New Home Builder Commission: Who Pays & How It Impacts You

Many new home buyers mistakenly anticipate that if they approach the new home builder or his representative directly, they can negotiate and pay a lower price for a home. They wrongly assume that they will avoid having to pay Realtor commission on new construction and therefore lower the price. To the surprise of many new home buyers, builders pay Realtors a commission, and the commission system can work to the advantage of the buyer.

Duties of Builder’s Representation

Almost always when a prospective new home buyer visits model homes at a new home development, there is real estate agent on site. That person asks the prospective buyers questions, directs them to view the models, helps draw up the agreement if a prospect decides to buy and, most important, is a representative of the builder and/or developer.

Yes, the agent is required to disclose all known defects. However, that agent is not a neutral entity. The builder's representative serves the interests of the builder.

​Consider also​: How to Build Your Own House

Duties of Buyer’s Representation

A buyer who may be interested in purchasing a newly built home can arrange for his interests to be represented. One method is to take a Realtor along during the first visit to the new real estate development. Some prospective buyers do not want to trouble a Realtor to accompany them, especially if they feel they are merely looking with no real intent to purchase. The downside of not bringing your own real estate agent along is that all the information the prospective buyer receives is filtered through the builder/seller's agent.

Another issue is that the first visit to a new development typically sets a chain of events in motion. Many home builders insist that, for the prospective buyer's Realtor to receive a commission, that Realtor must attend the initial visit with the prospect.

Some builders will accept an alternative. They may permit the prospective buyer's agent to phone ahead and preregister. They may also acknowledge that the buyer is represented by a Realtor provided the unaccompanied buyer presents his Realtor's business card upon entry and before touring model homes.

Builder and Realtor Agreements

For home builders, paying commissions to a real estate agent who represents the buyer is usually good business. When the builder pays commissions, Realtors show the homes. This gets the properties sold more quickly and helps reduce builders' marketing costs.

In many real estate markets around the United States, Boards of Realtors and builders' associations join in written agreements that act on behalf of their mutual support. Builders may commit to not lowering prices when the paying of commissions is avoided.

Realtor Commission on New Construction

Realtor commission on new construction is based on either the base price or the sales price of the home. Definitions can certainly vary by builder, but in many instances, the term "base price" refers to the price of the house without any added upgrades. If the new house is priced with a dirt backyard, with a low-grade carpet, plastic window blinds and off-white paint throughout, that is a base price.

With a base price commission, the Realtor's commission hinges on that base price, even if the buyer upgrades countertops, flooring and window treatments. A commission based on sales price hinges on the base price plus the upgrades.

​Consider also​: What Is a Reasonable Commission Fee for a Real Estate Agent?