How To Convince Buyers They Need You When Buying From A Developer!
How many times have we worked tirelessly for a client only to find out later that they have wandered off one weekend and bought property directly from the developer of a “hot new community”?
We all know the dangers of buying in brand new communities. In the Hilton Head area market alone there have been 60+ new developments started since I moved here 11 years ago with many more to come. Builders are offering all kinds of incentives to get buyers signed up, especially at the end of the month when sales goals have to be met.
The salespeople in these developments have only one job, and that is to sell the property where they work. Let your Buyers know that the onsite sales reps only represent the Developer’s interests, whereas you are there to represent their best interests.
Some clients may think they will get a better price or better incentives if they don’t use an agent; be sure your clients understand that the price they pay will be the same whether they have your representation or not. Developers may offer incentives, but they don’t discount prices because it can negatively affect appraisals when they go to sell future homes.
It helps to have a list of questions ready to ask of each developer. Many of these questions your buyer would never think to ask and you bringing them up gives you instant credibility and makes you a valuable ally in any transaction. Some questions may seem like common sense but they are ultimately important to the whole picture.
Here are some sample questions to ask a Developer:
• How many total properties at build-out?
• What are the Property/Homeowner Association Fees (HOA/ POA)?
• There are usually separate fees for golf and other amenities - what are the costs of these? Don’t forget cart fees and trail fees. Is walking the course allowed?
• Is there a yearly cap that the HOA/ POA fees can be increased?
• How much is the developer subsidizing the HOA/ POA? This is probably the most important question because it impacts what dues are likely to be once the developer is out.
• Are there provisions for a reserve fund?
• If a golf community – how many total golf memberships? How many have been sold to date?
• Do you automatically have golf privileges by virtue of owning property?
• If not, what is the cost of a golf membership? Is this equity or a one time fee?
• If an equity membership, how much money do you get back when you sell?
• Does the developer have the ability to sell non-property golf memberships and at what price? Is there a floor at which these properties can be sold?
• Once the HOA/ POA is turned over to the property owners, what percentage of dues does the developer pay on any unsold developer lots/memberships?
• How long is the developer obligated to pay these dues?
• Who owns the golf course - property owners or the developer?
• If the golf course is a losing proposition for the developer, can it be sold to an outside entity? Or worse, can the developer turn the golf course into more development? This has happened in the Hilton Head area!
• At what point will the HOA/ POA be turned over to the property owners?
• Before any properties are closed will the amenity package be completed?
• If not, is there a bond in place so that the money is available to complete these items if the developer does not?
• If there is property on the resale market, land or homes, how many properties are available? What percentage of the total development is available for resale? How do the prices compare to developer property? What was originally paid for these land/homes?
• Ask for the HOA/ POA documents. READ THEM. You will be surprised at what they say. Go over the covenants and restrictions with your client to ensure it fits with your client’s lifestyle.
• What are the zoning classifications for the area? Are there any zoning request changes in progress at this time? A client may buy thinking that only single family residential homes are allowed; how will they feel if they find out that condos or apartments are planned across the street from their lot?
• What are the various warranties provided with a home purchase? Such as warranties on structural work, utility lines, appliances, pest control, and more. Be sure to compare this with the state laws governing builder warranties.
• What features or upgrades are included in the base price of a home? What upgrades are extra and what is the cost of those upgrades? Be sure to go over the return on investment for various upgrades with your client and whether the cost charged by the builder is reasonable for the market.
It is up to us as full-time, professional agents to educate our clients about the pluses and minuses of buying in any development. It is a lot of work to keep ourselves up to date with all the changes in the marketplace, but it is also part of our job. I am sure we all have clients who bought a home/land in these type of communities in the last couple of years, and they are now having a hard time coming out whole.
If your Buyer clients understand the value of taking you when they purchase a new property, not only will they appreciate you more, but you will also get paid for all your hard work!
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About the Author: Sally Papineau, Realtor, e-PRO has worked for ten years as a licensed real estate agent with RE/MAX Island Realty serving the Hilton Head Island and Bluffton, SC real estate market. Sally has won numerous sales awards and has successfully built several spec homes in the Hilton Head area. Before entering the sales side of real estate, Sally worked for ten years as a mortgage broker in the Buffalo, NY area. Sally’s web site is www.hiltonheadhouses.com.
Great article, Sally. And no doubt, there are many other questions we could add to this list.
I’d like to hear comments from other agents on questions you like to ask builders and developers.
