Who Pays The Buyer's Agent Commission in New Construction?

If you're navigating the new construction home process, you may think you don’t need a Realtor to represent you. In reality, a Realtor can be an invaluable asset and keep you on track from start to finish. But who pays who? How does a Realtor get paid on a new construction home if there's not a traditional seller on the other side?

Don't worry; we did all the research to make the journey as transparent and easy as possible. Here's what to know and how to get started.

Key Takeaways

• Realtors are paid by the seller (the home builder) on the closing day.
• You’ll get help on everything from understanding the new construction process to negotiating the price with a knowledgeable Realtor by your side.
• It’s not in your best interest to rely on the builder for information or use the builder’s sales agent as your own.
• Realtors only get paid if the sale closes successfully. If you do not close on the home, you do not have to pay your Realtor.
• By using Felix as your buyer's agent, you can save up to 1% off the sales price thanks to our Buyer's Savings Program.

What’s The Difference: Broker vs Agent vs Realtor

• Broker: Licensed brokers can run their own real estate brokerage and hire agents.
• Agent: Real estate agents are also licensed professionals but must work under a licensed broker.
• Realtor: Realtors belong to a trade group called the National Association of Realtors.

Who Is Involved In The New Construction Sales Process?

There are several parties involved in the sale of a new construction home, so let’s take a look at what to expect from the buyer’s and seller’s side.

The Buyer’s Side

• Buyer: The buyer is a person (or several people) buying a new construction home or an existing property.
• Buyer’s Agent: Buyer's agents are real estate agents, Realtors, or brokers who are legally and ethically required to look out for your best interest when helping you buy a property.
• Buyer’s Closing Company: A closing company is usually referred to as a title company and handles your escrow and closing matters.
• Buyer’s Lender: The buyer's lender is the financial institution, like a bank or credit union, that gives you a mortgage for a house or new build.

The Seller’s Side

• Seller / Builder: When you buy a new construction home, the builder is also typically the seller.
• Builder’s Sales Agent: A builder's agent represents the builder during the entire sales process. You could also use the term “seller’s agent” instead.
• Builder’s Closing Company: Just like on the buyer’s side, the closing company is a title company and attorneys that help close the sale.

Who Pays The Buyer’s Agent Commission When Buying New Construction?

If you’re nervous about paying a Realtor’s commission out of pocket when buying new construction, don’t worry. The buyer’s agent commission comes from the seller, which is typically the home builder in the case of a new construction home purchase. It also works the same way whether you choose to buy a new construction home or an existing home. But if you don’t end up buying the home, you won’t owe a dime. The agent fees are only paid if the transaction closes. When you use Felix as your buyer's agent, we reduce the commission we get from the builder so that you can save on the sales price.

Benefits Of Using A Buyer’s Agent In A New Construction Transaction

There are plenty of reasons to use a buyer’s agent during a new construction transaction. Here’s how they help make it as seamless as possible.

Help you get pre-approved with a lender

Home builders usually work with a preferred lender. That said, you can use whoever you want, but the preferred lender may pass on perks to the buyer, like a credit towards your closing costs. Agents are also familiar with local lenders in their area and which lender may serve you the best. For example, some lenders specialize in working with first-time home buyers, veterans, investment buyers, or self-employed professionals. Your agent can also help determine how much of a down payment you will need for the loan type you decide to choose.

Help determine what you’re looking for in a home

Some new construction homes look like carbon copies of each other, and others offer a dozen unique floor plans to choose from. Sometimes you can even customize features like cabinet colors, flooring, and kitchen upgrades. Buyer’s agents can help narrow down all your options to find your dream home. They’ll help you come up with a wish list and know which builders can deliver on your vision.

Help you find the perfect location

You’re wise to team up with a buyer's agent who is a local expert. Whether you’re thinking about schools or a home with a view, they intimately know the area and which locations are perfect for your lifestyle.

Vet local builders

If you’re house hunting in an area that’s booming with development, you'll find several builders to choose from. Unfortunately, not all builders celebrate high-quality craftsmanship and customer service. A local real estate agent will know which builders are worth working with and will give you insight into their reputation.

Negotiate the terms of the purchase on your behalf

New construction homes come with a base price, but that doesn’t mean there’s no room to negotiate with the builder. Realtors help with the terms of your sale to get you the best terms possible. Even if you can’t get the sales price any lower, your agent can help negotiate lower closing costs, a better home warranty, or upgrade discounts.

Educate you on the build process

Whether you’re a first-time home buyer or a seasoned pro, you need someone to keep you up to date on the building process. Builders and their sales teams aren’t always known for their robust communication. They’re busy serving multiple customers and building homes, leaving you waiting for more info. Realtors know what delays are normal, like weather and supply chain issues, and which need a follow-up with the builder. Your agent stays in touch with the builder, educates you on the process, and intervenes if there’s a problem or if deadlines are getting missed.

Work with your lender on your loan application

Loan applications feel like they take forever to complete, and the process is not over once you submit your initial application. You’ll need to provide proof of income, tax returns, and other required documentation. Buyer’s agents know the process inside and out and stay in touch with your lender on what’s needed and when. You’ll stay organized and on track without worrying about making a mistake.

Monitor the construction progress

Even if you already live in the area you’re buying a new construction home in, there's no way to hang around and check the progress all the time. Life gets busy and you’ll quickly learn there are dead periods where it seems like little progress is being made. Builders must secure permits, schedule their crew, and figure out their materials before anything happens on your lot.

