The short answer is: no.
A slightly longer answer is: no, absolutely not.
But considering that this advice is being provided by a real estate agent, perhaps further explanation is required.
By way of background, consider the difference between “distributive negotiation” and “integrative negotiation.”
During an integrative negotiation, the parties are attempting to find common ground and a path that provides positive outcomes for both of them.
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But is that how real estate transactions work?
Every dollar that goes to the seller in a transaction is one that does not go to the buyer, and thus most negotiations in real estate are, in fact, distributive.
But negotiating the price of a home, in this case, a builder home, isn’t the only way that a real estate agent can assist a buyer. There’s so much more that goes into buying a new home that simply the purchase price.
And while I don’t want to suggest that every home-builder out there is looking to cut corners, hide defects, and pull the wool over a buyer’s eyes, suffice it to say, every time that a builder is required to fix, implement, correct, or provide to a buyer, it costs them money. So can’t we then assume that some builders will work against the buyer’s best interests?
Do you have more questions about buying a home in Toronto? Check out these posts next:
- Condo Townhouse Vs. Freehold Townhouse: What’s the Difference?
- What to Look For When Buying a Home
- Should I Buy a House That’s Been on the Market for a Long Time?
An Example:
By way of an analogy or parallel, consider what it’s like for a unrepresented buyer to walk into a pre-construction condominium sales centre and speak to the agent who’s “working the floor.”
That agent is employed by the developer, first of all. So to think that you’re going to get unbiased, conflict-of-interest-free advice is misguided.
But that floor agent also isn’t in the business of representing buyers in their purchase, and thus that floor agent wouldn’t know what to ask the developer, even if he or she wanted to – which they likely wouldn’t regardless.
Is that floor agent going to discuss the perils of purchasing pre-construction condominiums?
Is that floor agent going to talk about condo cancellations, delays, deficiencies, or all the pitfalls therein?
Is that floor agent going to advise on the massive discrepancy between pre-construction condo prices and that of comparable resale?
Of course not.
Because the floor agent works for the developer.
So in the case of purchasing a new home from a home builder, consider that there isn’t even a “floor agent” to act as a buffer. In fact, the buyer is walking right into the lion’s den when he or she chooses to buy directly from that builder.
As a buyer, having a real estate professional on your side is important. But can a real estate agent represent both the seller and the buyer in a transaction? Read our blog about dual agency in real estate here.
How can this not be considered a conflict of interest?
Sure, there are all kinds of reputable builders out there. I would argue that builders with two or three decades in the industry couldn’t have made it that far if they were fly-by-nighters who screwed their buyers over, time and time again.
But that can change when the market changes, when prices decline, and when profits dry up. Not to mention, there are all kinds of homebuilders who haven’t spent decades forging a brand name for themselves, and this is why a buyer absolutely, positively, needs representation.
An experienced real estate agent has likely worked with dozens of buyers of new construction freehold properties and thus knows exactly what to look for.
There are many ins and outs to buying a new construction home. If you have questions, read these posts next:
- New Construction Vs. Resale Home
- How Much Does it Cost to Build a House in Toronto
- What is an Infill House?
Common things to flag
Where are the frequent trouble-spots? Where do builders cut corners? What is the difference between one type of material or finish versus another, and is there value therein for the buyer?
What about rental items in the property? How does this affect the buyer’s carrying costs moving forward?
What is the property actually worth? Perhaps that’s the greatest conflict of interest that exists. Surely, we can’t expect that a home builder is going to put together a Comparable Market Analysis (CMA) for the buyer showing that the property is only worth 90% of the list price, right?
And then what about the TARION warranty? How does all that work, and who’s better at explaining it: the agent representing the buyer, or the builder who has to make repairs on behalf of the buyer, once a claim is filed with TARION?
I remember back in 2017 when the market turned, a friend of mine had a colleague who was looking to purchase a home directly from a builder.
My friend called me and asked, “Is it normal for the builder himself to hold on to my deposit?”
As soon as he asked me that question, I knew there was a problem.
In resale transactions, the deposit is always held in the listing brokerage’s trust account. That makes the funds “safe and sound,” as the money can’t be released without a successful completion of the transaction or a court order. When condominium developers pre-sell units, those deposits are held in the developer’s lawyer’s trust account.
So imagine what kind of reg flag flies up when a developer wants to hold the deposit in his own bank account?
Speaking of red flags, here are a few more you should consider when buying a home:
- Condo Doc Red Flags: What to Look Out For
- Things That Fail a Home Inspection
- What Not to Do Before Buying a House
How would any Average Joe Buyer expect to know the ins and outs of a real estate transaction, let alone one as complicated as new home construction?
Does the “ten-day cooling off period” apply to the purchase, as is mandated by the government who has enacted legislation to protect consumers? Will the home builder inform the buyer and walk them through this?
What about the “pre delivery inspection,” or PDI? Will the home builder explain the entire TARION warranty to the buyer, walk them through the inspection, and help them file a TARION claim for anything that looks awry?
How in the world would the unrepresented buyer know what “looks awry” anyways?
I can’t think of a bigger conflict of interest in real estate than an unrepresented buyer purchasing a home directly from a home builder, no matter the time, place, product, or builder himself.
This is true regardless of whether the market is up, down, or flat.
Knowledge, experience, and representation never goes of out style, and never expires.
Whether you’re thinking about a new construction or buying a resale home, TRG can help. Get in touch by filling out the form on this page, calling us at 416.642.2660, or emailing admin@torontorealtygroup.com.
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