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Asked by JJ Mahony, San Diego, CA Sun Oct 7, 2012

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9
Jeri Creson, Agent, Studio City, CA
Mon Oct 8, 2012
Can I add one more tiny little thing? In a world where foreclosures are so rampant, please, please be careful about adding excessive upgrades at a builder. This is about appraisal. With resale homes, an independent appraiser, that is assigned through a service, on a random basis (in other words, not picked by the Realtor or seller), and has to appraise the home for the sales price in order for the bank to be willing to loan on it. In new home subdivisions this is NOT the case. The builder has a standing deal and authorization with the bank that the homes will appraise at the price listed, PLUS dollar for dollar on the amount they charge you as upgrades.

In the real world…in resale homes, two 2500 sq. foot homes, in the same neighborhood could not possibly appraise for a $100,000 difference - and yet in new home subdivisions, upgrades can often run $50,000 - $100,000 more than the base price. So let's jump ahead two years. You have a life crisis, new job opportunity, divorce or some reason you need to sell. In this market, you'll be lucky if you have 2-3% growth in equity. You may still be losing equity. If you paid $50,000 - $100,000 in upgrades, and the house next door did not. Guess what: Your house is "comped" pretty close to the house next door, and you are in foreclosure, my friend. Please be careful out there.
0 votes
Jeri Creson, Agent, Studio City, CA
Mon Oct 8, 2012
The builder's agent, at the model's office will generally either tell you, or hint that if you want a buyers agent, their commission will be reduced from your "incentives". It's generally a load of bull. There is not some predetermined "room in the deal" for only so much - especially now, with construction starts so low and builders in trouble. I have sold more new construction homes than I can count, and have worked as the full charge accountant, in my early days, inside a major home builder.

Here's the truth: there is the cost of the lot, subdivision improvements and cost of building the home. The "lot premium" they tack on for some lots is pure profit. The upgrades (if you don't want bottom of the barrel linoleum, and plain white tile on the cheapest cabinet grade available) are charged out and 300% or more than their builder's cost. They will try to pressure you into financing with their "preferred lender" which will generally cost you more than you could have gotten elsewhere - and even if it doesn't , they are pressuring you because they own the company or get a giant piece of the pie from the mortgage fees. If you put 100 deals side by side (I've done this from inside) at a builder, including ones that have versus don't have agents representing them, they will vary slightly, if at all. If anything, the ones without an agent generally have the biggest profits, not because of the commissions, but because the buyers generally make unnecessary choices that line the builders pocket. FACT: The 25,000 upgrade to "Premium" granite in the kitchen can be duplicated with minimal construction and mess after you move in, in about 3 days, for about…$8,000.
0 votes
Jeri Creson, Agent, Studio City, CA
Mon Oct 8, 2012
The builder's agent, at the model's office will generally either tell you, or hint that if you want a buyers agent, their commission will be reduced from your "incentives". It's generally a load of bull. There is not some predetermined "room in the deal" for only so much - especially now, with construction starts so low and builders in trouble. I have sold more new construction homes than I can count, and have worked as the full charge accountant, in my early days, inside a major home builder.

Here's the truth: there is the cost of the lot, subdivision improvements and cost of building the home. The "lot premium" they tack on for some lots is pure profit. The upgrades (if you don't want bottom of the barrel linoleum, and plain white tile on the cheapest cabinet grade available) are charged out and 300% or more than their builder's cost. They will try to pressure you into financing with their "preferred lender" which will generally cost you more than you could have gotten elsewhere - and even if it doesn't , they are pressuring you because they own the company or get a giant piece of the pie from the mortgage fees. If you put 100 deals side by side (I've done this from inside) at a builder, including ones that have versus don't have agents representing them, they will vary slightly, if at all. If anything, the ones without an agent generally have the biggest profits, not because of the commissions, but because the buyers generally make unnecessary choices that line the builders pocket. FACT: The 25,000 upgrade to "Premium" granite in the kitchen can be duplicated with minimal construction and mess after you move in, in about 3 days, for about…$8,000.
0 votes
Cory La Scala, Agent, San Diego, CA
Mon Oct 8, 2012
Hi JJ,

Realtors know their markets and can negotiate with builders or anyone else, at least a good one can. It doesn't mean you won't get a discount if you use a Realtor, but you'll at least know you paid a fair price. Sure, you can go in and ask for a percentage in discount because they won't have to pay a Realtor, but they'll just offer you what deals they have going. You're not going to get more off because of the discount, they've already factored that into their profit. The sales people are trained to get as much as they think they can get from you and to get a contract signed. With agents it's different, we may get information you won't.We can actually go into the tax records and find out what the units really sold for, we won't just point to a complex map in the office and give you sales numbers we memorized. You may get special incentives for using their lender though.

