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 REBAC 1999

REBAC Successful Buyer Representation in New-home Sales

















CUSTOM HOME BUILDERS Pure custom home builders Quasi custom home builders B. PRODUCTION (INVENTORY) HOME BUILDERS 1. Tract homes 2. Modified tract homes

2 2 2 2 2 2

1. 2.

II. A. B. C. D.




3 4 4 4 4 5

III. A. B.



CONTRACTING AND CLOSING FINANCING 1. Long-term builder financing 2. Construction financing

IV. A. 1. 2. 3. 4. 5. B.

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SELLING WHAT DOES NOT EXIST Identify general needs Identify customization preferences (display, custom, part custom) Define buyer’s concepts Plan and price overall specs If no sale, lose buyer SPECIALIZED SKILLS AND KNOWLEDGE

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BUILDERS A. 1. 2. 3. 4. 5.

BUSINESS CHARACTERISTICS Size Business niche Product specializations Business practices Reputation

1 1 2 2 3 3

Contents – page i

REBAC Successful Buyer Representation in New-home Sales B. 1. 2. 3. 4. C. 1. 2. 3. 4. 5. II.

ATTITUDES AND E XPECTATIONS The buyer representative’s role Pricing Commissions and pricing Getting paid RELATIONSHIP GUIDELINES Learn the builder’s business Stick to your role and let the builder’s staff do theirs Recognize the builder’s pricing imperatives Be flexible Observe the builder’s policies

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III. A. B. C. D.



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1 2 2




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REGISTRATION SHOWING HOMES WITH THE BUILDER’S REPRESENTATIVE Guidelines for showing The options list EVALUATING CANDIDATE HOMES The lot The home The location The overall subdivision The builder

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A. B. C. 1. 2. D. 1. 2. III. A. B. 1. 2. C. 1. 2. 3. 4. 5.








Contents – page ii

REBAC Successful Buyer Representation in New-home Sales B.

SUBDIVISION RESEARCH The Public Subdivision Report Codes, Covenants, and Restrictions (CC&R’s) Articles of Incorporation, By-laws, Register of Contractors C. TRANSACTION DOCUMENTS 1. Deeds and warranties 2. Title documents 3. Financial documents 1. 2. 3.


THE OFFER A. B. 1. 2. C. D. 1. 2. 3. 4. 5. 6. 7. E. F.


2 2 2 3 3 3 4 4 4

PRICE AND TERMS DEPOSITS Earnest money deposit Progress payments CONTRACT ISSUES BUILDER’S PERFORMANCE Establish the paper trail Performance clauses No “time is of the essence” clause Substitution clause Cost clause Buyer inspection clause Closing clause CONTINGENCIES ACCEPTANCE

4 4 4 4 5 5 5 5 6 6 6 6 6 6 7



A. B.


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A. B.





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Contents – page iii

INTRODUCTION I. COURSE OBJECTIVES AND ORGANIZATION To keep pace with a changing real estate market, buyer’s representatives need to find new buyers to serve and new services to bring them. One important, if difficult, growth area is new-home sales—buyers who are searching for a newly constructed or yet-to-be-constructed home. Unlike conventional home buyers, these buyers are generally less knowledgeable about real estate than the home sellers are, since the sellers of new-homes are developers. Because of the special complexities of a newhome purchase, these buyers are in desperate need of representation and counseling. Unfortunately, their situation is also more complicated than that of a conventional buyer. To serve a new-home buyer, a buyer’s representative needs to know how the development and new-home sales processes work, as well as what kinds of services a buyer needs. Then, of course, one needs to know where and how to find newhome sales business. This course consists of five modules to address what a buyer’s representative needs to know in order to succeed at representing buyers in the new-home sales market. Module One: How the New-home Sales Market Works Objectives: • identify types of residential builders and products • summarize the new-home development process • describe the new-home purchase transaction • identify unique features of new-home sales Module Two: Building Relationships with Sellers and Buyers Objectives: • characterize builders • characterize builders’ sales representatives • characterize new-home buyers • identify ways to build productive relationships with builders, sales representatives, and buyers Module Three: Serving the Buyer’s Homefinding Needs Objectives: • apply a service philosophy for new-home buyers • determine a new-home buyer's wants and needs • match builders and homes to a buyer’s needs • assist a buyer in looking at new-homes • help a buyer evaluate builders, subdivisions, and homes

Introduction - page 1

REBAC Successful Buyer Representation in New-home Sales Module Four: Serving the Buyer’s Transaction Needs Objectives: • describe pre-offer preparation and research • assist a buyer in the contracting process • identify important monitoring services for the build cycle • assist a buyer at closing and beyond Module Five: Marketing Your Services Objectives: • identify ways of generating new-home sale buyers • plan a marketing and selling message • list buyer benefits of new-home sale representation services • identify elements of a marketing plan




Introduction – page 2

REBAC Successful Buyer Representation in New-home Sales

III. BEFORE WE START For this course to succeed in meeting its objectives, all participants have to take an active part. Please observe the following guidelines throughout the day. •

Listen attentively to the facilitator’s presentation.

Ask questions and contribute comments to discussions.

Participate openly in the exercises. Share your ideas and experiences with others so that all can elevate their professional performance.

Treat your Participant’s Guide as a resource for future review and use. Add your own notes and ideas you want to remember.

Introduction – page 3

MODULE ONE: HOW THE NEWHOME SALES MARKET WORKS INTRODUCTION Conventional home buyers are looking for existing, “pre-owned” homes. But there are many home buyers in today’s hot housing market who want something brandnew and, possibly, to some extent customized to their tastes and needs. Buying a new home is quite different from buying an existing one. There are additional players in the new-home business, notably the builder and the builder’s marketing representative. Also, the product is different. In many cases, it does not even exist at the time of purchase. Thirdly, the transaction process differs from the existing home purchase, and buyer representatives face numerous additional responsibilities if they want to ensure a successful transaction. The foundation for developing the necessary skills and knowledge to represent buyers in this market segment begins with understanding how the new-home sales market operates.

Objectives On completion of this module, participants should be able to: • • • •

identify types of residential builder and product summarize the new-home development process describe the new-home purchase transaction identify unique features of new-home sales

Outline I. II. III. IV.

Builders and Their Products The Development Process The Purchase Transaction Unique Features of New-home Sales

I. BUILDERS AND THEIR PRODUCTS Construction of any kind of real estate development, whether industrial, commercial, or residential, begins with land acquisition and a development plan. The process can be long and complicated, so developers sometimes specialize in one or more phases of the process and then pass the development along to the next specialist in the chain. For instance, it is common for specialized developers to handle the initial preparations of the land for construction: clearing, landscaping, grading, and offsite improvements including water lines and sewers, power lines, telephone lines, cable TV, and streets. These raw land developers then often leave the construction of buildings to someone else. Some builders are vertically organized to undertake these early development phases, while other builders wait until the land developers have completed their work before entering the development picture. This course focuses on residential builders who produce and sell single-family homes ranging from custom homes to subdivision tract homes.

Module One - page 1

REBAC Successful Buyer Representation in New-home Sales

A. Custom Home Builders Custom builders develop their products to meet individual buyer specifications. They may or may not own the building lot. 1.

Pure custom home builders The pure custom-home builder works from unique architectural drawings to build a one-of-a-kind home to the specifications of a single buyer. Typically, the buyer acquires the land, hires an architect to prepare the drawings and specifications, and then hires a builder to execute the plans.


Quasi custom home builders Some builders maintain a selection of pre-existing plans. They sell a lot and allow the buyer to choose a plan for the home. The buyer may be able to modify the plan in various ways to suit individual requirements. The builder then carries out the modified plan.

B. Production (Inventory) Home Builders Production builders construct homes in quantity and hold them in “inventory” for marketing and sale. These homes may be fully finished or only partially built to allow a buyer to select options. Production builders may build their inventory on separate lots, but often they build tract homes in a subdivision. 1.

Tract homes A tract home builder constructs subdivision homes from model plans. These display models are finished and ready to sell. Buyers of these homes have no options. The home is already built and in inventory.


Modified tract homes Within the same subdivision, a tract home builder may offer homes that have been partially constructed (50-75%) so that buyers can select options and custom amenities. A buyer purchases the lot with the partially built home and works out customizations with the builder. The builder then prepares new drawings and completes the construction.


Module One - page 2

REBAC Successful Buyer Representation in New-home Sales

II. THE DEVELOPMENT PROCESS A successful new-home purchase, and successful representation of a new-home buyer, depends on how well the builder carries out the agreed construction. Buyer representatives need to understand not only the major phases of the development process, but also how long each phase takes in their area. Among other things, they must be able to educate buyers about the relationships among development phases, contracting, and occupancy deadlines. For instance, the process of building a home in a new 40-lot subdivision up to the point of occupancy might require about 315 days, as follows (time indications are approximations only; your market may differ significantly):

Building a Home A. Pre-develop B. Plan C. Permit D. Build 60-90 days

60-90 days

15 days

120 days

A. Subdivision pre-development The development cycle begins with the builder’s acquisition of the land and all development activities necessary to transform the raw land into marketable, buildable lots. The principal benchmarks during this phase are, in rough sequence: Pre-development Benchmarks • • • • • • • •

Initial survey Planning, approvals (1-3 weeks) Grading (3-4 weeks) Water and sewer (3-4 weeks) Base gravel (10 days after water and sewer) Curbs and asphalt (3-4 weeks) Gas and electric on streets Setting lot corners; re-survey

Module One - page 3

REBAC Successful Buyer Representation in New-home Sales

Note that this timeframe will vary depending on plan approvals, the size of the subdivision, seasonality, and other factors, including environmental concerns.

