What is the true value of a new home priced at $400,000 if 6% of this goes to the builder's sales and the buyers real estate agents? Is it 94%?

Asked by Joo, 19464 Sat Mar 20, 2010


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Grace Hanamo…, Agent, Cupertino, CA
Sun Mar 21, 2010
Hello Joo and thanks for your post.

If you are speaking of new housing, the costs associated with the building of the home are far and numerous. So numerous, in fact, that it far exceeds simply the cost of the materials, the acquisition of land, the architects, the structural engineers, the building contractors, and the sales staff. Each entity that provides a service to the home--fire department, water department, sewer, utiltiies, school districts, trash, building departments, inspectors, traffic, streets, etc. is paid a fee for every home that a developer builds. These fees are not covered in the building permit, but in a series of fees passed to the developer for creating housing and "burdening" an area with residents who will use city, county and state services. In addition to the "hard costs" of building a home, a developer also have costs associated with obtaining building loans and hiring staff to provide services after the home is sold. It is actually quite a lot of expenses, so if you wish to know how much the average developer makes, the income (or, of late, loss) can only be calculated based on the location, the area, and the inventory sales rate.

And, by the way, developers do NOT pay 6 percent sales commissions to anyone. While a developer may be willing to pay the buyer's agent a certain fee (here in California, it's between 2.5 and 3 percent), the sales person representing the developer may only be making a salary or, if a commission, between 0.5 and 1 percent per sale.

In the past, the developers with whom I've worked were shooting for between 10-20 percent income from the sale of each home. In recent years, however, most are simply hoping not to lose money on the house when the sale is finally consummated. For more information bout industry averages, check with your local office of the National Association of Home Builders or the Building Industry Association (they are affiliated).

Grace Mroioka, SRES
Area Pro Realty
San Jose, CA
1 vote
Dan Chase, Home Buyer, Texas City, TX
Sun Mar 21, 2010
I notice the professionals have a problem with your math. Although the truth is real value is what is willing to be paid... If I was to sell without a realtor I would be willing to deduct their commission if asked just before I signed up to pay with one.
0 votes
Edmund Choi, Agent, Paoli, PA
Sun Mar 21, 2010
True value is what a buyer is willing to pay for a property and what an appraiser values it, for lending purposes. All costs, including but not limited to marketing expenses, transfer taxes, inspections, certifications, etc., involved with the purchase and selling of a property is the cost of doing business.
0 votes
Terrence Cha…, Home Owner, Allentown, PA
Sat Mar 20, 2010
True value is the amount a buyer is willing to pay for a property as my colleague has stated.

Terrence Charest, e-Pro
0 votes
John Juarez, Agent, Fremont, CA
Sat Mar 20, 2010
Why do you deduct the assumed cost of paying the sales team? Why not deduct the cost of labor to build the houses? True value cannot be defined. The closest that we can come to defining the true value of a home is what buyers will pay. If buyers are paying $400,000 for those homes the builder may not take an offer that is 96% of that amount. The only way to find out is to make the offer.
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