Buying a spec home without a realtor

[Skyceman]

I recently viewed a spec home with my wife that's been on the market for a few months. We'd like to try and negotiate down from the list price as we feel its a bit high. When I told the builders sales agent that I may involve a Realtor that we had been working with recently (but wasn't with us that day), she said that would affect the ability for us to negotiate things as the commission would take some of that savings from us so to speak.

I figured the commission would already be built in to the price but perhaps I may be wrong on this. Does anyone know if this is true? Also are people who buy spec homes without a Realtor at more risk?

[Winsor_Pilates]

Poor salesmanship.
She's likely trying to double end her commission and/or save money for the developer by not paying a commission.
She's also likely thinking she can get you to pay more without having another agent help your negotiate, not pay less as she's saying.

Most developers are smart and realize a large part of their sales come through realtors and they're therefore happy to building that commission into their cost structure as you've mentioned.
Some sales people are short sighted like this, and don't realize that realtor could be a steady referral of buyers for many more sales to come.

More often than not, if your Realtor is good they will actually end up getting you a better price than without as well. I've been shocked at the overpayment some people have paid for new homes, when sales people told them they were saving by not having an agent.

Do what feels right to you, but I would see red flags if she's trying to avoid the agent getting involved. It sounds like they're wanting to hide something or keep more control over the negotiations.

[1stLand]

I am amazed how many buyers shop for houses on their own and prefer to deal directly with the listing agent thinking that because the list agent is being compensated on both sides (earning double commission), they will be more motivated to twist their clients arm to come down in price.

Yet, when I see deal records on the database where homes have been double ended, more often than not, I see the buyer has not gotten a good deal and paid above market value.

[DeluxeMoustache]

Doesn't this depend on the terms of the seller's agreement? It sounds like the builder's rep which would be different than a third party realtor.

When I sold my last house a few years back I used a realtor, pretty much because of the effort involved in managing the showings. The rate was 7 percent of the first 100K, plus 3 percent of the additional. If the buyer used a realtor, that was split, and if not, my realtor got it all.

Buying, I bought a house for sale by owner and bought it privately. More of my money ended up in the seller's pocket, and I negotiated a better price than if I had introduced a realtor. Offer forms are pretty simple, and the lawyer of course does a lot of the work that matters, including having given some good tactical advice for my situation.

I have never bought a spec home, but have heard that it is more similar to a private sale, and pre-sale before build is tough to negotiate but if it is already built there can be room.

[afc wimbledon]

This pretty much depends on how much of a ####### you are and the state of the market, I bought my current house without an agent, it was listed for 289,000 which was a reasonable price at the time, I rang the agent saw the house and left the viewing with 'get the price down to 250,000 and I'll buy it' which was a loony discount, the market was dead at the time and it was an older crappy house and had no tenants so the owner was losing money, it was priced so they could drop 10 to 15 grand off the price anyway. The agent was actually a bit teed off but they had no one else so in the end agreed, took a few weeks though, I should emphasise I didn't bother them much, it was one veiwing an offer with no subjects on a house with obvious defects I was ok with, no inspections or the like (there is no point on a 100 year old house really).

Was the third house I had bought so didn't really need much advice, I had been checking out houses in the area to get a sense of the market so knew the price was ok, I was also totally fine with walking away from the deal or losing it. That was in 2000 in East Van, needless to say have done well on the place.

[Northendzone]

i did not think that one realtor could represent both parties in the sale/buying process?

[Canehdianman]

Originally Posted by Northendzone

i did not think that one realtor could represent both parties in the sale/buying process?

Happens all the time.

[mots]

This depends on if you are dealing with a sales rep, or directly with the builder. Realtor fees are 7%/3%, so if you are dealing directly with a builder (small builders do a lot of work in inner city) he does not pay anyone if no realtor is involved. If you bring a realtor with you, now he has to pay them $10K-$20K depending on the house value, hence its going to limit how much lower they can go. So in example, if he has a house listed for $650K, he knows he wont take less then $600K. So he can either give the $600K price to you, or if you use a realtor, he will sell to you for $615K, as he has to pay $15K to the realtor, so he is still only walking away with $600.

So if that truly is the case, they are being honest.

[Sliver]

Buying a house isn't rocket science. Just compare the price of this one to others in the area - that's particularly easy to do in a new neighbourhood when you can see exactly what new houses cost and there are usually a lot of occupied houses for sale as well. I bet I could tell you exactly what that house is worth after five minutes on MLS. You definitely don't need to give a realtor thousands of your hard-earned dollars on this. It would be completely insane.

[Travis Munroe]

Originally Posted by Canehdianman

Happens all the time.

I wouldnt go as far as saying "all the time". Its rare but does happen.

As for the builder comments to you, builders already have a "commission pot" to pay for agents commissions. Someone mentioned above that they are happy to pay this in order to build a good relationship with real estate agents. The commission (at least I have never seen it this way) is not built into the price of the house. I am guessing the sales agent is mis informed or trying something to represent you without you even knowing.