B. Complete home plan After lots are surveyed and available for sale, the clock starts running for the builder. In this phase, when a buyer walks in with a fairly clear idea about a custom house layout, the builder must convert the buyer’s vision to drawings ready for permitting. This process might take 2-3 months. During this period, the builder and staff: • • • • •

convert ideas into draft illustrations identify room sizes and dimensions identify necessary specifications complete preliminary plans with buyers convert preliminary plans to formal drawings and specifications

This time period will vary depending on the buyer’s vision and decisiveness, as well as whether the plan is new or derived from existing plans.

C. Get permit The completed plan is submitted to local or county permitting officials for authorization to build.

D. The Build Cycle Following permitting, the builder begins construction. For an average size house, construction may take 120 days. This time span will vary by the size of the home, the availability of materials and labor, and Mother Nature. In northern climes, construction may come to a complete halt during the winter months. The building schedule is also susceptible to how many homes are already under construction, and how many buyers are waiting in line for their homes to be built. 1.

Inspections During the build cycle, the property may pass a number of locally-required inspections. Buyer representatives may want to track whether their buyers’ homes have passed the inspections required in their markets. The number and type of inspections vary widely from state to state. Residential inspections include but are not limited to the following phases.

Module One - page 4

REBAC Successful Buyer Representation in New-home Sales

Inspections • • • • • • • • • • • 2.

soil and footings poured walls or backfill initial plumbing, heating and electrical framing insulation drywall final plumbing, heating, and electrical finish grade siding shingle septic

The Certificate of Occupancy The granting of the Certificate of Occupancy by local building authorities culminates the build cycle. The Certificate verifies that construction is complete and complies with all codes and specifications. It renders the home habitable and is necessary to close the transaction. Immediately following receipt of the certificate of occupancy, the builder and buyer complete the closing, and the buyer takes possession.

III. THE PURCHASE TRANSACTION In most new-home sale transactions, the buyer is an active participant in the purchase and financing of the new home. Concerning the purchase, the buyer must be vigilant throughout the construction phase to prescribe and inspect what he or she is purchasing. In the financing of the purchase, the buyer may be involved in periodic construction funding in addition to obtaining the long-term loan.

A. Contracting and Closing Builders commonly require an initial deposit (1-5%) on the day of contracting. At the end of the design and drafting period, immediately preceding permitting, the builder may want the balance of the down payment (5-15%, less deposit). If lots are scarce, a builder may require a buyer to purchase the lot in advance. If the home will be unconventional, or, in the opinion of the builder, difficult to market if the buyer defaults, the builder may require an additional down payment to cover the additional risk. In some cases, a builder may require a buyer to make advance payments on the new-home as it is being built. For example, a buyer may be required to make payments as the construction passes inspections for framing, drywall, and final heating, plumbing, and electrical. In such a situation, the buyer may have to secure separate construction financing to fund these payments.

Module One - page 5

REBAC Successful Buyer Representation in New-home Sales Contract Variables • • • • •

deposit percentage down payment percentage advance purchase of lot additional payment for project risk periodic construction payments

The closing usually takes place soon after the completion of construction and is simultaneous with possession. At closing, the lender disburses the permanent loan that retires any construction financing the buyer may have undertaken. The closing transaction usually occurs in the builder’s offices, at a title company, or at a builder-specified locale. It is also common for the builder to stipulate a title company.

B. Financing There are two forms of new-home financing that buyer representatives should be aware of: long-term builder financing and short-term construction financing. 1.

Long-term builder financing It is common for builders to offer financing packages as an incentive to purchase. Large builders may have their own mortgage companies. Builder incentives include reduced interest rates, reduced down payment requirements, and buydowns, which effectively reduce interest payments on the loan.


Construction financing The unique feature of construction financing is periodic disbursement. The lender pays out loan increments as construction phases are completed, since the value of the collateral increases at each phase. During the borrowing period, the borrower pays interest on the principal balance of all funds advanced. When construction is complete, permanent financing (a “takeout” loan) repays the construction loan. Large builders may absorb the costs of construction without involving buyers in construction financing. Small builders, however, may not be able to offer buyers this luxury. A buyer may have to secure a construction loan to cover the builder’s costs during the build phase.

Module One - page 6

REBAC Successful Buyer Representation in New-home Sales

IV. UNIQUE FEATURES OF NEW-HOME SALES In new-home sales, buyer representatives often come into conflict with builders and their sales representatives, the builder’s representatives. The reason is that most buyer representatives are accustomed to transactions that involve existing homes. When it comes to new-homes, to quote one builder’s representative, “buyer agents don’t have a clue.” Hence a common builder’s representative reaction to buyer representatives: just bring the buyer in and then get out of the way. What’s the problem? Isn’t buying a new-home is just like buying an existing home? Builder’s representatives know that there are significant differences between selling new-homes and selling existing homes. The sooner a buyer representative understands these differences, the sooner all parties will be able to work together at the job of satisfying the buyer.

A. Selling what does not exist The critical difference between new and existing home sales is that, in newhome sales, the product for sale usually does not exist. Therefore the whole selling process is different. Comparison of the Selling Process Existing Home Sales

New-home Sales

1. 2.

identify general needs identify neighborhood

1. 2.

3. 4. 5.

show available homes select a home if no sale, return to 4

3. 4. 5.

identify general needs identify customization preferences (display, custom, part custom) define buyer’s concepts plan and price overall specs if no sale, lose buyer

Salespeople selling existing homes have the actual product to show to a buyer. The buyer buys an existing home, complete with its existing features, or the salesperson can show other homes until a match is found. It is not necessary to create an “ideal house.” A builder’s representative, on the other hand, has to unearth the buyer’s needs in abstraction and then move toward sketching what the buyer wants. After converting needs to specifications, the builder’s representative has to sell the buyer on the plan. If the buyer isn’t satisfied, the meeting is adjourned. There is no “second list” of homes to turn to -- only the next buyer. Buyer representatives must see these differences between selling tangibles and selling intangibles if they want to work smoothly with builders and their sales representatives and serve their new-home customers successfully.

Module One - page 7

REBAC Successful Buyer Representation in New-home Sales 1.

Identify general needs First the builder’s representative must find out if a prospect is a real customer or just someone who is passing through the subdivision. In either case, the builder’s representative will register the visitor as the builder’s customer. The representative must then qualify serious prospects on the basics: urgency; price range, and general objectives.


Identify customization preferences (display, custom, part custom) In determining what is important to the buyer, the builder’s representative must try to identify whether the buyer prefers to buy an existing display home, a home to be custom built, or a partially finished model with certain customization options.


Define buyer’s concepts The builder’s representative strives to clarify the buyer’s needs and vision as much as possible. The list is long, but includes the following items. • • • • • • • •

Buyer’s Home Concepts lot dimensions overall house dimensions room layouts and sizes custom fixtures such as pools, porches, windows roofing and siding material quality and capacity of heating, plumbing, air conditioning security features siting of the home on the lot

Throughout this interaction, the builder’s representative must constantly convert needs to physical property features. In addition, the builder’s representative must inform the prospective buyer of what the builder can and cannot do. 4.

Plan and price overall specs The builder’s representative must then pull together layout sketches and features into a coherent package that both makes sense to the buyer and is feasible for the builder. This package must include pricing for the allimportant bottom-line.


If no sale, lose buyer If the resulting package (including financing) is close to what the buyer wants, the sale may go easily. However, the builder’s representative may need to go back through the list of specifications and re-examine soft spots or weak points. New-home buyers, once confronted with their “ideal” home, often become less certain about what they want. The most effective builder’s representatives are those who can help buyers to visualize what they want and then repeatedly refine the package to fit these wants as they become more evident.

Module One - page 8

REBAC Successful Buyer Representation in New-home Sales

B. Specialized skills and knowledge The second difference between selling new-homes and existing homes, apparent from the description of the selling process, is that selling new-homes takes specialized skills and knowledge that existing homes do not require. Builder’s representatives must have a solid understanding of: • • • • • •

construction the development process construction financing converting needs and wants to building specifications costing custom features selling intangibles

Since buyer representatives, especially those accustomed to working with existing homes, often do not have these skills and knowledge, they should recognize that they need the builder’s representative’s help if they want to serve their new-home-buying customers.

Module One - page 9

MODULE TWO: BUILDING RELATIONSHIPS WITH SELLERS AND BUYERS INTRODUCTION To work effectively in the new-home market, buyer representatives must develop effective relationships with builders and builder’s representatives, not to mention with buyers. Part of matching new-home buyers with the most suitable products is being knowledgeable about the features and qualities of all the subdivisions in the buyer representative’s market.

Objectives On completion of this module, participants should be able to: • • • •

characterize builders characterize builders’ sales representatives characterize new-home buyers identify ways to build productive relationships with builders, sales representatives, and buyers

Outline I. Builders II. The Builder’s Representative III. The Buyer

I. BUILDERS Getting to know the characteristics, attitudes, and expectations of builders is the best way for a buyer representative to begin developing a good working relationship with these essential parties to a new-home purchase.

