Your Trusted Real Estate Advisor

Previously I mentioned the notice most builders have in their sales office that says "If you are working with a real estate agent, they must accompany you on your first visit" or something similar. Why do they say that?

Builders are in the business to build homes and sell them.  If they can sell them by themselves, without having to pay a Realtor® a commission, they will make more money. That only makes sense.

Builders advertise their products in the newspapers, on TV, on their web sites, and in a variety of other ways. That all costs them money, but it is worth it if buyers come in because of the ads. They don't want to pay a Realtor® a commission if it was their ad that brought in the buyer, not the Realtor®. That also makes sense.

In addition, I know that some builders have had problems with a real estate agent coming it to say that Mr. & Mrs. Jones were his clients (because he has a Buyer Agency Contract with them), and he wants to be paid, even though he had nothing to do with their visit to the builder's site.

At other times, more than one real estate agent has come in claiming to have the same client. In every field there are those who will try to work the system and get something for nothing.

All this led some Realtors® and builders in the 1980's to start an organization in Denver (which has since spread elsewhere) called the Builder Realty Council (BRC).  The BRC developed a set of guidelines to help both entities.

Realtors® could know they wouldn't lose clients and income if their clients wanted to see new homes. Builders wouldn't have to pay a commission if their own marketing was what brought customers in.  It has worked well for over 20 years.

Builders advertise to Realtors® also. They want our business. That's why I received the email ad I mentioned last time. Somewhere around 70% of the new homes sold in the Denver area are sold with the cooperation of Realtors®. Without those sales, the builders would be hurting.

I am proud to be a member of the BRC. I'm glad there are rules that enable me to be paid for the work I do in taking clients to see new homes as well as resale homes.  This month I will close on two new homes with my clients, and another one next month. Cooperation with builders and the BRC has helped make that possible. It is a win-win-win situation for my clients, the builders, and me.

Did you know you can log onto www.SchoolMatters.com to find all the answers that you need to know about any school or school district nationwide? Whether you are just curious or planning to move soon, this great site has all the statistics and information you need about local schools here or in your new neighborhood, to help you make decisions and ensure that your children end up in the right school.

Want to know the enrollment size of the school, test scores, teacher-student ratio, English and Math proficiency percentage information? No problem, the site will provide all of that information and more. And if you want to compare schools in different locations, simply select the top schools of your choice and perform a comparison.

And if your upcoming move requires relocating to a new state, you can even find out statewide educational information. Enter the state you would like more information about, hit go, and receive detailed information about the educational system, including a breakdown of how students performed on state reading and math tests as well as college prep tests, and community demographics. And even if you're not planning a move, this is interesting data to have on your home state anyways!

If a move to a new school district is on the slate for your family, taking the time to do some research will help ensure the experience is a good one. And remember to forward this article on to family or friends who may be contemplating a move. They - and their kids - will thank you for it!

Of course, if you are planning a move, call me. I’m here to help you, and I can refer you to a competent broker in another location.

What comes next after you decide to buy a builder's new home? It depends. At what stage of the process is that new home you want to buy? Is it complete, ready to close? Is it at the "drywall stage", where all the structural parts of the home are done and what remains is the "finish" work? Or is it a "dirt start"?

The last three builder's new homes I have helped my clients buy were all complete and had been sitting a while. Today I will start with this situation and leave other stages for later.

This is really the best stage at which to buy a new home if getting the home at the lowest price is your primary motivation. Builders are sometimes stuck with "spec homes" (homes without a known buyer built on the speculation that they will sell sometime before the home is complete). Other times a buyer has contracted to buy the home, has picked out the upgrades they want, and then for some reason can't complete the deal.

In both cases, the builder wants to get rid of the home, even at a heavy discount if necessary. You get a home that is ready to go, and you can see what you will get. The main disadvantage is that you don't get to pick the colors, upgrades, and options. What you see is what you get.

At this stage, here is what comes after your decision to buy the home:

• You sign the contract and a lot of other documentation (mostly these are acknowledgments that you have received certain records such as a soils report, affiliated business arrangements, warranty disclosures, HOA documents, etc.). You'll also give an earnest money deposit as required by the builder. Each one differs on the amount and other requirements. This will be applied to your down payment and closing costs.
• The builder's sales representative forwards the contract and other documents to the person who has the authority to bind the builder on the contract (such as a "vice-president of sales"--the sales representative's signature does not imply final acceptance by the builder).
• You apply for a loan. You will probably be offered incentives to use a lender (and sometimes other businesses) affiliated with the builder. You can use whatever lender you want, but the incentives are usually only available if you use their lender.
• The builder schedules an "orientation walk-through" and the closing. At the orientation walk-through the construction superintendent goes over some further information, walks through the house with you to explain what you need to know to keep you home well maintained, and also marks any items either of you sees that might need some attention before closing. Those items are listed on a "punch list" so both you and the builder agree on what will be done.
• I always recommend that my clients have an inspection of their own, with an inspector they hire, prior to this walk-through. It is worth the extra expense to get a professional inspector (who knows what to look for). Even though the builder will have had multiple inspections of their own, it is possible for something to have been missed by everyone who has previously gone through the house.
• After your loan is approved, the title company and lender reconcile their figures and notify you of the final amount you need to bring to closing. You will need to take a cashier's check (not a personal check) in that amount to the closing.
• Just prior to the closing you will have a final walk-through with the construction superintendant to make sure all the work on the punch list has been done. Because of timing, some items may not have been done, so you will get something in writing stating when it will be done after closing. For example, weather might delay final landscaping until days or even months after closing.
• At closing you sign more papers, receive even more documentation, and hand over your cashier's check for the rest of your down payment and closing costs. You are then given the keys to your new home.

