Top 5 Tips to Help Real Estate Agents Sell New Construction Homes

Top 5 Tips to Help Real Estate Agents Sell New Construction Homes

1. Keep sample copies of builder contracts on file for review
2. Make sure you clients will qualify for financing months in the future
3. Confirm that your client lists you as their agent on builder registration cards
4. Understand exactly how the builder will compensate you
5. Pay attention to current builder inventory and the state of the market

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

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

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

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.

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.

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!