A. Business Characteristics Builders differ in a number of significant business aspects. 1.

Size The size of a builder’s operation is important to a buyer for several reasons. a)

Large builders • •

less risky for buyers than small builders because they have the financial ability to weather a bad market. generally less flexible in dealing with buyers because large tract subdivisions have very tight profit margins; buyers can expect little or no give on pricing.

Module Two - page 1

REBAC Successful Buyer Representation in New-home Sales


Small builders • •


Business niche a) Custom builders • • • • • b)

generally have better profit margins and can afford a degree of flexibility in customizations, pricing, and terms generally more conscientious about quality control tend to be small-cap and therefore a riskier proposition in slow times buyers need to make sure the custom builder can finish the job buyers should keep in mind that modifications increase the price

Production builders • • • •


more flexible in terms and conditions because they usually make more profit per house and cannot afford to lose buyers more vulnerable to downturns in the business cycle and may have to make up in pricing what they lose in volume.

less risky than small, custom builder may develop “cookie cutter” houses with little flexibility available for custom features since large production builders have tight schedules and profit margins, buyers need to pay attention to quality control have to move display homes as quickly as possible to retire carrying costs; typically point prospective buyers in a subdivision toward the completed homes first

Product specializations In terms of product type, builders may specialize in a number of ways. Buyer representatives should be able to characterize all builders in their markets along these lines: • • • • • •

architectural style size type of construction price subdivision “concept” (amenities, greenbelts, cul-de-sacs, security, etc.) demographics of the buyer

Module Two – page 2

REBAC Successful Buyer Representation in New-home Sales 4.

Business practices Builders differ in such business policies and practices as • • • •


hiring, management and pay of workers (employees? subcontractors?) marketing and selling strategies listing and commission policies selling terms and areas of negotiability

Reputation A builder’s reputation is obviously important. Practitioners should keep track of builder reputations for: • • • • • • • •

length of time in area (knowledge of local conditions and tastes) financial depth; prior bankruptcies subdivisions or homes completed adherence to construction budgets and schedules concern for quality and quality control management of their work force (employment status, pay, etc.) membership in professional associations professional designations

B. Attitudes and Expectations In addition to knowing builders from an objective business standpoint, it is also helpful to know their attitudes and expectations concerning buyers and buyer representatives. 1.

The buyer representative’s role Builders typically want a buyer representative to bring in bona fide newhome prospects who are in the market, qualified, and ready to go. Then they prefer the buyer representative to remain in the background while the builder’s sales consultant handles the prospect. Builders generally feel that the buyer representative’s work is to bring the prospect in, and they are usually prepared to pay a commission if the prospect ends up buying. They do not see that a buyer representative has other services to perform for the buyer. Experienced buyer representatives can overcome this attitude by letting the consultants do their job while not abandoning other responsibilities to the buyer.


Pricing Buyer representatives accustomed to working with existing home prices expect a listing price to be somewhat above market depending on a variety of factors (i.e. economy). They think it is their duty to negotiate a lower price for the buyer.

Module Two – page 3

REBAC Successful Buyer Representation in New-home Sales This approach simply does not apply to new-home sales. Builders’ prices are based on cost plus profit, not on market value. The margins are generally tight and not negotiable. Lowering the price would cut directly into profit and possibly even cause the builder to lose money. Builders therefore do not appreciate buyer representatives who challenge or try to negotiate prices. 3.

Commissions and pricing It is particularly important for buyer representatives to understand builder attitudes about commissions and buyer representation, because misunderstandings in this area can make it very difficult for a buyer representative to work with a builder. a)

Builders pay commissions Builders generally pay a percentage of the base price of a home to licensees who bring in buyers. They do not include the price of selected options in the commission calculation. Most builders realize that it is a poor business practice to deny earned compensation. If they get such a reputation, no salesperson in the market will ever bring in a buyer.


Prices stay the same Many salespeople have the misconception that builders offer lower prices to buyers who do not have representation. This practice is the exception rather than the rule. Builders usually incorporate commissions into their pricing structures, and they do not change these structures.


Bring in buyers, not buyer representatives An experienced builder’s representative says, “Builders like salespeople who bring in buyers, but they do not appreciate buyers who bring in salespeople.” In other words, a builder does not want to meet and work with a buyer and find out later that the buyer has a buyer representative who expects a commission. Observing the builder’s policies on registering buyers can avoid this kind of conflict.


Getting paid a)

Listings If a property is listed, the listing broker, not the builder, will compensate the salesperson. The type of listing agreement may affect the buyer representative’s compensation. •

Exclusive Right to Sell – the seller will pay the listing broker regardless of who sells the property; the listing brokerage will pay the salesperson if a commission is due.

Module Two – page 4

REBAC Successful Buyer Representation in New-home Sales •

Exclusive Agency Listing – the seller reserves the right to find a buyer and is not obligated to compensate the listing brokerage if the builder procures the buyer; if the buyer goes to the builder directly, the buyer representative will not be paid by the builder or the listing brokerage, even if the representative writes the contract.

The possibility that no one will compensate the buyer’s representative underscores the importance of accompanying buyers to the builder on the first visit, registering them, and presenting all contracts through the listing brokerage unless directed to go directly to the builder. Another issue that can affect payment, especially if the builder is acting as listing broker and has put the listings into the MLS directly, is that a buyer representative may sell a property that is not in the MLS and thus have no claim on a commission. For example: a builder puts four sample models in the MLS, each on a different lot. The buyer representative shows a buyer all four properties, and the buyer buys model number four to be built on Lot 16. Since this property was not in the MLS and therefore was not being offered, the builder may argue that no compensation is due. A reputable builder who regularly works with real estate practitioners will compensate the buyer’s representative anyway. Unfortunately, there have been numerous occasions where a buyer representative in such a situation did not receive payment. The best protection is to enter into a written agreement with the builder, at the time of offer presentation, to compensate the buyer representative. b)

Registration and Reverse Registration Registration and reverse registration establish whether a buyer representative will be entitled to a commission if a certain buyer purchases from a builder. All builders have policies concerning registration and a buyer representative risks losing a commission by failing to observe them. •

Builder registration of buyer (reverse registration) Reverse registration is the builder’s way of establishing that the buyer is not represented by a licensee and that the builder will not be paying a commission to a buyer representative (unless the buyer buys a property that is listed in the MLS). The typical procedure is to ask a buyer who visits a subdivision alone to complete a customer registration form. The completed and signed form registers this buyer as unrepresented so that no buyer representative who appears later will be entitled to a commission if the buyer purchases in the subdivision.

Module Two – page 5

REBAC Successful Buyer Representation in New-home Sales Some builders maintain a policy that a buyer who comes in alone is unrepresented, even if the buyer signs no forms. These offices generally display a notice to the effect that no commission is payable if a licensee does not accompany the buyer on the first visit. The second visit is too late. It should come as no surprise that builder’s representatives have photographic memories! •

Buyer representative registration of buyer The best (and, perhaps, only) way to register a buyer with a builder is to accompany the buyer on the first visit. Represented buyers often want to visit subdivisions on their own with the naive belief that their buyer representative will somehow get paid. Wrong. It is important to educate buyers you represent that they should not visit a subdivision alone for the first time. If they find themselves doing so anyway, encourage them to declare from the outset that they are represented. Some buyer representatives give their buyers a written statement to give builders that demonstrates their representation of the buyer. These devices may or may not work in court. A builder’s representative has to decide whether to accept the registration statement and agree to pay a commission, or to tell the buyer to come back with the buyer representative. This is not a trivial issue for the builder’s representative: some fear the possibility of losing their jobs for honoring registrations and paying commissions that the builder considers avoidable. In the event of a commission dispute, the builder may look to the builder’s representative to decide whether to pay a buyer representative. If there is a strong possibility of future business, the buyer representative may get paid, even though registration did not occur properly.


Relationship Guidelines Your relationship with a builder does not have to be adversarial. Builders and buyer representatives have objectives in serving the housing needs of a buyer. It should be the buyer representative’s goal to cultivate professional, mutually productive relationships with builders. Here are some guidelines.

Module Two – page 6

REBAC Successful Buyer Representation in New-home Sales

Builder Relationship Guidelines • • • • •

Learn the builder’s business Stick to your role Recognize the builder’s pricing imperatives Be flexible Observe the builder’s policies


Learn the builder’s business The more you know about construction, the development process, builders’ financial structures, and builders’ marketing practices, the better your relationship will be with all builders.


Stick to your role and let the builder’s staff do theirs You play a crucial role in representing the buyer’s interests in a new-home purchase. The builder’s staff also plays a crucial role in conceptualizing and selling the home. Don’t interfere with it.


Recognize the builder’s pricing imperatives Understand that trying to negotiate “the best deal” can be unfair to the builder and counter-productive for everyone.


Be flexible Become familiar with how various builders use and relate to brokers and salespeople and try to adapt. If you insist that all builders do things your way, you may not be helping your buyer.


Observe the builder’s policies Builder’s have their rules and policies regarding registration, title companies, closing dates, and so on. Try to observe these.

II. THE BUILDER’S REPRESENTATIVE As the builder’s sales representative, the builder’s representative tends to share the builder’s attitudes, expectations, and preconceptions. The builder’s representative will be working with the buyer’s representative throughout the transactions, so it is important to recognize the builder’s representative’s role and to cultivate a good relationship with this individual.