Silver....everyone is entitled to their own opinion and there are situations where doing a private deal works out. You basically said you like to use the online website realtors pay for and then see no value in using one. If only every deal I did consisted of showing 2-3 houses, writing an offer and sitting around waiting for the next one.

[Sliver]

Originally Posted by Realtor 1

I wouldnt go as far as saying "all the time". Its rare but does happen.

As for the builder comments to you, builders already have a "commission pot" to pay for agents commissions. Someone mentioned above that they are happy to pay this in order to build a good relationship with real estate agents. The commission (at least I have never seen it this way) is not built into the price of the house. I am guessing the sales agent is mis informed or trying something to represent you without you even knowing.

Silver....everyone is entitled to their own opinion and there are situations where doing a private deal works out. You basically said you like to use the online website realtors pay for and then see no value in using one. If only every deal I did consisted of showing 2-3 houses, writing an offer and sitting around waiting for the next one.

Hey Travis. I know a realtor can be worth their commission in many deals. I think buying a new home from a homebuilder is very easy to do without one. If it's something a buyer finds daunting or will be losing sleep over, then a broker would be a good idea for sure. When I bought a new house, I was very confident in my valuation of the house and as such was confident in the price I offered. For me, it would have been a bad idea to give a percentage of the purchase price of my home to a third party when I didn't need the help.

Just the fact that the OP is asking questions about this is probably a good indication a realtor may be of some use to them.

[Travis Munroe]

Originally Posted by Sliver

Hey Travis. I know a realtor can be worth their commission in many deals. I think buying a new home from a homebuilder is very easy to do without one. If it's something a buyer finds daunting or will be losing sleep over, then a broker would be a good idea for sure. When I bought a new house, I was very confident in my valuation of the house and as such was confident in the price I offered. For me, it would have been a bad idea to give a percentage of the purchase price of my home to a third party when I didn't need the help.

Just the fact that the OP is asking questions about this is probably a good indication a realtor may be of some use to them.

I misunderstood you!
Also, the % of the purchase price that would have been earned by a agent should you have felt the need for one "should" not have any reflection of the price you are getting. The agents commissions are determined before that home is even a thought.
I mentioned above that there are times where a agent is of no use and it sounds like your case is a perfect example.
I can say that I have been dealing with a builder since June with new issues every week coming up. The buyer has been very appreciative having me on board. Most cases are not like this but when it does get foggy, its nice (if your inexperienced) to have someone in your corner.

[Winsor_Pilates]

Originally Posted by mots

So in example, if he has a house listed for $650K, he knows he wont take less then $600K. So he can either give the $600K price to you, or if you use a realtor, he will sell to you for $615K, as he has to pay $15K to the realtor, so he is still only walking away with $600.

So if that truly is the case, they are being honest.

I can tell you from experience this example is very rarely the case.
The developer isn't gonna just tell the buyer his bottom line and offer you the house for $600K.
The developer would try to convince the buyer they're saving money by not using a Realtor and that buyer would end up paying around $630K for the house thinking they've saved $30K, when they agent may have helped them pay $615K.
Im sure there are people, who are confident to negotiate on their own and do a great job, but getting a lower price without an agent is by far the exception.

[afc wimbledon]

Originally Posted by Northendzone

i did not think that one realtor could represent both parties in the sale/buying process?

Only one party (the seller) is represented no matter how many agents are involved, it is ultimatly in the interest of both agents to get the deal done as quickly as possible. They are both paid by the seller and he or she is the only party that signs a contract prior to a sale.

Generally both agents will know who is the weaker party, whether it is the vendor dropping the price or the buyer spending more money, and will act accordingly.

[4X4]

Originally Posted by afc wimbledon

Only one party (the seller) is represented no matter how many agents are involved, it is ultimatly in the interest of both agents to get the deal done as quickly as possible. They are both paid by the seller and he or she is the only party that signs a contract prior to a sale.

Generally both agents will know who is the weaker party, whether it is the vendor dropping the price or the buyer spending more money, and will act accordingly.

Everything in this post is BS. All of it. Even the part about the seller paying both realtors, because it's actually the seller paying his or her realtor, and that realtor agreeing to split his or her commission with the other realtor.

You've obviously had some bad experience, and you're clearly jaded, but don't go making stuff up like this business about realtors collaborating and allowing the weaker party to get screwed.

[GGG]

Originally Posted by 4X4

Everything in this post is BS. All of it. Even the part about the seller paying both realtors, because it's actually the seller paying his or her realtor, and that realtor agreeing to split his or her commission with the other realtor.

You've obviously had some bad experience, and you're clearly jaded, but don't go making stuff up like this business about realtors collaborating and allowing the weaker party to get screwed.

http://www.nber.org/papers/w13796.pdf?new_window=1

This is a paper on the effect of realtors and on average shows they are not worth it. There is also a load of anti realator anaysis on the freakanomics blogs where this study was linked from.

[4X4]

Originally Posted by GGG

http://www.nber.org/papers/w13796.pdf?new_window=1

This is a paper on the effect of realtors and on average shows they are not worth it. There is also a load of anti realator anaysis on the freakanomics blogs where this study was linked from.

