In Tucson, when a potential buyer goes to a new home subdivision, that buyer will be asked to what is called, “sign in”. Sometimes the buyer is told the builder likes to know who comes and goes into the subdivision. Being polite, most people comply with the request.
In small letters is a sign someplace in the site agent’s office, stating, “If this is your first visit to our community, your Realtor must accompany you”. Most people never see that sign. What does this mean to you the buyer and how does it relate to builder financing?
Upon signing in, you, the buyer, give up your right to representation. The site agent has a fiduciary responsibility to the builder, not to the buyer. If there is a problem, the buyer has no representation. Arizona Agency Law prevails. Most new home site agents never tell consumers upfront, if they do not use a real estate agent, they, the consumer, have no representation.
And so, during the frezy of 2004, 2005 and a bit of 2006, buyers swamed to new home subdivisions, gave up their rights unwittingly, and felt that the site agent was representing their interests. The duty of the site agent is to sell homes and as part of that, site agents refer potential clients to the builder’s financing and often tied incentives for the home to using the builder’s lender.
Each builder had it’s own “lender”, often a big name lender who went by another name. KB Homes used Countrywide and called it KB Mortgage, US Homes had its mortgage company, Pulte had theirs.
The emotions of purchasing a new home are high. When a buyer signs many contract documents, the agency disclosure if often overlooked and not explained fully. Typically it is buried in the package of documents buyers sign when purchasing a new home.
Many people, now in foreclosure or teetering on the edge, were people who purchased homes in new home subdivisions without the benefit of representation. They did not have someone to explain the costs of a loan, what an 80/20 loan is, and how will an 80/20 loan impact them with an adjustable interest rate.
These are important considerations a buyer must face. A loan of $300,000 with 80% down fixed is $240,000 fixed rate mortgage. The 20% adjustable which often begins at a teaser rate, is $60,000. The fixed rate at 6% on the $240,000 is $1438. and the teaser rate at 4% on the $60,000 is $286.45. The combined loan, both amortized over 30 years is $1724. When the adjustable jumps to 8.75%, the new cost on the second is $472 bumping the total payment to more than $1910. In many instances rates for the second more than doubled.
Although the lender is “independent”, that lender tacitly is working with the builder to sell more homes and bank more loans.
A good real estate agent will explain various methods of financing to a buyer. In some instances, it is better not to use the builder’s lender. Most people do not understand financing, they rely upon professionals to help them, just as I rely upon my mechanic to fix my car.
People purchasing a new home especially should rely upon a Realtor who will sign in the buyer and follow the transaction closely.