A. The Role of the Builder’s Representative It has been said that “builders sell the outside of the house; the sales consultant sells the inside.” This means that the builder’s representative must sell the visible (or invisible) bricks and mortar as a home – not a house. The subdivision is a neighborhood; the amenities are “life style;” and the interior is the family’s “palace.” In effect, a good builder’s representative animates the builder’s product during the selling process.

Module Two – page 7

REBAC Successful Buyer Representation in New-home Sales

The builder’s representative has to know both the builder’s business and the real estate market. In addition, the builder’s representative must elicit the buyer’s needs and vision and convert these into a tangible home that the buyer will purchase. This is a sophisticated skill requiring both technical expertise and advanced communication skills. If the builder’s representative is successful, a committed, qualified buyer signs a contract. For this result, the sales consultant receives compensation based on incentives, either in the form of salary plus bonus or straight commission.

B. Relationship Guidelines In addition to the guidelines for maintaining good relationships with builders, there are a few other tips for working with builders’ sales consultants. Sales Consultant Relationship Guidelines •

Let the builder’s representative work with the buyer to define needs and develop specifications. This does not have to conflict with your job of representing the buyer’s interests.

Respect the builder’s representative’s expertise.

Focus on advising the buyer as opposed to “getting the best deal.”

Observe registration and showing policies.

Exhibit as much enthusiasm about the builder’s product as you might for any other product.

While you respect the builder’s representative’s role, you are well within your rights to defend your own: to advise and inform your client on all matters as you see fit. A builder’s representative who wants you just to “go away” is illinformed about what you do. It is perfectly proper to educate such a sales consultant about your job. Explain that abandoning the buyer is not representation, and that you have every intention of fulfilling your obligations to the buyer.

III. THE BUYER As a buyer representative in a new-home purchase transaction, your relationship with the buyer should be central. To build a successful relationship, you need to recognize your duties and commitments to the buyer as well as the unique needs of the new-home buyer.

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REBAC Successful Buyer Representation in New-home Sales

A. Agency and other Brokerage Relationships Buyer’s representatives, in new-home purchases as in any other transaction, need a full understanding of state law on agency and other types of brokerage relationships and agency disclosure. They also must be aware of the fiduciary and/or statutory duties they owe clients in an agency relationship. The traditional fiduciary duties, in brief, are: Fiduciary Duties • • • • • •

loyalty: put your client’s interest first obedience: follow all lawful instructions reasonable care and diligence: protect clients from foreseeable risks confidentiality: keep your client’s secrets full disclosure: provide vital information accounting: be financially accountable

Be sure you are aware of your state requirements

B. The representation agreement The buyer representation agreement should be clear, concise, and comprehensive. Make sure to discuss it fully with the buyer. The agreement should include the following provisions: Representation Agreement Provisions • • • • • • • • •

the envisioned property and the buyer’s general requirements the scope of work you will perform the exclusive or non-exclusive nature of the agreement the duration of the agreement payment of charges for services performed by others a consent to show properties to others dual agency disclosure compensation other typical items (e.g., assignability, dispute resolution; non-discrimination)

C. Profile of a New-Home Buyer Seasoned veterans recognize three types of home buyers: those who will never buy a new-home; those who will never buy an existing home; and those who may go either way. Knowing which type of buyer is at hand can save a buyer representative a lot of time that might otherwise be wasted looking at the wrong types of houses and neighborhoods.

Module Two – page 9

REBAC Successful Buyer Representation in New-home Sales Consider the following characteristics and tendencies that often distinguish new-home buyers from existing home buyers. New-Home Buyer Characteristics • • • • • • •

Has built before Has bought new before Has detailed picture of desired home Does not want repairs and maintenance Cannot find the desired home Doesn’t want compromise Wants to stay in one place a long time

(1) The buyer has built before: likely to want to buy or build new again. (2) The buyer has bought a new-home before: good candidate to buy new again; repeat existing buyers likely to buy existing again and again. (3) The buyer has a very detailed picture of the desired home: could be a good candidate for a new-home, especially if existing homes are in short supply. (4) The buyer does not want repairs and maintenance: good candidate for a new-home or condominium. (5) The buyer simply cannot find the desired home: may be a good first-time candidate for a new custom home. (6) The buyer does not want to compromise, even if the desired home costs more: a logical custom-home prospect, since the buyer can design and stipulate the desired features. (7) The buyer indicates the desire to stay in one place for a long time: may be a good custom home prospect, since new and custom home owners tend to remain in their homes longer than the average existing home dweller does. Determining whether a buyer prospect fits any of these descriptions should be part of every buyer buyer representative’s qualifying process.

D. New-Home Buyer Concerns New-home buyers want a home, location, neighborhood, and amenities that fit their idealized vision. Builders and their representatives want to sell what the builder has built or can build. Helping all parties to get what they want without sacrificing the buyer’s best interests is a challenge. In matching buyers with builders, keep in mind that a new-home buyer typically has the following concerns about a builder. Your awareness of these concerns should help you find the right builder for your buyer. • • • • • • • •

New-Home Buyer Concerns risk flexibility cost financing type of home level of customization quality safety of construction materials and methods

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MODULE THREE: SERVING THE BUYER’S HOMEFINDING NEEDS INTRODUCTION The central mission of a buyer representative is to identify the buyer’s housing needs and fulfill them. This module focuses on how the tasks of qualifying buyers and finding homes in the new-home market segment differ from what you normally do in the existing home market.

Objectives On completion of this module, participants should be able to: • • • • •

apply a service philosophy for new-home buyers determine a new-home buyer's wants and needs match builders and homes to a buyer’s needs assist a buyer in looking at new-homes help a buyer evaluate builders, subdivisions, and homes

Outline I. Your Service Philosophy II. Matching Buyer, Builder and Subdivision III. Showing and Evaluating Homes

I. YOUR SERVICE PHILOSOPHY New-home sales work requires some additions to the basic service philosophy of the buyer representative. The cornerstones are discovering needs, providing advice, and managing the buyer’s relationships with builders and sales consultants.

A. Discovering needs A new-home buyer is in a position to define and seek a “dream” home. As a new-home buyer’s representative, you must devote considerable time to ascertaining and refining the buyer’s vision. There is a danger of defining a buyer’s needs instead of discovering them. This is particularly true in the context of what is marketable and re-salable. For example, a custom home buyer may not want a fireplace, but a salesperson might exhort the buyer to get one anyway because it enhances resale value. Help buyers identify needs even when they are not sure what they want in every instance. The buyer representative can certainly suggest what features enhance marketability, such as an energy-conserving heating system. But simply make the buyer aware of alternatives. Remember, custom home buyers do not always care about costs or resale; they want what they want.

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REBAC Successful Buyer Representation in New-home Sales

B. Advising In the new-home market, sellers are business professionals as well as experts in real estate. Moreover, builders are naturally inclined to self-interest. The sale contract, for example, is typically pro-builder. A buyer’s representative needs to pay attention to all transaction details, from offering to building to closing, and advise the buyer at every juncture. In a new-home purchase, you have the opportunity to be an invaluable business advisor and protector of the buyer’s interests.

C. Managing Relationships As the buyer’s advisor, you may be introducing your buyer to a number of builders and sales consultants. You are the only one who is looking out for the buyer’s interests, but you must also maintain good working relationships with the sellers if you want to work smoothly with them in the future. For this reason, you should think of yourself as “Relationship Central,” the meeting point and connector for all the parties in a new-home transaction.


Buyer’s Representative


Sales Consultant

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REBAC Successful Buyer Representation in New-home Sales

II. MATCHING BUYER, BUILDER, AND SUBDIVISION Buyer representatives must learn to discover a new-home buyer’s wants and needs by obtaining the answers to a few general questions. After that, they can create a more specific prototype of a home that encompasses the buyer’s vision, budget, and time frames. Finally, they can put all these elements together with what they know of builders and subdivisions to suggest the most likely matches for the buyer’s vision.

A. What Does the Buyer Want? To get the overall picture of the buyer, ask about: • • • • • • • • • • • • •

size, type, age, location of current home new or existing status of current home when purchased likes and dislikes about current home reasons for moving likes and dislikes about current location preference for type of property “ideal” home “ideal” neighborhood price range desired timing of purchase and move preference for new-home, existing home, or custom home preference for subdivision or non-subdivision lot “ideal” subdivision features, if relevant

B. Developing the Prototype Home The prototype worksheet provided in the Toolkit translates some of the buyer’s needs and wants into property specifications. Buyer representatives can use the worksheet to compare buyer data with available subdivision properties. The worksheet is also valuable as a permanent record for future reference.

C. Tracking subdivisions Buyer representatives working the new-home market must develop an intimate understanding of every subdivision in their sphere of operation. The best way of doing this is to visit and research all subdivisions, look for the answers to certain critical questions, and keep a file of subdivision profiles ready to compare with buyer prototypes. 1.

