Builders, Realtors, and Your Lender
Working with Builders while using your Realtor and Mortgage Loan Originator
So you want to purchase a brand new home. The home you want is going to be built in a brand new subdivision. You sit down with the salesperson and you go over the floor plans. He takes you and your fiance to see the model homes and you walk through the showroom. The room looks amazing and you are overwhelmed by the new home smell and the thought of you and your family having your very own new home. Now, it’s time to discuss price. You have already done your homework and you’ve been pre-approved by your Mortgage Loan Originator. You already know what you are looking for. The salesperson tells you that you’re going to get $15,000.00 in upgrades for free or he tells you that you’re going to get $8,000.00 towards your closing costs. You leave, you think about it, and you go over your finances. You and your significant other decide on it and go back to agree on the price and you now want to sign the contract and move forward, but when you go to sign, the salesperson says “Oh, but that incentive is only if you use our preferred lender.”
There are two scenarios that come out from this situation and most of the time, the buyer caves in and just goes with the “preferred lender.” What would you do if I told you that this is something the same thing as negotiating with a car salesman? Would you just use the in-house lender at the car dealership because the “sales price” is only available for customers who use their lender? No. That actually sounds ridiculous when you think about it. So why do buyers cave in when going to a builder? The other outcome is that you stick to your plan and negotiate the price, closing costs, and tell them that you’re using your own lender.
Recently, I have seen three builders and three different outcomes. I don’t know if I should call out the builder, because we are actually doing business with them now. Here are the three different outcomes:
The Builder works with the lender without hesitation:
“ABC” Homes worked with my buyer without hesitation. The salesperson did offer their in-house lender, but when the buyer said that they have their own lender and that they are not going to use anyone else, she (the salesperson) did not give my buyer any grief and she still gave my buyer the entire $15,000.00 in upgrades. I commend this builder for their actions. This is how you expect to be treated.
The Builder doesn’t give the buyer an option:
One of my buyers went to a builder and wanted to use their own lender and they were told that they have to use their in-house lender or they will not get the $15,000.00 towards their closing costs. The buyer did not want to fight for their right to use their own lender. They basically took the builders word as gospel and went along with it. This seems to be the most common outcome and that’s why the builders still use this approach with working with their customers.
The Builder negotiates with the buyer:
I had a buyer go into “XYZ” Homes with a realtor and with my pre-approval letter to negotiate a new Town Home. The builder told the buyer that they would give her $8,000.00 towards closing costs and gave her a price on the home. This particular day, the buyer and the realtor had been home shopping that day and they saw several homes. The price and the closing costs were compared to the other homes they saw that day. She decided that the best value was to use the builder, but when they went back to sign the contract, the salesperson said: “that’s only if you use our lender.” He did not disclose to the buyer that using the in-house lender was the reason for getting $8,000.00 in closing costs. The buyer was young, but not a pushover. Her, her Mom and the Realtor negotiated for several hours with this salesperson. He tried to strong-arm the buyer, but the final outcome was $3000.00 towards closing costs and several thousand dollars off the purchase price. Most buyers would’ve caved in and just used the in-house lender.
The CFPB has cracked down on Mortgage Brokers, Processing companies and Realtors. I think the next wave of crackdowns may be on Title Companies and the cozy relationships between Builders and “Preferred Lenders.” The buying experience shouldn’t be horrible for the buyer and they should be able to use the finance lender of their choice, just like when you go to the car dealership.
Pro Tip #1: A builder who says that they’re giving you “free” money, but then adds the money to the purchase price is NOT giving you “free” money.
Pro Tip #2: A realtor has an incentive to make sure you get the best deal from the builder over the salesperson who works for the builder. So, make sure you have that representation on your side.
Pro Tip #3: Some builders own their own mortgage company, so they have total control over the entire process. Do your homework. Make sure you know about the builder you’re about to do business with.
Pro Tip #4: If you’re not ready to get pre-approved today, don’t sign a “cash contract” on a home just to lock in that lot and home purchase in. If you sign a “cash contract” and don’t have the cash to pay for that home when it’s complete, you will lose your deposit. And the deposit on a new construction build is not $1000. It’s a lot more than that.
Thank you for reading. Tell us about your experience with builders.
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