“Mr. Builder, I don’t have an agent. Where’s my discount?”

This is a common and reasonable home buyer question but the fact is that reputable builders simply can’t comply with this request.

The basis for the argument is: since the buyer does not have an agent, and the builder already has that non-existent agent’s commission built into the sales price, the buyer ought to be able to get that percentage as a discount.  In a way the argument makes complete sense, and  since this is not a widely explored topic in real estate writings, I thought it might be helpful to address it here. Below are a few of my observations and I’ll keep it limited to the most important pieces of this discussion.  Also let me say that while these are simply my opinions, they are based on a decade of new home sales as well as numerous discussions with the quality builders I have worked with.

#1: Around seventy percent and more of Colorado builder’s total sales are to buyers who are represented by agents.  If a builder started “cutting out” the agents at the request of the buyer, it could have an impact on the seventy percent of sales involving agents.  The agent representing that buyer has often worked tirelessly, sometimes for months in order to find the right community and home in Colorado Springs, Falcon or the West Side.  Can a builder willing to circumvent that existing relationship be trusted in other matters involving something as important as a new Colorado home?   Besides, the efforts of a professional Realtor acting as a buyer’s agent generally make a transaction go much smoother for buyer and seller.  There really is no upside to cutting these deals from the builder’s perspective. However, in my career, I have seen a builder or two “experiment” with commission offsets similar to what was described in the article opening – generally with a range of unintended, negative outcomes that are beyond the scope of this piece.

#2  Colorado builders run cost centers, just like all businesses. They have to be able to anticipate all costs in delivering a final product in a competitive marketplace.  Based on experience, they add real estate commissions into their total costs for the percentage of represented buyers they anticipate seeing in a given fiscal period.  They have already budgeted on known ratios in their given area.  Contrary to the assertions of some, the owners of a building company do not go to Hawaii for a party every time a home is sold to a non-represented buyer.  Real estate commissions are P&L line items, just like lumber and concrete.

#3: Perhaps most significant of all,  experts have raised concerns more recently about the potential problem of a builder offering discounts based on the argument above to one customer, but not ALL others.  Not treating all buyers equally is considered at the very least to be a bad business practice, but the consequences could actually go much further than that.

So here’s a scenario of how this situation often presents in real life: a home buyer goes into a builder’s sales office to buy without an agent and attempts to negotiate this condition as grounds for a sizable discount.  He ends being offered no discount beyond the normal amount offered. He goes to another builder and gets the same answer, “no.” Often this answer is not explained in much detail.  Many on-site agents do not have the authorization to address the discount question in detail. And that lack of a detailed answer regarding “why no discount” may be  irritating to our buyer in the scenario, because he feels that his argument for the discount makes complete sense.  So not only is the buyer often frustrated when he eventually gets to contract with a builder, but he saved nothing for all the effort of finding his own home.  Most importantly  – he did not have representation in his purchase transaction.  I think any reasonable person would agree that this is simply not a winning approach for our buyer above. 

One of my goals as an agent is to make a solid case for buyer representation.  It is a good case, and an easy one to make simply by sticking with the facts.  Buyer representation aids in creating a much more well-informed consumer. That informed consumer makes our real estate market healthier, which is a win-win for everyone.  The topic above is an ideal example of  a well-intentioned consumer seeking the best value for his purchasing dollar, but in the end had to do all the work, took all the risk of finding or not finding out everything on his own, found the right community and home on his own, and essentially was no better for all the heartburn. It’s something to think about for sure.