to have the important conversation about warranties and home inspections.

Explore standard builder warranty options

For example, here’s a snapshot of Plute’s standard warranty policies are:

  • 10 Year: Most common, Covers the structural integrity of the home
  • 5 Year: Covers various types of water infiltration and internal leaks
  • 2 Year: Covers the workability of plumbing, electrical, HVAC, and other mechanisms
  • 1 Year: Covers material and workmanship

As a realtor, it’s a good idea to discuss warranty options with your clients early to understand their expectations. That being said, it’s unlikely that a builder company’s warranty policy options will be the deciding factor for your client. Furthermore, your client can always get additional insurance coverage from third parties if they wish.

Encourage a home inspection

Should your clients consider getting a home inspection for their new construction home? The answer is yes!

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When clients purchase a resale home, the choice to get a home inspection is a no-brainer. However, with a new construction home, the choice to get a home inspection might not be so obvious. Builders might offer to do a ‘final walk through’, but that’s far from essential.

If your client has a warranty (see section above), you’ll definitely want to encourage them to pay for a home inspection. That way, they’ll have a guarantee that everything was built properly.

In some cases, contractors build as fast as possible to get the job done. So it’s understandable that mistakes might just happen! Furthermore, if they’re working so fast only to meet the bare minimum of code, these mistakes could be detrimental.

6. New construction homes are more energy efficient

Fortunately, advancements in technology allow new homes to consume significantly less energy! In fact, according to the Energy Information Administration (EIA), homes built in the United States after the year 2000 on average consume 20% less energy than those built before then.

Juxtapose this with the fact that the average home built after the year 2000 is 30% larger than homes built before 2000. Therefore, despite the fact that new homes are much larger than older ones, they’re also consuming far less energy!

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Some of the primary factors that contribute to energy efficiency in new homes include:

  • Better insulation (floors, windows, attics, ducts, etc)
  • Advanced heating systems
  • Stricter energy code regulation

So not only are your new construction home clients helping the environment by consuming less energy–they’re also saving money every month while doing so! If your clients are especially environment or cost-conscious, energy efficiency is an excellent talking point worth bringing up.

7. Clients should spend less on maintenance the first few years

One of the biggest benefits to buying a new construction home is that when it comes to maintenance, clients can have peace of mind for a few years at least. When everything is new, there’s less of a chance for appliance mishaps, roof leaks, etc.

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Obviously you want your client to have a positive home buying experience. Almost nothing is worse than helping them get what they think is going to be the home of their dreams only to learn that they’ve had to spend a ton of additional money on repairs afterwards. Therefore, new construction home purchases reduce long-term stress for both you and your client!

Since this is such an attractive aspect of purchasing a new construction home, you’ll want to make sure you and your client thoroughly discuss warranty and home inspections (see previous section).

Conclusion

New construction homes are a popular option for home buyers. There’s just something so special about being the first person to live in a clean, sparkling new home!

But as a real estate agent, you might feel a little overwhelmed when clients start asking you a million questions about the new home buying process.

That’s why we’ve developed New Home Buddy. You can use our new web platform to instantly find precise and reliable new home matches for your client!

So whether you’re an experienced new home agent, or just getting started, New Home Buddy can help you find and close new deals in a flash. Sign up for a free Agent account today!