Questions to Consider Thorough product knowledge improves the ability to advise your buyers on the comparative benefits of all subdivisions in your market. Learn to evaluate the strengths and weaknesses of subdivisions by asking such questions as the following:

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REBAC Successful Buyer Representation in New-home Sales a)

location What are the location benefits and detriments to the subdivision? (access, convenience to stores, surrounding land uses, traffic congestion, etc.) What are the abutting zones? Nearby zones?


amenities Are the proposed amenities completed? If not, when? Who will pay for them? Who will own them?


utilities Is the water and sewer in? If it’s private, is it complete? Adequate? Have there been flood or drainage problems?


time on market Are the homes selling in a normal time frame, or are sales stalled for some reason? If the homes aren’t selling, why?


pricing Are the subdivision’s prices competitive? How do the builder’s “cost-plus” prices compare with other subdivisions? With the market value of comparable existing homes?


overall ranking All in all, how does the subdivision rank among other competing subdivisions?


Subdivision Profiles Use the form provided in the Toolkit to develop and maintain comprehensive subdivision data.

D. Matching Prototype to Builder and Subdivision 1.

Compare profiles Compare the buyer’s prototype data with the “Subdivision Profiles” and the builder information you have compiled for your market. Use your knowledge of builders and subdivisions to find the best fits with the buyer’s tastes and preferences. When in doubt, show the subdivision and let the buyer decide.


Avoid steering Avoid the risk of steering in selecting what to show your buyer by discussing how various subdivisions and properties relate to the buyer’s needs. Then let the buyer decide where to go.

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REBAC Successful Buyer Representation in New-home Sales

III. SHOWING AND EVALUATING HOMES When it comes time for your buyer to look at subdivisions and homes, remember that you are probably going to have to deal with a sales representative of the builder, and that you need to follow the builder’s policies for showing homes. If properties are listed, there may also be a listing agent present.

A. Registration If the buyer is registered, there is no need to feel insecure about the commission.

B. Showing Homes With the Builder’s Representative Showing homes in the new-home subdivision is the buyer representative’s first real opportunity to establish a working relationship with the builder’s representative and the builder. 1.

Guidelines for showing The buyer representative should work in concert with the builder’s representative to identify the right home for the buyer in the subdivision. Some guidelines: •

• • • •

Ask permission to accompany the builder’s representative and buyer to the home showings; don’t assume you are invited (but don’t accept a “no” answer) Inform the builder’s representative what you have learned about the buyer’s needs. This debriefing will save everyone time. Let the builder or builder’s representative sell the features of a home to the buyer; don’t get in the way. Discuss features the builder’s representative fails to point out, such as a home’s negative qualities. But do this afterwards. Give the builder’s representative feedback on how the buyer’s decision-making is progressing.

Remember, the builder’s representative is your marketing counterpart, not your adversary. Adopt the practice of communicating with the builder’s representative openly and frequently. 2.

The options list For new tract homes with custom options, be sure to ascertain what options are available for each property shown. Builders often have printed options lists they make available to buyers. If not, discuss available options and their costs with the builder’s representative.

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REBAC Successful Buyer Representation in New-home Sales

C. Evaluating Candidate Homes After touring candidate homes, review the strengths and weaknesses of each property with your buyer. This review often raises objective concerns and considerations the buyer may not have thought of. It also helps the buyer to narrow the search and refine the vision of desired features and options. A thorough evaluation will consider the following aspects of a property. 1.

The lot The critical features of a lot are its size, type, configuration, landscaping, position on the block, home-siting potential, and price. a)

Size, type, configuration Are any of the general characteristics unusual? An oversized lot offers more living space and landscaping potential but requires more maintenance. Is it a cul-de-sac lot? If so, expect less traffic, but also expect headlights shining into your living room. Also, expect a smaller back yard, as cul-de-sacs often have a greater setback than other types of lot have.


Landscaping Evaluate existing and potential landscaping. Does the lot have the potential for sufficient privacy? A garden? A view? How does this potential compare to other lots?


Position on the block and in subdivision Where is the lot on the block? A mid-block lot may have more traffic or be smaller, but will not have headlights in the windows from cars turning, as is the problem with corner lots. What direction does the lot face? If south, do the buyers want morning sun in the front of the house? Or would they prefer morning sun in the backyard? What about shade? A back-lit or front-lit view? How will the lot's position naturally light the inside of a house? Where is the lot in the subdivision? If at the rear, expect more privacy and less traffic, but a longer ride to get anywhere. How far is the lot from common areas and amenities?


Home-siting potential How many options does the lot offer for positioning the (unbuilt) home? Can the home face in the desired direction? How close is the house to setback lines and utility easements? Can the home be built forward or to the rear for a larger front or back yard?


Price Generally, the newer the subdivision – and the less complete – the cheaper the lot. Module Three – page 6

REBAC Successful Buyer Representation in New-home Sales Initial buyers will get the best deal as well as the best lot. However, early buyers must suffer through the remaining construction. They also take the risk that the subdivision will fail or not be completed. By contrast, the last buyer in often gets the worst lot at the highest price. However, there is now little risk of bankruptcy or failure, and the amenities are in without the annoyance of new construction. 2.

The home a)

Options Using the builder’s options list, advise the buyer on the pros and cons of each option. Your advice concerning options should take into account: • • •

the buyer’s needs and resources the cost-benefit of the option itself re-salability

For instance, a few hundred dollars’ worth of optional insulation in a home in Phoenix can significantly lower air conditioning costs in such a hot climate. A tile roof, on the other hand, offers similar energy-saving benefits, but at a much higher cost. Another option might be a swimming pool. In Phoenix, a pool may enhance marketability. However, pools are expensive and require constant maintenance. Does the buyer really want the pool? Lay out the pluses and minuses, and let the buyer decide. b)

Other factors Other factors to consider in evaluating a candidate property: •

inventory pressure builder’s representatives must move available inventory. Watch out for obviously biased recommendations and be prepared to present both pros and cons.

compensation pressure builder’s representative compensation may be based on the final price, including options. This fact may influence builder’s representative recommendations.

disclosure laws Builder's representatives should be aware of all disclosures required by state law (who represents the buyer/seller in the transaction?)

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REBAC Successful Buyer Representation in New-home Sales 3.

The location The builder and builder’s representative have an interest in promoting their location. Don’t expect them to mention any negative location factors such as worsening traffic or the new factory coming in just down the road. The buyer needs the buyer representative’s help to evaluate the location. Important features include: • • • • •


distances and ease of travel: to work, schools, retail services, medical services, etc. adjacent and nearby land uses: compatible and amenable? existing infrastructure: adequacy of roads, utilities, sewer and water planned uses: any “surprises” on the drawing board? growth factors: is the area growing rapidly? How will incoming residents and businesses affect the subdivision?

The overall subdivision a)

Risk The primary consideration for the subdivision as a whole is risk. Will the subdivision make it? Is the absorption rate fast enough – or are the weeds showing around empty houses?


Material facts To investigate a particular subdivision, obtain the “public subdivision report” that should be on file at the city or county of the subdivision. This report discloses material facts about the builder, the property, and the general area, including: • • • • • • •


zoning elevation flight zones transportation services utilities units to be built development plans

Financing of amenities Some states require builders to complete common amenities before building homes and permitting occupancy. In response, builders sometimes attach a floating bond to a home which a buyer must pay above and beyond the price of the home. Buyer representatives should investigate local certificate-of-occupancy ordinances to learn whether amenities can be financed with bonds. If so, you should inform your buyers as to which subdivisions have floating bonds as builder-financing mechanisms.

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REBAC Successful Buyer Representation in New-home Sales 5.

The builder a)

Documented reputation Buyer representatives do their clients an invaluable service by investigating the builder’s reputation and past performance as supported by documentation and past experience. Among the criteria for evaluating builders are: • • •

length of time in area knowledge of local society, culture, customs other subdivisions completed

One source of documented builder performance is the “register of contractors” on file with the state or county. The register records complaints that have been lodged against the builder, lists who is performing the builder’s work, and describes other builder activities in the area. b)

Testimonials Another way to learn about the builder is to personally visit residents in the builder’s subdivisions and ask questions, such as the following. • • • •

Did the builder finish every item as agreed? Was work completed on time? Were there any problems? Did the builder provide customer service, repairs or maintenance that were the builder’s responsibility?

If residents are dissatisfied, you will hear about it. You may also get a glowing report. Existing residents are the builder’s best (and worst) ambassadors. Ideally, the buyer should visit the residents while accompanied by the buyer representative.

Module Three – page 9

MODULE FOUR: SERVING THE BUYER’S TRANSACTION NEEDS INTRODUCTION Buyer representatives prove their true value when they represent and protect the buyer’s interests throughout the transaction process. The new-home seller cannot be expected to have the buyer’s needs and circumstances at heart . It is the job of the buyer representative to educate and assist the buyer through the contracting, building, and closing events.

Objectives On completion of this module, participants should be able to: • • • •

describe pre-offer preparation and research assist a buyer in the contracting process identify important monitoring services for the build cycle assist a buyer at closing and beyond

Outline I. Pre-Offer Preparation and research II. The Offer III. Service During and after the Build Cycle











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REBAC Successful Buyer Representation in New-home Sales

I. PRE-OFFER PREPARATION AND RESEARCH Conducting preparation and research for the buyer representative in the new-home context is the process of collecting material facts and data about the subdivision, the builder, and the transaction, and reviewing them with the buyer so that the buyer can complete the transaction. Most of the necessary work has to occur prior to the offer.