Well if the internet says it, it must be true. But I don't believe it because I'm biased. I'm from a family of realtors and land developers. Heck, I used to be licensed. And I learned a lot buying and selling homes for people. Most people have their own field of expertise, and I never knew more about their field than they did, and rarely did they know more about my field than I did. I can think of a few examples of times I beat up the price because of things that only people who dig deep are going to find out.

And where do you draw the line on realtor uselessness? Just residential? How about residential revenue properties? I know I saved a couple of asses advising against purchases of properties that were just a bit too small for a decent redevelopment. Commercial real estate? Do you know how to calculate whether a property is a good investment, or are commercial realtors worthy of existing? Seems to me that if home buyers are perfectly capable of doing a realtor's job, then commerical investors should be able to do the job of a commercial realtor.

Anyway, sorry if this post sounds angry or defensive. It just makes me laugh when people think that buying or selling a house is always so simple. It is simple in a lot of cases, but there are so many cases where it isn't, that it makes me roll my eyes when people say things like 'realtors aren't worth it'. I mean, if a guy like you were selling your house, do you think I'd be happy about my sister buying it completely unrepresented? Not that I don't trust you, but she sure as hell doesn't know what to look for. Maybe your condo is about to get a huge bill for redoing the exterior, and you're selling it before that happens. All my sister sees is the suite, and it's not because she's stupid. She's well on her way in the banking world, so she spends her days doing mutual funds and mortgages, not studying zoning and reserve funds. That's how it is for lots of people. It's like doing your own plumbing or fixing your car. Go ahead and watch a youtube video and learn how to do it. Lots of people do, but lots of people end up taking their car to a mechanic. Someone who has seen it all, and knows what to do when things aren't right.

All that said, I know that there are some pretty shi**y realtors out there. The industry is not without it's bad apples. That's where a person needs to be sharp. Hire someone that you trust, with some references from people you know. Everyone knows a realtor or 20. The reason they make money is because they provide a valuable service. If you don't believe me, just drive around the nice neighbourhoods and count the realtor signs vs. the FSBO signs. Why do you think doctors and lawyers hire realtors to sell their houses? Because they're smart enough to know what they don't know.

[Sliver]

I don't like using realtors in general because I don't think they're entitled to a percentage of the value of my home, which is loosely based on my net worth. I'll pay by the hour or a flat fee, but I have a big problem with the percentage-based system. I think this issue became particularly apparent when house prices shot up a few years ago.

[afc wimbledon]

Originally Posted by 4X4

Everything in this post is BS. All of it. Even the part about the seller paying both realtors, because it's actually the seller paying his or her realtor, and that realtor agreeing to split his or her commission with the other realtor.

You've obviously had some bad experience, and you're clearly jaded, but don't go making stuff up like this business about realtors collaborating and allowing the weaker party to get screwed.

Nope I have always found the real estate agents I dealt with fine and wouldn't hesitate to use one if I was selling, in fact I think access to the MLS to be essential if you are selling.

They did exactly what they were supposed to and were all reasonably professional, in the end though they are sales people who are paid by a sale, nothing more or less, and there is only one person who signs a contract, the seller, and they pay both agents, how or why that happens is irrelevant.

As in all sales situations, the weaker party will get screwed and I have yet to see or hear a real estate agent tell a client to walk away from a property ever, in fact having done a modicum of sales myself most of what an agent does is pretty much the same as what any salesman does, work out what you want, find a close approximation and then apply gentle or not so gentle preassure to get you to agree to a deal.

There is nothing wrong with any of this as long as everyone is aware that the agent is no more on your side than the 'financial consultant' (another sales job that tends to masquarade as something else) at the bank or the guy flogging cars at the ford dealership, all of them want you to be happy with what they sell you, none of them are looking to rip you off per say but they are all concerned mostly with making a sale, that is their job.

And to be clear I have several friends who are agents who I wouldn't hesitate to use and all of them are quite candid about the conversations they have with other agents to work out how to make a deal happen, it isn't collusion it is common sense, if the price is 10,000 off they will try to figure out which side that is most likely to come from.

[puckluck2]

Originally Posted by Sliver

I don't like using realtors in general because I don't think they're entitled to a percentage of the value of my home, which is loosely based on my net worth. I'll pay by the hour or a flat fee, but I have a big problem with the percentage-based system. I think this issue became particularly apparent when house prices shot up a few years ago.

So what's the problem then? You don't like realtors because you're too cheap and probably ignorant of the job to think they're worth it.

How did the issues become apparent? I think you're blowing smoke out of your bum. If you didn't like realtor rates during the boom then you didn't have to use a a realtor. Nobody was putting guns to people's heads making them sign papers that clearly state how much a realtor would get for a sale.

And you'll pay an hourly fee? that's nice, how much are you willing to pay? what if your house doesn't sell in 30 days? what if you don't find a house you like? that is a lot of showings and a lot of paper work. I'd bet that it might be more by the hour and you might not even sell your house, or buy a house.