Do you need a real estate agent when buying a newly constructed home?
Yes.
Well, no.
Apparently the correct answer is “sometimes,” because home-building experiences and expectations vary as much as the houses and the people who buy them.
In the “yes” column are custom projects, according to Tom Stephani, a builder in Crystal Lake whose firm, Custom Construction Concepts, also conducts home-buying seminars for consumers, in addition to business-practices seminars for builders and real estate agents.
Stephani says the often two-pronged process of custom building–determining where to build and then hiring the builder–can be so complex that consumers usually need the input of agents.
“Real estate agents can be extremely helpful in narrowing your search, particularly for clients who are looking at unfamiliar territory,” he says. “When you know your area really well, the real estate agent becomes less important but still could be helpful.
“In my view you could really use an agent’s help to narrow the search between several builders,” Stephani said, adding that consumers need to screen their agents as carefully as their builders. They should ask specific questions about knowledge of local builders and of the building process itself, he said.
“The good real estate agents, the ones who know the market, will have a working relationship already with every builder they show to their customer,” Stephani says. “If they don’t, then you have chosen your agent incorrectly.”
But Stephani said that he has encountered buyers who go it alone–that is, unrepresented by agents–and fare well. “If you are more the kind of person who likes to go to a lot of car dealers and do a lot of comparison shopping and really likes to evaluate the different cars and different dealers–and I emphasize that you really like to get into that–by all means, you could do a good job on your own and do all your own research.”
Yet another route toward finding a builder on the custom end is through architects, many of whom will have strong preferences about a given builder’s reliability, ease of working relationship, etc.
In contrast to custom construction, production (or tract) building is both a “no” and a “maybe” in the Chicago market when it comes to needing agents, according to the builders.
“Production building and custom building are so far apart, it’s a totally different situation,” Stephani says. “For one thing, most production builders have sales staffs on the premises who step in to answer questions that might otherwise go to agents,” he says.
Agents counter that, nonetheless, clients need to count on the agents’ familiarity with the market and the process to save time and avoid mistakes.
Even so, production builders who maintain model homes, open on a regular basis, have an accessibility that makes them easier for buyers to see on their own, which is why agents often are not involved in such sales, according to industry publications.
Possibly a typical experience is that of Matt and Julie Busse, who in September moved into their new house, which was constructed by production builder Neumann Homes in its Weslake community in southwest suburban Romeoville.
“We had just gotten married and we weren’t really looking to buy right away,” recalls Matt. But one day they stopped by Weslake, and began to reconsider. Several (unaccompanied) visits later, they signed a contract, and the process proceeded, generally smoothly, they said.
The couple, who were first-time buyers, said they got answers to their questions quickly, sometimes before they got a chance to ask. “They always knew what was in my head,” Julie says, adding that the couple did have a backup resource: Her mother-in-law works for a title insurance company, and she provided some additional information.
Jean L. Neumann, vice president of sales and marketing for production builder Neumann Homes, estimates about 80 percent of its sales are to consumers who are not working with agents.
Either way is fine, she says, acknowledging that the other 20 percent is still 20 percent. She says that her company (and the building industry as a whole) actively courts agents because competition means that they must stay familiar to agents who can bring them qualified buyers.
For Neumann and many other builders, sometimes this means offering incentives–cash, merchandise, trips–for bringing clients who eventually purchase homes there. Occasionally Neumann Homes has offered up to $500, she said. Other builders have offered thousands more in certain circumstances, agents say.
Although builders say that it is almost unheard of in the Chicago area, builders in some parts of the country compensate agents merely for walking potential buyers through the door. Such rewards have been known to range from telephone calling cards and free car washes to $50 per visit. Agents interviewed for this story said they would have an ethical obligation to disclose to their clients if they were being compensated just for showing properties.
Agents say that incentives don’t–or at least shouldn’t–influence which properties they show to clients.
“In 22 years of selling real estate, I have never looked at a commission to see how big it is or whether, if the listing is sold by such-and-such a date, there will be a bonus,” says Dave Petruncio, broker/owner of the Realty Executives office in Hinsdale and president of the Realtor Association of the Western Suburbs. “I think if you are servicing your client, you are going to give the same quality of service, regardless.”