A. Caveat Your role in the transaction is to give advice on matters within your expertise as a real estate licensee and to help the buyer understand technical terms and conditions. For example, consider the builder’s warranties. First, what are they? Describe and explain the proposed warranties to the buyer. Second, are they overly slanted? Can you strengthen them for the buyer’s benefit? Propose and explore with the builder. Observe, however, this important caveat:

Do not practice law!

Do not give legal advice. If there is any doubt whatsoever on the meaning of a contract provision or term or any other legal matter, you should advise the buyer to hire an attorney to make interpretations. You must not practice law without a license. The unauthorized practice of law has serious ramifications. It can never hurt to advise the buyer to obtain legal representation. If you come across something neither you nor the buyer understands, always seek an expert. Errors will come back to haunt you.

B. Subdivision Research Research all material facts relating to the subdivision and the builder that the buyer should be aware of. 1.

The Public Subdivision Report This public report discloses a wealth of material information regarding the builder and the subdivision.


Codes, Covenants, and Restrictions (CC&R’s) Make sure the buyer reviews the CC&Rs for the subdivision. These can be extensive enough to become a deal-breaker. Ascertain what happens to violators, how regulations are developed and how homeowners can change them (if at all). A buyer should know, for example, if there is a resale restriction that allows the builder a 20-day right of first refusal, followed by another 20day right of refusal for the homeowner’s association, when an owner wants to sell.

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REBAC Successful Buyer Representation in New-home Sales 3.

Articles of Incorporation, By-laws, Register of Contractors These documents describe the builder’s legal entity and officially approved policies. The Register of Contractors (available in some markets) is a public information resource providing track record data on the builder, including performance problems and complaints.

C. Transaction Documents A builder’s transaction documents are naturally slanted in favor of the builder. To protect the buyer’s interests, obtain copies of all transaction documents and every builder-provided document the buyer must sign at closing and review them with the buyer in advance. Make note of provisions that are objectionable to the buyer or negotiable provisions that you want to discuss with the builder. It is wise to have the buyer’s attorney review these documents as well. Critical transaction documents include: • • • • •

the sale contract deed and warranties title insurance policies homeowners and other insurance policies the builder’s financial instruments, if relevant.

Common clauses of the sale contract are discussed later. Below are some of the important questions and concerns about the other transaction documents. 1.

Deeds and warranties What type of deed will the builder give? Is it a general warranty deed or a special builder’s warranty deed? What is the scope of the builder’s warranty: is it two-years on structural aspects? How is it different from standard conveyances? The value of any warranty boils down to who is giving it and who is backing it. Some states grant buyers of new homes an “implied warrant of habitability,” generally meaning that a new-home is warranted to comply with such things as applicable building codes, that it was built in a workmen like manner and is suitable for habitation. But builders can sometimes supercede an implied warranty by making an express warranty, thereby nullifying the effect of the state's implied warranty. For example, a deed may state: " in lieu of an implied warranty, we give the buyer a 1-year warranty on all (such and such)". This superceding warranty, though possibly less than the implied warranty, is allowed by this disclaimer in many states. Typical builder warranties are 2 years for systems and 10 years for the foundation and structural components. In addition, builders pass through manufacturers warranties on appliances

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REBAC Successful Buyer Representation in New-home Sales 2.

Title documents What is the owner’s title policy? How does it compare to a conventional title policy? Watch out: in some cases, builders do not provide title insurance. Make sure the buyer receives title insurance at closing. In addition, make sure the title insurance includes mechanic’s liens.


Financial documents If your buyer is opting for builder financing, make sure you understand how the package works and explain it all to the buyer. Also, be aware of RESPA (Real Estate Settlement Procedures Act) protections, if applicable: buyers are entitled to a good faith estimate of closing costs and a statement of all settlement costs.

II. THE OFFER The offer should carefully spell out exactly what the buyer is offering to purchase, when it will be delivered, and at what cost. From the buyer’s point of view, it should also limit the builder’s arbitrary latitude on changing the building plans, schedules, and costs.

A. Price and Terms Remember, there is virtually no flexibility in the price a builder quotes to a buyer. This should be understood by the buyer early on. Builders price the new subdivision home at cost-plus-profit. Market value is irrelevant. Do not promise new-home buyers that you will save them money through price negotiations or changes in sales terms. Instead of negotiating price, you might explore obtaining additional features or amenities at cost. Also, count on using the builder’s purchase agreement.

B. Deposits 1.

Earnest money deposit Before the buyer remits the deposit, know where it will be deposited. Who holds the money? Will it be commingled with the builder’s other general funds? If the builder seems financially marginal, try to get an agreement to put the deposit in escrow. Buyer representatives should be aware of any state laws associated with the requirement of escrow.


Progress payments Progress payments are periodic payments from the buyer to the builder as phases of construction are completed, or in accordance with an unrelated schedule. Ascertain how these payments are to be treated. Are they loan payments? Purchase price installments? If their purpose and application are unclear, get them clarified then attempt to negotiate them out of the transaction.

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REBAC Successful Buyer Representation in New-home Sales

C. Contract issues Question any issue in the sale contract that you or your buyer would like clarified. If you have established an open, non-adversarial business relationship with the builder and builder’s representative, these questions and discussions should be a natural part of the transaction. Some builder contracts may be excessively one-sided or inflexible. Try to negotiate objectionable terms. If talks fail, the decision to accept or reject the builder’s position belongs to the buyer. Your duty as buyer representative is to make sure the buyer understands the import of the contract. Don’t guess what something means or implies. Leave pride at home and seek the assistance of the buyer’s legal counsel whenever there is any doubt. The buyer's lawyer must do any drafting of new provisions. Most states only allow licensees to fill in blanks on pre-approved forms or use addendums that have been drafted and pre-approved by lawyers.

D. Builder’s performance The builder’s primary concern is whether the buyer can pay. Your primary concern is whether the buyer gets what he or she paid for. The builder’s sale contract contains numerous schedule and budget hedges as protection against unforeseen contingencies. Your buyer should understand these provisions. Equally important is maintaining a paper trail on what the parties agree to. 1.

Establish the paper trail Throughout the contracting process, make sure everything the builder is supposed to do is spelled out in writing. This establishes a paper trail and punch list to verify performance of what was contracted for. What a builder promises is meaningless without proper documentation. The paper trail should be part of the contract. It should include: • • • •

all construction features purchased all option packages building schedules costs

For example, your buyer’s model comes with an optional $20,000 pool package. If the buyer selects the option, document the pool size, decking, accoutrements, type of filter, manufacturer, model, who will build it, what screening is included, when it will be completed, its warranties, the total price, etc. 2.

Performance clauses Builder contracts contain pro-builder performance provisions that grant the builder flexibility, options, and control of the building process. For example, builders insert provisions for delays in the event of labor strikes, material shortages, and “Acts of God.” While these are generally not negotiable, they should be understandable and clear to the buyer.

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REBAC Successful Buyer Representation in New-home Sales In addition, performance clauses should have reasonable limits, after which the buyer has specific recourses. These clauses should not provide cover for unwarranted non-performance. 3.

No “time is of the essence” clause Builder sale contracts do not contain a “time is of the essence” clause, since it would limit flexibility: the builder does not want to be held to a specific performance date after which a breach will have occurred.


Substitution clause Substitution clauses allow the builder to substitute similar materials in constructing the house, provided they are of like or better quality. This protects the builder in case severe shortages occur during the building schedule, allowing construction to continue. Watch out, however, for abuse: are the substituted materials in fact of equal quality?


Cost clause This clause holds that, in the event of a cost overrun, the builder can increase the price of the property. The buyer in turn can accept the new price or cancel the agreement. This clause underscores the risks inherent in buying a new-home. Understandably, a builder must have protection against unforeseen events such as labor problems, interest rate increases, and materials cost increases. But does the buyer get any relief from losing the contract if the price is raised dramatically? Is there a ceiling on increases? What about that deposit if the buyer refuses the new price?


Buyer inspection clause Buyer representatives should negotiate into the contract the buyer’s right to inspect the property at any reasonable time, with or without the builder’s representative.


Closing clause The builder’s closing clause purposely leaves out a set date for closing and title transfer, again to provide flexibility. Most contracts provide for a closing date to fall within ten days of completion of the construction.

E. Contingencies The buyer should understand the builder’s contract contingencies and insist on a provision that includes an independent property inspection for the buyers. (Any provision added to a contract should be approved by an attorney.) This provision makes the builder’s performance dependent on the property passing an independent inspection and gives the buyer some recourse in case it fails. If the buyer does not want this provision, get a signed refusal of the independent. The inspection should occur immediately preceding drywalling, with the buyer’s presence required.

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REBAC Successful Buyer Representation in New-home Sales

F. Acceptance Remember, the offer is only an offer until the builder has communicated acceptance back to the buyers. Builders sometimes take weeks to accept an offer. While waiting, don’t assume the deal has been made, but keep on looking at properties until the offer is accepted.

More Negotiable • • • • • • •

unreasonable terms add-ons payment schedules treatment of funds right to inspect final punchlist withholding of payments Less Negotiable

• • • •

price forms location of closing title company

III. SERVICE DURING AND AFTER THE BUILD CYCLE After the completion of contracting and the approval of plans, the build cycle begins. Buyer representatives should not neglect the project during this period. It is imperative to monitor progress, ensure quality control, and maintain communications with both buyer and builder.

