How does a Realtor get paid on New Construction
Being the buyers agent on a new construction purchase can be a roller coaster ride. And we’re not talking about an exciting, edge-of-your-seat, “let’s go again!” ride. We mean a journey filled with unexpected twists and turns where unfortunately most things are out of your control.
If you’re a buyer’s agent with a client that’s interested in a new construction property (or even the actual buyer), understanding realtor commissions in the context of new construction is critical and we’ll dive in below. Here are a few topics that we’ll be covering:
- Total Commission on New Construction Purchases
- Splitting the Commission between agents in New Construction Properties
- Advantages of a Buyers Agent
- Is A Buyer’s Agent Allowed To Offer A Commission Rebate
- When Does The Buyer’s Agent Get Paid With New Construction
- What’s A Procuring Cause
The first point to understand is who pays realtor commission on new construction. The builder is who pays the commission which puts them in control of deciding who earns what, but that doesn’t mean that a buyer’s agent is powerless to negotiate.
Total Commission on New Construction Purchases
For most new construction projects the agent commission structure (including commission percentage) are agreed upon prior to the project even starting. It makes sense because builders are extremely budget conscious and financial models are typically built with every possible known value so builders (and their investors) can understand and track the expected outcome of the project.
Here are some key points to note when it comes to the realtor commission structure for new construction:
- The commission is usually lower than in traditional homes, often fluctuating between 2.5% to 5%.
- The commission rate does fluctuate depending on factors like market growth, location, project size, and competition level
- The Realtor commission on new construction usually involves a split between the buyer’s agent and the builder’s representative, often on a 50/50 basis…but this is not always the case.
- Some builders offer no commission, forcing agents to negotiate fees or drop their representation, while others offer incentives or tiered programs to boost agent engagement.
- Builders often offer lower commissions vs traditional transactions due to the general interest in new construction among buyers and builders’ tight budget and financial risk involved. If a builder thinks they can cut a percent off the buyer’s agent commission, and add a percent to the overall profit of the project offering often aligns with market realities, aiming for a profitable balance.
We’ll cover the various splits in the next section.
Splitting the Commission between agents in New Construction Properties
Understanding ‘how does a realtor get paid on new construction’ pertains to how commissions are divided. Here are the different commission splits agents can see on a new construction transaction:
- Even percentage split: the buyer’s agent and the builder’s representative split the commission 50/50
- Uneven percentage split: usually the buyer’s agent gets the lower amount when there’s an uneven split.
- Fixed Commission: It is a predetermined amount, regardless of the property’s selling price.
- Hybrid Commission: It’s a mix of percentage and fixed commission structure.
- Multi-party commission: the split is across several agents and brokers
In the case of a basic split, the commission paid by the builder is simply divided between the buyer’s agent and the builder’s representative. Often, this split follows a 50:50 ratio but it may vary based on the negotiation skills and agreements in place.
Advantages of a Buyers Agent
Remember, the listing agent’s primary responsibility is to the builder. That doesn’t mean that they can’t navigate a win-win for both the buyer and the builder BUT there could conceivably be a situation that, if forced, a listing agent will sacrifice the buyers best interests in order to better serve the builder.
That’s why a buyer’s agent serves as a valuable advocate and negotiator for the buyer behalf. If hiccups arise – say disputes about construction quality, delays, or finish options, your agent will step up to bat for you. Given the listing agent’s commitment to the builder, they are unlikely to push your concerns wholeheartedly. And when it comes to negotiating a better purchase price? An assertive buyer’s agent would have experience and negotiation skills to assist.
Navigating a new construction purchase as a buyers agent can present hurdles that aren’t typical to traditional purchases. This holds true especially when dealing with your commission. Not only do commissions on new construction differ significantly, but each new construction development can have completely different commission structures. Hopefully this post addressed some of the key questions when it comes to the commission a realtor earns when representing a buyer purchasing a new construction home.