Incentives of any kind represent a sea change in builder-agent relations, which long have been clouded by commission concerns.
“The historical problem has been that builders resented real estate agents because they thought they got paid too much for doing too little,” said Stephani. “Real estate agents felt they were cut out of the loop (by builders who had their own sales staffs) and they thought that some builders tried to wriggle out of commissions.
“The real problem lies in a failure to understand each other’s business. Builders are slowly coming about and understanding the role of the agent in the process and the value that the agent brings to the table. The Realtors are starting to understand that they have to have a clearer working relationship with the builders before they bring somebody through the door.”
For consumers, historically this wariness sometimes has resulted in consumers not getting to view certain properties. Agents interviewed for this story said they have never deliberately not taken a client to meet with a builder because of previous disputes over commissions, although another said, off the record, that it does happen. Another agent, who also asked that her name not be used, said that because she had doubts about a particular builder’s construction quality, she would “never” show that builder’s developments to clients.
“Real estate agents run a tightrope because they have the client to serve and the builder to serve and they have their own interests to serve as well,” Stephani said. “The good, ethical Realtor will make it clear upfront to the home buyer how the commission process works, and that should not turn buyers off. There is no free lunch. The problem with consumers, sometimes, is that they want to believe that Realtors don’t get paid for this. The whole industry is set up to make it look like Realtors don’t get paid.”
But, of course, they do, and in the Chicago area typically they get paid a commission of 2.5 percent of the base price of the new-construction home, although a few builders pay commissions based on the price with upgrades and extras that clients select.
But first, typically, builder and agent and client will clarify in writing who represents whom. Consumers who visit a builder’s sales office with an agent should expect to have to “register,” which not only provides the builder with background on the potential client, but is intended head off potential commission disputes.
“When somebody is working with a real estate agent and comes out here, we want to be able to give credit to that Realtor,” explained Jean Neumann. “They are an important part of our business. It can be a delicate issue.”
But she says that it has become slightly less delicate since her company erected rather large signs at its sales offices that read, “If you are working with a Realtor, they must accompany you on your first visit.”
“We want to help the Realtor understand what our communities are all about. To get the picture of lifestyle and amenities, the Realtors need to come out and visit,” she said.
And builders these days fear alienation, not to mention lawsuits, that may result from commission disputes. Some say customers occasionally view a property with an agent, and then come back later, unaccompanied, to try to negotiate a price minus a commission. There are also cases of clients who never had an agent in the first place who ask if they can deduct the commission from the sales price.
“One thing that consumers need to understand (in new-home sales) is that the price is the price,” Stephani said. “Built into the price is a figure for marketing. If you come in without a Realtor, you have come in because of my marketing expertise. I have placed great ads. So then I reason that I, the builder, ought to pay myself the commission.
“The real estate agent gets his or her commission because they’re out there marketing and spending money that I don’t have to spend to get that buyer. Whether I keep the commission or agent does, somebody did the (marketing) work.”
How much service the agent offers in the course of earning that commission, however, seems to vary.
Hinsdale broker Petruncio says that typically much of the service at his firm comes at the front end of the deal, researching builders and areas for clients. “But we’ve had deals where the agent was with the client at every step, through the final walkthrough and working on compiling the punch list. . . .”
Tom Smith, an agent with Re/Max Traditions in Woodstock, estimates that typically he will show custom-home buyers a dozen potential sites, and then he may link them with a like number of builders until they choose one. From that point on, he says, his involvement depends largely on the needs of the consumer.
“From a builder’s point of view, the agent’s real responsibility is to introduce the buyer to the builder,” according to Hugh Smeed, vice president of marketing for CC Industries, whose subsidiary, Aurora Venture Land Developers, has developed sizable subdivisions in the Chicago area. “The builder typically doesn’t look to the agent for any additional sales help.
“In my experience, agents aren’t very adept at selling unbuilt housing,” says Smeed, who nonetheless says agents are critical to the success of home-building projects. “They are pretty good at selling housing that is already up, at least at the drywall stage where someone can walk through it.”
Agent Smith takes a more neutral stance. “Typically, you’re not going to be able to `sell’ the buyers anything. You’re going to be able to demonstrate properties, one of which they are going to select. They’re going to buy what they want.”
