Chapter Three: Another Change to the Deal
A builder's compensation addendum looked like routine paperwork, but it could have changed what my clients were responsible for bringing to closing.
By this point, we'd already made some pretty significant changes to the original deal.
We'd negotiated the purchase price. Then we had to navigate the sudden multiple-offer situation, which caused us to increase our offer. As if that wasn’t enough, then we agreed to move forward without the contingency protecting my clients if their current home didn't sell.
I thought we had worked through the major sticking points, but then the builder sent another addendum.
This time, it was about compensation. And while it might sound like something that only affected me as the agent, it actually had the potential to affect my clients financially, too.
If you've never bought a new construction home with an agent, just know that the builder's contract isn't the only paperwork you'll see during the process. There can be addenda for financing, closing costs, incentives, design selections, timelines, and agent compensation.
In this case, the builder presented an addendum that limited the compensation they would pay toward my representation to a percentage of the base price of the home, which unbeknownst to me, they had just reduced.
After so much negotiating It went a little something like this:
“Hey Jess, you do know that the compensation the builder is offering to a buyer’s agent is a percentage of the base price of that particular model, right?”
Listen, Larry. That would’ve been so nice to know from the get-go. Not right when everyone is ready to sign this contract.
Convenient timing? Maybe.
Intentional? I can't say. (At least not here. Ask me in person, though.)
But I want to sit here with it for a minute because this mattered, and I’ll tell you why:
You see, my buyer agency agreement with my clients was based on the purchase price of the home—not the builder's newly reduced base price.
My clients had signed a buyer agency agreement with me before we entered into the transaction, which established how my compensation would be handled. The builder's addendum didn't change our agreement with each other, but changed how much the builder was willing to contribute toward that compensation.
Those are two different things.
If the builder was only paying my agreed-upon percentage based on the home's lower base price, there would have been a difference between what the builder was paying and the compensation outlined in my agreement with my buyers.
This last minute change with a compensation addendum meant there was now a potential gap that my clients (by contract) were responsible for.
And that is exactly why I wasn't willing to treat the compensation addendum as a minor piece of paperwork.
This wasn't simply about what I was getting paid. Without paying attention to this, it would have changed what my clients would have to bring to the table.
That distinction is important because I think buyers sometimes hear the phrase "buyer-agent compensation" and think,
"That's between you and your agent."
Yes. Sometimes it is. But depending on the terms of the buyer agency agreement and what the seller or builder agrees to contribute, any changes in the amount being offered can potentially affect the buyer's financial obligation.
Two things I feel pretty strongly about:
1. Buyers need to understand their own agency agreement before entering into a transaction. 2. Agents need to get a heck of a lot better at explaining and offering understanding of what buyers are agreeing to in their agency agreements.
In my clients' case, we already had an agreement in place.
So when the builder introduced a compensation structure based on a different number than the one our agreement contemplated, we had to look at the two documents together.
And this is where the timing caught my attention:
We had already been negotiating the purchase price. The builder had already reduced the base price. We had already adjusted our offer. We were now dealing with a request that would potentially reduce the amount the builder was contributing toward my compensation.
So, from my perspective, this wasn't one isolated document. It was another change to the economics of the transaction.
And I wanted my clients to understand that.
For me, this wasn't about demanding that the builder pay a certain amount. Compensation is negotiable.
Builders are allowed to establish their policies, but what mattered to me was making sure there were no surprises for my clients.
If the builder wasn't going to cover the full amount contemplated by our buyer agency agreement, my clients needed to know that before they agreed to the builder's terms.
That's the conversation that matters.
Not:
"How much is my agent making?"
But instead:
"What is this change going to cost me?"
What I'd Want You to Know
If you're buying new construction with a buyer's agent, don't assume the builder's compensation offer and your buyer agency agreement are automatically the same thing.
They may not be.
Before you sign anything, ask:
- What does my buyer agency agreement say?
- How much is the builder offering to contribute?
- Is that contribution based on the purchase price, the base price, or something else?
- If there's a difference, who is responsible for it?
And if the builder presents a new compensation addendum during negotiations, don't assume it's simply paperwork for your agent.
It could affect you financially.
That's why I read those documents from my clients' perspective - not just mine. Because when you're sitting at the closing table, the question isn't whether a number was buried in an addendum. The question is whether you understood the number before you agreed to it.
Looking back, this was one more example of something that kept happening throughout this negotiation.
The deal kept changing - not necessarily in one dramatic moment, but one term at a time.
And that's exactly why I tell buyers:
Don't just negotiate the price. Pay attention to everything surrounding the price.
Because sometimes the number you think you're negotiating isn't the only number that matters.