Home buyers often question if Realtors can actually contribute to a lower sale price on the purchase of a new home. They recognize that Realtors have knowledge of contracts, but other than listing a property on MLS and helping obtain signatures do they actually provide any benefit? This question is no more apparent than in the purchase of new construction where builders have established a process that is effortless permitting potential buyers to visit and purchase their homes. Potential buyers can speak directly with a sales representative and view a breakdown of prices along with the upgrade options. If a Realtor is involved they believe it will potentially reduce the savings potential since they are ultimately paid by a builder.
At CCLR we have performed a study using actual homes sales to determine if Realtors really do impact the final sales price for new construction. Below you will find two sets of data. Each set was a random selection of over one hundred new construction sales throughout Houston and the surrounding suburbs. The builders were a mix of national organizations like Toll Brothers and Meritage Homes along with regional builders such as Perry Homes.
At first glance the data doesn’t appear to exhibit many trends, however upon closer inspection there are a few. The first trend is that the higher the listing price the higher the probability a buyer will be utilizing a Realtor. Another trend shows that for homes below $200,000 the builder appears less willing to accept an offer that is significantly below the list price. We believe these two trends are not anomalies but instead actual behavior by both buyers and builders. Similar to luxury vehicles the mark-up is generally larger on higher end homes thereby limiting a builder’s ability to drop the price. At the upper end of the market buyers may be less concerned with shaving a few percentage points off the list price. Both of these trends would most likely evident even if additional data points were included in the study.
Below is the statistical result and two plots showing a normal distribution of the data utilizing a statistical bell curve.
Foregoing a Realtor:
- % of List Price (Average): - 5.37%
- Study Accuracy: 0.495%
- Median: - 4.50%
- Standard Deviation: 5.54%
Employing a Realtor:
- % of List Price (Average): - 6.57%
- Study Accuracy: 0.609%
- Median: - 6.00%
- Standard Deviation: 5.03%
The study clearly indicates that using a Realtor will provide a buyer with a 1.2% savings off the current list price of a new construction home. This amounts to between $1200 and $6000 in savings for the range of home values utilized within this study.
Beyond just the average savings there are a few other significant differences as well. The median sale price when foregoing a Realtor was – 4.50% of the list price. Over 50.4% of all sales by these buyers yielded a savings of no more than 4%. Contrasting this with buyers that employed a Realtor only 38.4% of buyers performed as poorly.
The data is undoubtedly weighted towards a smaller savings off the list price when foregoing a Realtor. This is primarily caused by the 28.3% buyers that purchased a new construction home that paid more than the advertised list price. Only 9.8% of buyers that employed a Realtor paid above the list price on a new construction home.
Lastly, regardless the buyer 17% of the home purchased yielded a savings of over 10%. This would indicate that educated and savvy buyers do have the potential to save significant money regardless if a Realtor is present. By selecting the correct property and having good negotiation skills any buyer has the potential in obtaining a significant reduction in the list price.
The data clearly reveals that Realtors actually improve a buyer’s odds in saving money and obtaining a lower sales price on a new construction home. By utilizing a Realtor the buyer will most likely yield a savings between 1-10% off the list price with the average between 6 and 7 percent. For those buyers determined to purchase without the aid of a Realtor our suggestion is to not accept just any offer provided by the builder especially if the savings is below 4%. Becoming emotionally attached to a new construction home is the worst possible scenario for a buyer and places the builder in a position of control. There are numerous homes for sale so shopping combined with skilled negotiating tactics is critical in obtaining a savings on a home.
In closing, new construction contracts provided by builders are meant to favor the builder so don’t accept everything you are told by a sales representative. Read the contract, understand each section fully, and feel free to seek changes. You also have the right to take a copy of the contract and have a lawyer review before signing.
Additional Information and Studies Available at CCLR:
New Study - Relationship Between Housing Costs and Public Schools
Has The Economy Caused Property Tax Revenue To Fall?
How Accurate Is Zillow - New Study of Actual Home Sales Says Not Really