Buyers’ agents stay on top of the construction process and keep you sane. They let you know what to expect and make you aware of any delays which could impact your closing date estimate. Their input is especially important if you’re waiting to list your current home or if you need to negotiate a short-term rental.

Help sell your current home if you have one

It can be beneficial to use the same agent to buy your new construction home and list your current one. They’ll have more insight into the sales price you need to secure and when to list it to coincide with the completion of your new build. Agents also have experience dealing with unexpected issues. For example, if the new construction is facing delays, your agent can help you explore renting back the current home you're selling for a brief period. Felix can not only help you save when you purchase a new home. We're committed to lower commission fees and only charge 1.5% to list with us. Past sellers have saved $12,375 in commission fees on average which can go a long way if you decide to make upgrades to your new build!

Schedule your inspections

You'll need a home inspection to make sure your new build is ready to go. But unlike a traditional home sale, you probably need a few different types of home inspections for a new build. You may decide to have a pre-pour inspection before the foundation is set. It's also normal to have a pre-drywall inspection and a blue-tape inspection to sign off on the completed work.

Help you avoid making a mistake

There are endless details to consider when buying a new construction home, and it's easy to make a mistake. Agents understand the process and what to look for before you lock in the deal. They may know to ask about issues on your lot, like where utilities will lie before the build starts or negotiate an included termite bond.

Buyer’s agents are also experts at thinking through all of the details. From backsplashes to countertops, they’ll know what trends hold their value and how to plan.

Can I Use The Builder’s Sales Agent As My Realtor?

Some buyers think it’s easier to just use the builder’s sales agent to represent them during the sale, but it’s just not a good idea. The listing agent represents the builder’s interests. They’re unlikely to advocate on your behalf if an issue pops up. They also won’t help you negotiate a better purchase price. At the end of the day, the builder is their client.

What Is Dual Agency?

Some brokerages represent both the home seller and the buyer in a real estate transaction. This is referred to as a dual agency and it’s not usually a good idea. In the context of new construction, if you decide to use the builder’s sales agent, they have an inherent conflict of interest working with you as the buyer. They can’t remain impartial and best serve you if you’re unhappy with the negotiations or construction process.

Will The Builder Give Me A Better Price If I Don’t Have An Agent?

Sure, it would be nice to save some extra money, but forgoing a Realtor isn’t the way to do it. Builders won’t pass on the savings or give you a better price if you decide to work directly with their sales team during the home buying process. If anything, you’re more likely to get a better deal on the home and potential upgrades when working with a Realtor.

One way to save some extra money when purchasing a new or existing home is by having a Felix represent you as your buyer's agent. At Felix, we reduce our commission so that you can save on the sales price.

What’s A Procuring Cause?

Have you seen the term “procuring cause” somewhere in a new home contract? These indicate a real estate agent’s actions that successfully result in a sale. Why does it matter? It all comes down to who earns the commission for the property.

Sometimes the procuring cause comes into question if one Realtor introduced you to the property, another met you at an open house, and yet another offered to help you write an offer on the property. Things can get messy quickly and potentially hold up your sales transaction. You can avoid problems by always being upfront. Tell your real estate agent if you're already working with another professional.

Should I Sign A Buyer Representation Agreement?

It can be good to sign a buyer's representation agreement, depending on how it’s structured. The agreement helps clarify the process, the Realtor’s responsibilities to you, and defines all of the expectations on both sides. Agents want to make sure you won’t suddenly decide to work with someone else after investing time into helping you as a client.

There are tons of benefits for the Realtor in these agreements, but buyers get some peace of mind too. For starters, the agent is now responsible for the work that they promise to provide. It also means you are their top priority.

Despite some of the perks, you don't have to sign a buyer representation agreement if you’re uncomfortable with it. If you want more flexibility, you can also ask for an agreement with an expiration date or one that only covers a specific property or geographic location.

How Much Is The Buyer’s Agent Commission?

The total real estate commission the seller typically pays is 6% of the home's sale price. The buyer's agent usually receives half the total commission or 3%. These figures hold true whether you’re buying new construction or a resale property.

A buyer’s agent commission might vary by location or builder, but remember, you won’t need to worry about the cost. The seller is responsible for the commission.

When Does The Buyer’s Agent Get Paid With New Construction?

A buyer’s agent gets paid a commission on closing day. At this point, the construction would have been completed allowing you to close on the property. This ends up being beneficial for buyers and sellers alike since the seller only pays a commission for a successful outcome. After all, the Realtor is going to stay invested in the process and work on your behalf until you have the keys to your new home.

Is A Buyer’s Agent Allowed To Offer A Commission Rebate?

A commission rebate is money that your agent refunds you at closing. It's a way to sweeten the deal and secure your business, but there are limitations. A buyer's agent can only agree to offer a rebate if state law allows it. Currently, 40 out of 50 states allow commission rebates. There are 10 states where offering a commission rebate is actually illegal. Learn how to get a commission rebate in Tennessee!

Tips For Finding The Best Real Estate Agent

Choosing the right Realtor is essential to a positive home buying experience. Referrals can be helpful, but every purchase is unique, especially when it comes to new construction builds or the purchase of model homes. Yet going online for reviews can also pose issues. Builders generally don't upload all of their available inventory to sites like Zillow and the MLS. Withholding their available listings makes their inventory seem lower and more in demand than it really is.

Now that you know everything about how Realtors get paid on a new construction home, you’re ready to start house hunting. Sign-up with Felix today and we will help you find the perfect home for you.