Here's a little secrect. If you are very interested in new home developments and want to know the pricing, there are a couple of third party services that report builder sales. Builders use these reports to see where their competition is priced and what the sasles rate is. Most builders need to sell at least 2 homes per community to cover overhead, ideally they want to sell 4 per month, so if the sales rate goes down, they have to lower the price. If you are interested email me and I'll send you the link to the companies. You can buy a report for about $20, money very well spent if you're planning on buying in the community.
From my perspective I think Fremont pricing is deteriorating fast. I ran some numbers and the average price of attached housing in Fremont fell 20% the last 6 months of 2008.
Brian Ripp, CRS, GRI
Real Estate Market Weekly Update Webcast: http://realtytimes.com/REUv/BrianRipp
Realtor since 1985
I want to make sure that I make myself completely clear -- I know there are stories of people not using Realtors to buy from a Builder and everything turning out just fine. Iâ€™m not saying it isnâ€™t possible, Iâ€™m just wondering how they would know if the info Iâ€™m about to share did not occur.
Besides finding out the information you ask about above, here are reasons why you may want to work with a Realtor:
A) We have access to Tax/Title databases providing property transfer details. Because Builder sales are not typically via the MLS, the Realtor you work with should go through the effort of matching this database against physical addresses/models in the complex you are interested in to make sure there is an "apples-to-apples" comparison. Performing this will help you to arrive at a current market value. Once your proposed offer price has been determined, a Realtor can further compare the relative value of the proposed Builder purchase against existing housing stock as an â€œequity sanity check.â€
Why do this? We all know what happens when you drive a new car off the lot; donâ€™t let that happen with your home purchase. Purchase price and market value can be two very different numbers. Your equity is not what you paid for a home, it is the market value of your home minus what you owe on the home. Case in point: there are probably some people who placed a 20% down payment (equity at the time they purchased) on a Builder house which has now been evaporated based on the new market value assigned by transactions completed before and after they bought. We canâ€™t do anything about the future, but we can certainly try avoiding an immediate equity hit based on paying over current market value.
B) We understand purchasing from a Builder at market value is important for financing reasons as well. This is because your down payment requirement percentage will be based on the lesser of the purchase price OR appraised current market value. What happens when there is a difference? If you want to continue with the purchase, either you come up with more money for a down payment and/or the Builder lowers price. It might be nice to have a good feeling for this before making an offer.
C) We are not lawyers, nor do we provide legal advice; nonetheless, we can review the Builderâ€™s purchase contract to make you aware of situations that may leave you at significant disadvantage under certain scenarios. This allows us to address issues before signing a contract.
D) Put yourself in the Builderâ€™s shoes for a moment. A Buyer walks in with a Realtor. Right away the Builder knows their home is being compared to available supply on the MLS. Contrast this with just walking into the Sales Office without Realtor representation. Now who has the negotiating advantage?
E) The Builder will probably have financing available, but how can you be assured you end up with the best rate possible? A Realtor can help you find a mortgage professional to do a â€œfinancing sanity check.â€ You are not required to use the Builder's lender; you should shop for the best deal, as the financing decision will effect you for as long as you own the property. Also, you will want to look at the "breakeven point" of any Builder incentives tied to using the Builderâ€™s lender.
F) Realtors know even if you do buy a new home it still makes sense to have a property inspection performed (and not one of those $200/2hr inspections!) This is the cheapest insurance you will ever pay for. I personally have a Property Inspector who also does environmental testing as part of his basic inspection. Sure, thereâ€™s a 10-year Builder warranty, but poor workmanship can manifest itself into costly damage well within the first year - its just best to hire a 3rd party inspector that is working for you to find issues before moving in.
G) Realtors understand Builder upgrades are not at market value, in fact, these hold the highest profit margin for a Builder. While incentives do reduce Builder profit, know it's not necessarily a one-to-one ratio. If something costs me $5,000 and I tell you its worth $10,000 and I offer a $2,500 incentive I have still made a 50% profit above market value on that item.
H) A Realtor, while aware of your goals, is use to negotiating without getting emotionally involved in the purchase. When you are talking about spending your hard-earned cash, itâ€™s good to have someone with 3rd party negotiating â€œscar tissue.â€
A) I just donâ€™t need a Realtor.
If I havenâ€™t provided enough incentive above to consider teaming with a Realtor on what might be the largest financial purchase of your life, perhaps some information regarding Agency, or shall I say lack of Agency, might tweak your interest.
There are two ways to create agency: 1) through a formal agency document, and 2) through one's actions. When you go to a Builder they will ask you to sign one of two documents. One has you agree that the Builderâ€™s Agent will be acting in Dual-Agency, representing both Builder and Buyer, or that the Builderâ€™s Agent does not represent you.
Case #1 - Builder asks you to sign a Dual-Agency:
An Agent has certain Fiduciary duties to a client (A fiduciary duty is the highest standard of care possible). These can be boiled down to Loyalty, Obedience, Diligence, Disclosure, Accountability, and Confidentiality. One person cannot provide full Disclosure and maintain full Confidentiality at the same time. To avoid this conflict of duties, a Dual-Agent may not place either client into a beneficial position over the other.
For example, a Dual-Agent can provide the price of a home but canâ€™t provide advice as to the appropriateness of the price. Another example might be where a Dual-Agent performs a Comprehensive Market Analysis. The findings can be shared, but not interpreted to either client. If we can agree that determining price is important, when does a Builder Dual-Agency make sense? Why negotiate without the knowledge and experience your own Agent can bring to the table?
Case #2 - Builder asks you to sign a single-agency form/disclosure that Builderâ€™s Agent only works for the Builder:
Think you have dodged the Dual-Agency bullet? Not so fast. Because formalities are not required to create an agency relationship, one can be implied from the conduct of the parties toward each other, regardless of each party's intent, or label used to describe their relationship. Regardless of the document signed by a Buyer to disclose that the Builder's Agent only represents the Builder, if the Builder's Agent/Representative/etc. subsequently acts in an Agency capacity with the Buyer a Dual-Agency is established through action. An undisclosed Dual-Agency is a felony. Do Builderâ€™s Agents do this? Sure. Knowingly? Yes and No. More importantly, from a financial position, you own financial interests are not being represented! Why would one consider doing thisâ€¦?
B) Iâ€™ll save the commission!
Bottom line: The Builderâ€™s Agent doesnâ€™t work for your best interests â€“ their priority is the Builder! In the case of a Dual-Agency, if they were looking to make sure you were in the best position this action would be a breach of Fiduciary Duty to the Builder, and in a sole Builder Agency, they are openly working for the benefit of the Builder. If in both cases they wonâ€™t be working in your best interests, how will you save the commission that the Builder would normally pay YOUR Buyerâ€™s Agent who IS looking out for your best interests? Just having your Buyerâ€™s Agent complete a Comprehensive Market Analysis alone could save you well more than the commission. Especially in these times where housing value are declining, it's prudent to have a knowledgeable Realtor negotiate on your behalf.
If you decide to, team with a Realtor before contacting the Builder if at all possible if you want the Builder to pay for your Agentâ€™s services. Many Builders will not cover your Agentâ€™s fee unless the Realtor registers you first. Understandably, some Builders are getting more lenient on this requirement, and you could always refuse to sign a contract unless they do agree to compensate your Realtor, but its best to be conservative.
Best Regards, Steve