A. Inspections Buyers and buyer representatives are often too quick to assume that nothing will go wrong during construction. It is easy to suppose that city inspectors will discover any shortcoming or violation, and that additional inspections are unnecessary. This is a dangerous attitude. It is better to assume Murphy’s Law. While it is good to show confidence in the builder, the buyer representative should inform the buyer of the importance of making sure the house is being built properly. This may include attending inspections and making sure there is an independent inspection before drywalling and before closing.

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REBAC Successful Buyer Representation in New-home Sales

B. Quality control Quality control is one of the builder’s primary responsibilities. However, in high-demand markets, where the best tradesman are booked up, builders often have to use less experienced subcontractors and workers. Horror stories abound: the half-built home that did not have any bathrooms; exposed wiring; the ill-sited foundation that violated setback codes. Inspections, and the buyer representative’s periodic review of construction progress, can go a long way toward assuring quality. Quality control is critical in the process of building a new home, but it is ultimately the buyer who is responsible. 1.

Boundary survey A good example of quality assurance is requiring a boundary survey to be performed and passed prior to closing. The boundary survey ensures against encroachments, setback violations, easement problems, and improper placement of the house on the lot.


Street dedication Street dedication is the occasion when the builder conveys ownership of the subdivision’s streets to the local government in exchange for the municipality’s agreement to repair and maintain them in perpetuity. Prior to closing, the buyer representative should make sure that the builder has filed appropriate documentation and is up to date on the local legal requirements necessary for street dedication. If the streets have substandard drainage, curbing, or construction, for instance, they cannot be dedicated.

C. Progress documentation By the “doctrine of substantial performance,” the buyer and builder may close on the home if the builder has substantially performed, even though a number of details may remain to be completed. Prior to closing, the buyer, buyer representative and builder must walk through the property and develop the “punch list” of everything that remains to be done after closing.

D. Closing and Post-closing If all goes well, the property passes the independent inspection and the parties close. If, however , the builder’s punch list is lengthy, the buyer representative should consider negotiating a portion of the purchase price to be held in escrow until all punch list items have been completed. In the immediate post-closing period, buyer representatives can offer an additional touch of service by helping the buyers move in and get settled. With new-homes, one excellent example is providing the complimentary services of a handyman for a half-day or day. The handyman can help the buyers install smoke detectors, garage door openers, ceiling fans, shelves, and so forth. However, precautions should be taken to exclude the buyer representative from the work of the handyman.

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REBAC Successful Buyer Representation in New-home Sales

Summary of Buyer Representative New-home Services • • • • • • • • • • • • • •

advise on builders and subdivisions educate buyer on development, construction, and new-home purchase processes help buyer define needs and preferences schedule and conduct showings and visits to subdivisions help buyer evaluate houses, lots, subdivisions, locations research relevant facts about subdivision and builder advise buyer on cost/benefit of options negotiate various contract terms help buyer understand transaction documents monitor construction progress create and maintain paper trail arrange for independent inspections (note: inspectors should be selected by the buyer, not the buyer representative. assist buyer at closing assist buyer at move-in

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MODULE FIVE: MARKETING YOUR SERVICES INTRODUCTION The key to generating business in the new-home sales market lies in making prospects aware of how your specialized knowledge can benefit them. Planning what to say and how to get your message out are essential first steps toward success.

Objectives On completion of this module, participants should be able to: • • • •

identify ways of generating new-home sale buyers plan a marketing and selling message list buyer benefits of new-home sale representation services identify elements of a marketing plan

Outline I. II. III. IV.

Three Steps for Generating Business Formulating Your Message Getting the Word Out Final Thoughts

I. THREE STEPS FOR GENERATING BUSINESS Assuming that you have mastered the skills and special knowledge of representing buyers in new-home sales, selling yourself as a specialist requires you to do three basic things: • • •

formulate a marketing message that conveys your real estate identity as a new-home sale specialist communicate that message to your market present the benefits of your services personally to buyer prospects

The most important of these three is the presentation message, as it forms the basis of your marketing message. What can you say in thirty minutes that will matter to a prospect? How will you differentiate yourself from everyone else? What exactly are you going to say and do when a prospect appears? Only when you are satisfied that you know the answers to these questions are you ready to market your services and invite buyer prospects to consider placing their interests in your hands.

II. FORMULATING YOUR MESSAGE Buyers may be interested in your expertise, but only to the extent that they can see how it will benefit them. The first and most important step in preparing your message, your presentation, and your marketing, is to review your special skills and knowledge and consider them from the point of view of the buyer.

Module Five - page 1

REBAC Successful Buyer Representation in New-home Sales It also helps to imagine that your competition is all the buyer representatives who have not taken this course. What do you have now that they don’t have? Consider what you want to say and how to say it. Here are five important areas to cover. Note, by the way, that “getting a better deal” is not in the mix. Focus on developing your new-home sale message for prospective buyers. Your message should concern the services you can provide that other licensees may not consider, either because they are not new-home specialists or because they are not buyer representatives. Each service you mention should relate to the buyer’s interests: “In new-home sales, here is what happens to a buyer who is represented by a proficient new-home sale specialist, and here is what might happen otherwise….” Use the tips below and the worksheet, “Why Should You Hire Me as Your Newhome Buyer Representative,” provided in the Toolkit to work out your message.

Tips For Developing Your Message Why you need specialized representation • • • • • •

What are the builder’s primary interests? What are the builder’s representative’s primary interests? Who does the sales consultant represent? What are the listing agent’s primary interests? How will you fare without any representation? How does buyer representation work in newhome sales? What about buyer representatives who only do existing home sales?

My market knowledge • • • • • •

New-homes vs. existing homes: what are the differences? The development process: how does it happen? Subdivisions vs. single-unit custom homes: what are the differences? Builders: who are they? What are their documented track records? How do they differ? Neighborhoods Location characteristics

How I manage relationships • • •

My client relationship and philosophy Builders: how we work together Builder’s representatives: how we work together

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REBAC Successful Buyer Representation in New-home Sales

How I fulfill your housing needs • • • • •

Qualification Search Show De-brief Repeat cycle

How I protect your interests • • •

Preparation and research Contract clauses Build-cycle management

III. GETTING THE WORD OUT The most important channel of communication is the grapevine in your market: referrals from satisfied clients and word of mouth from other salespeople and from builders and new-home sale consultants who like how you work. To build your reputation initially, you need to condense your message into a brochure, a mailing piece, and an advertisement. You should start with a marketing plan.

A. Your Marketing Plan If you have been able to identify some of the targets you want to approach, and the messages and tactics that you want to use, you should be able to put together a marketing plan to guide your actions. The basic elements of a marketing plan are: • • • • • • •

Transaction/Income Goals Target Types Marketing Messages Marketing Budget Marketing/Promotional Programs Allocation of Resources Action Schedule

Adapt your answers to “Why You Should Hire Me” to the promotional programs your time, budget, and goals indicate.

B. Promotional Programs 1.

Brochure Your brochure should summarize your presentation message in a simple format that you can hand out to new-home prospects. This summary will enable them to reflect on what you can do for them. Module Five - page 3

REBAC Successful Buyer Representation in New-home Sales

Condense your new-home sale message into short benefit statements. For example, if you have learned all of the subdivisions, don’t just say you have “product knowledge.” State that you can match your buyer’s requirements with all available properties, assuring that if the right home is out there, you will find it. Include graphics and perhaps a photograph. Make it pleasing to look at and easy to read. The brochure itself should be no larger than 8 ½” x 11” with 2 panel folds. It should be able to function as both a handout and a mailing piece. 2.


Advertising Space advertising in local periodicals and newspapers is good for name, identity, and function recognition. Such ads can trigger interest and make the public aware of you. Consider the following guidelines: •

The number of ad placements is more important than ad size. It is far more effective to be in the paper every week, even in small print, than to appear once in a while with a large, elaborate ad. Plan your budget to allow as many small-ad placements as possible.

Present your identity and what you do best. Save the details of your selling pitch for phone calls and meetings. The purpose of the ads is to create a presence, not make a sale.

Publications often have the policy of including an occasional press release from paying advertisers. Include a print-worthy article with your ad and watch it appear as free publicity for you.

Other promotions Promotional tactics and techniques are limited only by your imagination and budget. A few suggestions follow. •

Include your new-home representation specialty on your business card.

Develop a key contact list of former clients, relatives, friends, and business spheres of influence (lenders, attorneys, title companies, relocation companies, Chamber of Commerce members, etc.). Mail them your brochure, business card, and a short cover letter.

Module Five - page 4

REBAC Successful Buyer Representation in New-home Sales •

Network within your company or franchise. Let other offices in your brokerage network know what you do in your area. Get the word out via e-mail or company newsletter that you specialize in new-home sales and have had the training to back it up.

C. Making Presentations It takes considerable time and effort to generate prospects. Don’t lose them by being unprepared when they call or come in. Know what you are going to say and do from the first hello. It is always best to arrange a face-to-face meeting with a prospect. Explain that this is necessary because there is a lot of ground to cover in buyer representation, not to mention in the details of new-home sales. In setting up the meeting, also explain that you • • •

require a 30-minute counseling session to explain your professional services (and why they need them) prefer all principals to be present recommend that buyers compare your services with those of any other salespeople they may have visited

Double-check all your meeting preparations so that the unexpected does not occur, such as a double-booked conference room or misplaced representation agreements. Confirm your meetings, and have all your materials ready. Most important, review and practice what you are going to say. Last but not least, remember that it is always a good idea to get a buyer to sign a buyer representation agreement. Don’t forget to ask!

