Have you ever purchased a brand-new home for a client and thought to yourself: “That was the easiest money I ever made. I walked in, signed my name on a piece of paper, and collected a check four months later?”
Or, have you ever had a client call and tell you they found a brand-new home, they love it and want to “use you” for the purchase, but because they found the home they want half of the commission? Did you agree with them?
If the above rings true, perhaps you need to learn how to provide value to clients who want to purchase brand-new homes — because you aren’t worth the money you are being paid, even if you did split the commission.
When walking a buyer into a new home project, I fast forward five years into the future. Now, imagine it’s a normal marketplace with three to four months of supply.
The builder is long gone. The home doesn’t look like the model, and potential buyers cannot walk into all the neighbors’ homes to see why the builder charged a $50,000 lot premium. The appraiser is only going to give a $15,000 credit for the $75,000 in upgrades, and there are three other homes for sale in the same community.
Setting emotions aside, I escort the buyers through the picture perfect model homes, focus on the fundamentals of the residence and then start calculating the total acquisition cost of the property.
Builders control everything during the construction phase, and in a controlled environment, you can pretty much do whatever you want — including dictate pricing and terms, and create perception. In many ways builders have a monopoly, which makes the playing field challenging at best.
This is why knowing what not to buy is the most vital part of purchasing a brand-new home. For example, a builder might allocate a $50,000 lot premium to a particular home because it has a view. However, if the property has a view but is facing a major traffic street, the resale market might not give the home as much consideration for that view.
And depending on the market and buyer pool at the time of sale, it’s possible the location might be viewed as a negative. Conversely, lot premiums can work in buyers’ favor if they know which lots to buy and piggyback off the builder pricing model.
When consumers walk into a new home project it’s emotional and exciting — and they pay attention to everything except what is important. Purchasing brand-new is an experience, and builders are becoming better at appealing to the emotions of the buyers because they know home purchases are mostly made with the heart.
They have the best designers, stagers and consultants pouring money into the upgrades that most consumers could never feasibly purchase. It’s key as a professional not to take away the experience of the new home purchase. But you must make sure you are the voice of reason throughout the process.
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Remind consumers when the builder sells out the project and is gone, the free market reigns. Their 50, 100 or 200 neighbors will be independently and collectively setting the pricing in the marketplace.
All the pricing justifications and models the builder set up to sell the homes no longer apply, and the pricing will be subject to market conditions, industry standards and practices.
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All the bells and whistles, lot premiums and upgrades the builder sold the consumer are no longer part of how the industry will determine the value.
Potential buyers will go to the agents who utilize MLS and tax records, use standard adjustments for that marketplace and property type, consider other market factors and determine fair market value based on what professionally represented buyers are willing to pay.
It’s at this point the buyer who purchased new will realize whether they hired a great agent or simply a salesperson.
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The process of purchasing a brand-new home demands as much time, if not more, than purchasing a resale property. The misconception between the two has to do with fact that so many consumers place value on finding the home.
Simply put, the Internet has made it easy for people to access all types of information, including locating both new and resale homes — no real estate license needed. So, if your value is merely in finding homes, your role will become more obsolete over time. Of course, there are always exceptions to the rule, especially with unique homes and distinctive marketplaces.
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So, how does purchasing a brand-new home require more time than a resale? When clients buy a resale, all you need to do is educate the buyer on the resale market. However, when clients purchase brand-new, you must analyze the resale market and that specific new home project in relation to the rest of the marketplace.
All brand-new homes will eventually become resales. As responsible real estate professionals, when we advise clients on purchasing a resale home, one of the main factors we consider is the future saleability.
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It’s only logical this factor should be also considered when purchasing brand-new. In fact, it’s the most important factor in not only choosing the project but also the lot within the tract.
This analysis is more difficult than it sounds because new homes are typically priced higher than any of the available comps in the resale market. This is where the analysis of the specific project is critical.
A reputable real estate professional should be able to ask the right questions and gather the available data from the builder to determine whether the project is priced below market, where the market will be heading or if you are just contributing to the builder’s bottom line and buying negative equity.
Location, location, location is what we preach in the resale world. This also holds true in the new-home arena, but just add these three words: lot premium, upgrades and emotion.
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Many buyers are not aware that the price advertised will not be the price they pay. The total acquisition cost for a new home purchase is almost always higher than expected.
Even for those experienced buyers who are familiar with the pricing process, understanding what lot premiums and upgrades are worth as well as how to compare the project to the current and future resale market is why they need the support of a seasoned real estate professional.
Jay O’Brien, a Realtor with ReMax/Prestige, is helping agents and consumers alike re-think their real estate reality. Connect with Jay on Facebook.