I am with my clients at each stage of this process, from the first visit to the builder's site through the contract, each walk-through and closing. This is one more reason to ask me to be your agent--even in the purchase of a builder's new home.

Builders are selling their own products, the properties they own. Therefore they can have their attorneys design their sales contracts. Those contracts are, naturally, designed primarily to protect the builder’s interests.

Realtors® sell someone else’s home, not their own products. The contracts we must use have been designed by the Colorado Real Estate Commission. They are designed to balance the competing interests of the Buyer and the Seller. The Realtor® is involved in the transaction as a broker (usually as an agent for one of the parties), but is not a party to the contract.

That’s the major difference between buying a home from the builder’s sales representative without an agent representing you and buying that same home with an agent on your side. When I am an agent for a client buying a new home, I know what the Commission-approved contract does to balance the needs of both parties. So I know what to look for in the builder’s contract that might give more weight to the builder’s needs than the buyer’s.

Most of the time there isn’t much one can do to change the builder’s contract. You either buy their home using their contract, or you don’t buy it at all. However, I am able to help my clients understand what they are getting into, to ask questions they wouldn’t know to ask, and to prompt the sales representative to explain something that they just said. I know most of my clients don’t work with real estate contracts daily, and their eyes get that blank stare as the contract is explained to them.

I was surprised to hear from one builder’s sales representative how rare it was that I was there with my clients as she went over the contract with them. She said almost all of the agents who bring their clients in to buy a new home take do not stay while she prepares and goes through the paperwork. They still expect to be paid, but they don’t want to take the time to stay with their clients through this critical time.

In addition to considering it my fiduciary duty as my client’s agent, I’ve found it is very helpful that I’m there, even if I don’t have to say anything. My clients hear some of what is said (almost like hearing a foreign language), process it as well as they can, and look to me for a signal that it’s OK to sign the form.

If you plan to buy a new home from a builder, and you have an agent (which you have seen is recommended), that agent should be with you at contract time, at the “orientation walkthrough”, at closing, and at any time you have a problem with any aspect of the building process. Builders pay us to bring you in to be their customer. Our clients choose us to be their agent and to represent them, guiding them through a very stressful and confusing time. Insist that your agent does his or her job.

Yesterday I received an email from a builder about one of their new developments.  Since my clients often want to see new homes along with resale homes, I try to keep up with the new home market.

On the builder's web site under "Frequently asked questions" was this question: "Do I need a real estate agent to buy a new ***** home?" Their answer is "No, you do not need a real estate agent to purchase a new **** residence. Our experienced sales staff can assist you throughout the home buying process."  They are right, of course; and they are also wrong.

You don't need an agent to represent you when buying any new home from a builder in the sense that one is required by law.  You do need an agent to represent you though in the sense that you could be at a great disadvantage without an agent. 

The "agent" for the builder is the sales person you meet at the sales office.  The key words in that last sentence are "for the builder".  She is working for her boss, the builder, not for you.

When I take my clients to a builder's sales office, I am an agent for the buyer. I work for you, not the builder.  Most home buyers negotiate with a new home builder maybe once in a lifetime.  I negotiate with new home builders for my clients several times a year.

So, although you may not "need" an agent to purchase a new home, you definitely need someone with experience to guide you through the maze and protect your interests.

One more thing today.  If you want to look at new homes, call me first. Most builders have a notice posted that to be represented by an agent that agent must accompany you on your first visit to that builder.  I can represent you (and the builder will pay my fee), but I need to take you to the builder's sales office on your first visit there. 

Other questions about this?  Call me.  More in the next post.

In the prior two posts I discussed how different subdivisions can have different tax rates and what taxing districts contribute to the total tax rate. One of those taxing districts is a "metropolitan tax district". What are they and why is it important to know about them?

A "metro district" as it is sometimes called is a particular kind of legal entity that has the power to levy taxes on the properties within its boundaries. They are sometimes used to get the infrastructure in a new subdivision started--including streets, water and sewer lines, etc.

You can imagine that it takes a lot of money to go from a piece of raw land to a subdivision that is ready for homes to be built on it. Think of a home set it the middle of a 5-acre lot in the country. What would you have to do on that lot before starting to build your home?

That's what a developer must do--survey, plot a development plan, get permits, grade the land, build streets and sidewalks, put in utilities and more before building even one home. To get the money to do all of that, the developer might form a metro district that can sell bonds. The bonds will be paid back from the taxes levied on each of the homes built in that subdivision.

This is where a problem might arise. The Colorado Contract to Buy and Sell Real Estate has a section the legislature requires to be printed in all-cap bold type called "Special Taxing Districts". This paragraph was added after some infamous cases in the late 1980's and early 1990's where homeowners became liable for taxes that were impossible to pay. Bankruptcies and court fights finally were settled, leaving those areas with high taxes but not so high as to be impossible to pay.

The homeowners were stuck because the special taxing districts were required by law to raise enough money from real estate taxes to pay off the bonds they had sold. But because the housing market crashed, districts that counted on 1,500 homes for their tax base only saw a few hundred homes built. They had no legal choice but to raise the levy on all the existing homes.

In those cases, homeowners couldn't pay the taxes and couldn't sell their homes until the cases were settled. It was a mess until it finally worked its way through the courts.

The point for homebuyers here is to pay attention to Section 8.d. of the Contract to Buy and Sell Real Estate which is in BOLD ALL-CAP TYPE. Your Realtor® may know something about it but for your safety, know that it says the buyer should investigate the financial stability of these districts. This is a good place to have a real-estate attorney's advice.