IV. FINAL THOUGHTS Don’t be intimidated by the complexities of new-home sales business. If you take nothing else with you from this course, remember these five easy pieces: • • • • •

Learn the builders, subdivisions, and new-home products in your market. Learn how the new-home development and sales processes work in your market. Know what you can do for new-home buyers. Provide superior service. Follow up with buyers even after transactions close.

And now, it is all up to you!

Module Five - page 5

TOOLKIT CONTENTS Building a Home—Phases Building Inspection Checklist Worksheet: Existing/New-home Differences Buyer Needs Qualification Questionnaire Buyer’s New-home Prototype Worksheet Subdivision Profile Worksheet: “Why should you hire me as your new-home buyer representative?” Suggestions

Toolkit - page 1

REBAC Successful Buyer Representation in New-home Sales

Building a Home-- Phases

A. Pre-develop B. Plan C. Permit D. Build

Total Development Time

Toolkit - page 2

REBAC Successful Buyer Representation in New-home Sales

Building Inspection Checklist • • • • • • • • • • • •

soil and footings poured walls or backfill initial plumbing, heating and electrical framing insulation drywall final plumbing, heating, and electrical finish grade siding shingle septic other:

Toolkit - page 3

REBAC Successful Buyer Representation in New-home Sales

Worksheet Existing/New-home Differences Existing Home


Existence—tangible, visible Features



Condition—discoverable, disclosable Performance history

Sales history

Appraisal or appraisability

Inspections Typical seller


Toolkit - page 4

REBAC Successful Buyer Representation in New-home Sales Buyer Needs Qualification Questionnaire (1) What kind of property do you currently have? Where is it? (ascertain size, type, age, lot size, location, etc.) (2) Did you buy it new? (3) What do you like and dislike about your current home? Why do you want to move? (4) How do you feel about your current location? Where do you want to be? (ascertain what factors are important about location) (5) What kind of property are you looking for? (ascertain property type: single family, condominium, townhome, villa, etc.) (6) Describe your ideal property. Architectural style: Size: Layout: General features:

# of floors: Lot size: Rooms:

(7) Describe the ideal neighborhood you would like to live in. (Old, established? New? Noise level? Children? Privacy? Density?) (8) What price range are you comfortable with? (Can they afford it? Qualify financially to the extent you are accustomed to.) (9) When do you envision making your move? When would you like to be completely moved in? (10) What are your thoughts about buying an existing home versus a newhome? Let’s assume that existing homes available at this time will meet a number of your needs, but you will have to make some compromises. Let’s also assume that, if you wanted to pay top dollar for a new custom home, you have a good chance of getting almost everything you want. Which way would you want to go? (11) If a new-home is a possibility, which type would you prefer? Explain the 3 types of new-homes: those already built; partially-built tract homes; and 100% custom tract or non-tract homes. In addition, point out that finished or partially finished new-homes are generally found in subdivisions, while the pure custom home can be on a non-subdivision lot or in a subdivision. Explore whether the buyer prefers a subdivision or a non-subdivision lot. (12) What features and amenities are important to you in a subdivision or neighborhood? (13) Additional questions:

Toolkit - page 5

REBAC Successful Buyer Representation in New-home Sales

Buyer’s New-home Prototype Worksheet Buyer:


(1) Subdivision lot ___vs. Non-subdivision lot ___ (2) Custom ___

Display ___

Partial-built ___


(3) Price range ______________ (4) Location preferences: 1st: _______________________________ 2nd: _______________________________ 3rd: _______________________________ (5) Subdivision preferences: Built ___ vs. Under development ___ Size: _______________ Security features: _________________ School district: _________________ Amenities: ___________________________________________ ___________________________________________ ___________________________________________ (6) Lot preferences: Price range: ___________ Size: _____________________ Landscaping: ______________ Positioning: (corner/cul-de-sac/ mid-block) __________________ (7) House preferences: Price range (with___ / without ___ lot value) $________ to $________ Architectural style: _______________ # Floors: ______________ Size: _______________ # Bdrms _____ #Baths _____ Type of utilities: _____________ Sewer and water: _____________ Features and amenities: __________________________________________________________ __________________________________________________________ __________________________________________________________ __________________________________________________________ (8) Other:

Toolkit - page 6

REBAC Successful Buyer Representation in New-home Sales Subdivision Profile (1) Subdivision(s): (2) Builder/builder’s representative: (3) Location: (4) Price range: (5) # Homes planned/ % built: (6) Home sizes/types: (7) Lot sizes: (8) Amenities (9) Tract vs. custom (10) Homeowners Association: (11) Water/sewer (city/private): (12) Unique features: (13) Location factors: (14) Sales history: (15) Other:

___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________ ___________________________________________

Toolkit - page 7

REBAC Successful Buyer Representation in New-home Sales Worksheet Why Should You Hire Me as Your New-home Buyer Representative? 1.

Why you need specialized representation ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________


My market knowledge ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________

Toolkit - page 8

REBAC Successful Buyer Representation in New-home Sales Why Should You Hire Me as Your New-home Buyer Representative? 3.

How I manage relationships ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________


How I fulfill your housing needs ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________

Toolkit - page 9

REBAC Successful Buyer Representation in New-home Sales Why Should You Hire Me as Your New-home Buyer Representative?


How I protect your interests ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________

Toolkit - page 10

REBAC Successful Buyer Representation in New-home Sales Suggestions

Why Should You Hire Me as Your New-home Buyer Representative? 1.

Why you need specialized representation • • • • •


My market knowledge • • • • • • • • •


I know about all the builders in town, their documented reputations, and how their products differ. This will enhance your ability to make informed decisions. I can tell you what to expect in the development process, how it works, and what can go wrong. I know the difference between new custom homes and new tract homes and what that means in terms of the builder’s flexibility and costs. I can help you understand how development schedules affect your financial obligations in the construction process. Knowing how builders work, I can help you with your move-in timing and the timing for selling your existing home. By specializing in new-home sales, I know all the subdivisions in the market and how they might compare to your needs and expectations. I can help you assure quality control by knowing what inspections you need and when they should occur. In knowing builder financing programs, I can assist you in evaluating one builder’s program against another’s, and against conventional lending programs. I can tell you about the risks and benefits of smaller builders vs larger builders, and custom builders vs. tract builders.

How I manage relationships • • • •


Other than your attorney, I am the lone watchdog looking out for your interests. Builders and their representatives do not represent you. Builders are not obligated to show you existing homes if you want to see them. Listing agents are not obligated to show you every home you want to see. I understand how to fulfill your housing needs whether the home you want is new or existing.

I understand the interests and expectations of builders and their salespeople. I know how to work effectively with builder salespeople: they know what services I provide, and I know what our respective roles are in the entire process. I know the specific areas where I can make progress in negotiating on your behalf. I have very productive relationships with numerous builders – since I’ve been a productive source of business for them, they work with me to make my buyers happy.

How I fulfill your housing needs •

I spend considerable time with buyers determining whether they want a new or existing home, a custom or tract home, or something in between.

Toolkit - page 11

REBAC Successful Buyer Representation in New-home Sales • • • • • • • • • 5.

I can help you conceptualize custom homes that you want to build, including architectural style, size, dimensions, lot size, and landscaping. Once we identify what you want, I can select several builders who are most likely to be able to produce what you want. I can match you up with builder sales consultants who can convert your visions to actual drawings and construction estimates. I maintain a database of subdivision profiles containing critical data on every tract around here. This enables you to quickly compare alternatives. I can point out adverse and advantageous features of a property, neighborhood, or location that a builder or sales representative may not mention. I can point out positive and negative features of custom building options builders may offer. I can pull public subdivision reports on any subdivision you are interested in so you can be more fully informed about specific data. I can apprise you of any financing complexities that may exist with a subdivision, such as a floating bond running with the property. I can give you a report on any builder available through the register of contractors.

How I protect your interests • • • • • • • • • • • • • •

I can discuss with you all of the CC&Rs on a particular subdivision and how they affect your rights and usages. Before making an offer, I will discuss with you all documents that you must sign prior to taking title. I can explain to you the builder’s deed and how it may differ from general warranty deeds used in existing home sales and explain the builder's warranties. I can alert you to special title considerations that may not be provided for at closing, including title insurance and protection against mechanics’ liens. I will ascertain exactly what happens to any deposit moneys and seek to have deposits placed in escrow. I will maintain a paper trail of builder correspondence and commitments to track what the builder promised to provide. I will bring to your attention the general meaning of special builder-slanted contract clauses so you understand what you are committing to prior to the offer. I will strongly suggest that you arrange for independent inspections of the home at certain critical stages of construction. I will investigate the progress of certain facets of subdivision construction such as street dedications and a boundary survey. I will confirm the warranties of manufacturer’s products and systems placed in the home. I will obtain environmental hazards disclosures from the builder. I will ensure that you obtain other disclosures that may be required or that you may desire, including such things as Megan’s law, pests, pollution, etc. I will help you establish a pre-closing punch list, then I will follow up with you to help ensure that all items are completed to satisfaction. If the punch list is substantial, I will try to negotiate a withholding of part of the purchase price until completion.

Toolkit - page 12

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