April 20th, 2007 at 2:45 pmGreat list Sally.
I recently represented a client in a transaction with Del Web. When they handed my client the Public Report, I told my clients that they had 5 days to review the report. The builders sales person said she was not aware of the 5 day review.
When I have buyers, I try to get them thinking resale- as someday they will sell, and I want them to be at the best advantage. So I always stress that they pick interior lots, such that any unknowns (empty fields, now quite streets, that will become major roads) do not hurt them 5 years from now.
You can bet the builder only wants a sale.
Jamie
April 20th, 2007 at 9:34 pmSally - quite an extensive list of questions.
In some areas of the country (states) as Jamie pointed there are review periods for the documents, as well as, a time frame for rescission - without any penalties.
An item that might be unique in my area of practice is called a Community Development District (CDD) which has an affect on the annual real estate taxes. Also, there is Municipal Service Taxing Districts (MSTU’s).
In certain states there might be statutes where the developer guarantees the increase of the various association fees while they are still in the development stage.
I don’t know about anyone else’s area, but here the salespersons at the development really don’t know the costs of upgrades. The cost of upgrades are only available at the “design centers.” Do other agents see this in their areas?
April 21st, 2007 at 2:07 amHI Glenn,
I have had the experience of upgrades only known by the design center, and they keep it a closely guarded secret. The cost of upgrades in a different subdivision (same builder) may be much different.
The thing I always tell my clients with new builds is to be aware of taxes, as the new home is taxed on vacant land the first year, and they should expect a much higher tax assessment the next year
April 21st, 2007 at 8:02 pmJamie,
Same thing here with new construction regarding the real estate taxes being based upon the assessed value on vacant land.
Do you think that cost of upgrades should be available at the site’s sales office, so that a prospective buyer can determine if the “total” price makes for the best purchase for themselves?
April 23rd, 2007 at 4:34 amHi Glenn,
April 23rd, 2007 at 8:42 amI think they should give you an idea of the cost of upgrades. I had clients over last night that bought new construction. We were talking about how much builders charge for upgrades and how it was quite a shock when they went to the design center. Buyers need to take into account the upgrades they want and the base price of the home such that they can stay within their price range. That is hard to know when you do not have a clue about cost of upgrades.
Jamie
Hi Jamie - generally the upgrades should run between 5% and 10% of the base price for the residence. This might help you with your clients. However, the upgrades might be less or more in your area.
The base price, plus the upgrades, can actually result in a more costly home even though the base price is less than another home.
In addition, some upgrades might be more reasonable is obtained from another source other than the builder or developer. The example, used here is a humidstat - installation by licensed local personnel costs about $85, while thru one builder/developer is $185, and another builder/developer includes it in the base price.
April 23rd, 2007 at 1:27 pmSally,
I came across this blog and found your article which I thought was very good. As the fomer Director of Sales for a 152 unit Condominium project, sales agents are pressured by the developer to sell their product and not what is best for the client. (Probably why I no longer do New Home Sales and returned to real estate!)
Many new home buyers falsely believe they may get a discount for not using a REALTOR…. we appreciated buyers having REALTORS because for the ones who used knowledgable agents.. it made our job so much easier.
April 30th, 2007 at 7:43 pmRunning a few conversions currently and have to say that I wish more buyers had agents as it makes the sales process easier. A good agent can save me a few hours of work…then again a bad one can cost me hours or worse a sale.
May 2nd, 2007 at 1:05 amKen,
Well said… Unfortunately we did run across “Ghost Agents” now and then.
Something that we did which helped tremendously was to contact REALTORS and provided them (and their offices) with fact sheets covering many of the questions that their buyers may have… or should be asking. It made the REALTORS job easier and helped make them look like an expert for our community — which meant more sales for them and less time on our part answering questions from Agents looking to impress their clients….
From our experience, REALTORS that know nothing about a product will stay away from it and even worse, steer clients away from it. When you give them everything they need to know, they love to share their knowledge in promoting the product… a win-win situation for everybody.
May 2nd, 2007 at 5:09 pmSally,
Thanks for the list!
I am not sure if this is common or not, but I was working with a client in a new construction area and on the developer’s contract, they wanted to know the maximum dollar amount my client was qualified for by the lender. Since I am under the impression that information such the above could negatively affect my clients negotiating power, we left it blank. I can only imagine how some people who don’t have buyer representation get taken to the bank on something as innocent sounding as that simple question.
May 4th, 2007 at 9:22 am