And, everything is negotiable. It's really important that you have representation for your financial interests. I've had buyers out looking at model homes and the in-house sales people always try to get them to sign a sales contract right then and there. No one offers to thoroughly go over the contract with them, saying it's all standard, but a builder's contract is not standard. One of my buyers signed a contract, and it must have been a 1/2" stack of papers he didn't even read, and the terms were all skewed toward the builder. They were able to get the offer rescinded after I talked to the office. The buyers didn't trust the builder by that time, and ended up buying something else.

A huge misconception is that you won't need an inspection, because it's new construction. There are so many things that can be done quickly or incorrectly on a job site that a builder is responsible for. So be sure to get a GOOD home inspection, and you'll be glad you did. The builder might want to know what kind of labor his money is paying for too.
0 votes
Robert Boern…, Agent, El Cajon, CA
Sun Oct 7, 2012
I have represented buyers who are purchasing new construction in the past. The sales contract the developer is likely using is prepared by their attorney and crafted to give them the advantage wherever possible.

On my most recent new construction transaction, the developer refused to provide certain legally required HOA documents to my client. I had to push pretty hard to get their attorney to read the civil code and agree with me. What we found didn't change the buyer's mind but it certainly was enlightening.

As has been mentioned below, if you have already made direct contact with the sales office without an agent, the opportunity for the seller to offer a buyer's agent compensation has likely passed. Of course, you could always pay an agent to represent you.
0 votes
Jeff Zemecus, Agent, Fresno, CA
Sun Oct 7, 2012
Yes everything is negotiable. There are many factors that could effect a successful negotiation in your favor so absolutely bring an experienced agent to handle those details.
Sincerely,

Chris Boudreau, GRI, ABR, SFR
Broker Associate

http://www.SanDiegoKey.com
Facebook.com/San Diego Key

Cell: (858) 736-5393
Email: Chris@SanDiegoKey.com

License # 01273956
0 votes
Hector Gaste…, Agent, Coronado, CA
Sun Oct 7, 2012
Always bring a REALTOR, there are many concepts you don't understand in the process, it is like like saying hiring an attorney is optional if getting a divorce ...

Hector R. Gastelum
Realty Executives Dillon
REALTOR #01382940
hectorgastelum@yahoo.com
619-954-2225
125*142*10754
efax 619-270-2516
0 votes
While that is a good analogy, I'm going to twist it just a bit:
It's like getting a divorce and hiring your spouse's attorney. Eeeeek!
Flag Sun Oct 7, 2012
Cindy Davis, Agent, San Diego, CA
Sun Oct 7, 2012
I won't try to be impartial! This is my life and I will give you a response from my experience! Those lovely people sitting at the sales center ARE NOT your friend. They are hired by the Developer to represent the developer and get top dollar. Do you really think they are going to give a you a better deal when they represent the seller?

Most builders will pay for a buyer's agent and I whole-heartedly encourage you to find one you like. Having worked with many developers over the years, I know that there are things you can ask for that the sales agent isn't going to automatically offer. In addition, isn't going to represent YOU when giving you disclosures, repair requests, and so on. They will always be the developer's Realtor.

Get your own agent who cares about you and your bottom line, not the developer's. Feel free to call if you like to discuss this.

Enjoy your Sunday.
0 votes
Monica & Dav…, Agent, San Diego, CA
Sun Oct 7, 2012
Hi JJ,

Well to begin, I am a licensed real estate agent so I do have a partial view to your questions. But, I will try to answer as impartially as possible.

If you are a seasoned negotiator and have purchased many properties in the past, you might be able to get some additional concessions without the representation of an agent. However, my experience is that a competent Realtor should be able to get more background information and be able to act as a go between to "squeeze" the builder more that you will be able to.

There are many topics that the agent in the sales office won't share with you, but sometimes will share with an agent.

However, if you have already identified the neighborhood and have gone into the sales office of the builder, then basically a real estate agent can no longer assist you since builders require that an agent sign in their clients on the first visit.

Hope this answer helps you.
By the way, I am the co-founder of Greater Good Realty. In addition to providing valuable information about the San Diego real estate market, my company donates 10% of our commissions to local charities and non-profit organizations throughout San Diego.

We hope to make a difference for those in our neighborhoods!

David Stone
David@GreaterGoodRealty.com
619-206-1551


CA DRE#01888818
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