How Do Realtors Get Paid for New Construction Homes?

A realtor gets paid a commission on the purchase price of the new construction home and receives their payment at the time of closing. If the closing is delayed, the realtor will need to wait until the closing takes place.

If you are a first-time home buyer looking to purchase a new build or a pre-construction condo, you might be thinking about hiring a realtor. Although some people purchase their new build without the help of a realtor, it’s important to know that it won’t cost you. When a real estate agent helps you buy a home, they typically will receive a commission from the seller side (in this case, the builder).

Most established home builders will offer realtors a commission ranging from one to three percent on the purchase price. Meanwhile, some may offer a tiered commission structure, where a realtor is paid 3% on the first $100,000 and 1.75% on the remainder of the sales price (excluding taxes).

With some builders, a realtor may be able to negotiate a better commission depending on the volume of business they bring in. A very important factor to consider is the builder’s specific rules and regulations that make the realtor eligible to receive the commission.

When Will a Realtor Receive Commission for New Construction?

A realtor will receive their commission for a new construction home when the buyers complete the closing process with the lawyer’s office. In some cases, this can be years after the initial decision to purchase the home – as the build needs to complete first.

For example, if a builder releases a new build project in Pickering, Ontario in September of 2022, for an estimated closing date of February 2024 – this is when the realtor will likely receive their commission.

However, keep in mind that closing dates are not fixed, and they have a high chance of being pushed. Builders have room to extend the closing several times, as per the contract. If the build gets delayed by eight months, the realtor will need to wait until then as well.

In addition to closing dates, the action of closing must be completed in order for the realtor to receive their commission. If a new home buyer decides to back out of their new construction home contract, the realtor will not receive their commission.

Rules to Consider for Realtors Promoting New Build Homes

Builders are in the business to make a profit, so they ultimately want to avoid paying a commission if the homebuyer would have come directly to them. Homebuyers can directly deal with a builder to purchase their home, but some first-time buyers prefer having the support and expertise of a realtor.

Most builders will require the realtor to be present at the sales office during the buyer’s very first visit to the subdivision project. If the registration is taking place online, they will need the realtor to pre-register the buyer in advance of their visiting the subdivision project. The in-person and online registration may have an expiry period. This indicates how long the buyers are connected to the realtor prior to making the purchase.

A realtor may also change brokerage offices but must hold a valid realtor license at the time of closing. If brokerage offices have been changed, the builder may require additional release forms to be signed.

The builder needs to have the assurance that the buyers were made aware of the project by the realtor, and not through the builder’s own marketing. For specific rules, it is recommended that you speak to the builder directly, as they will have documentation for all their regulations.

Benefits of Using a Realtor for New Construction

A real estate agent can bring significant value to a buyer, especially because the buyer does not have to pay the realtor for this service. A realtor will have immediate access to many valuable resources such as notaries, experienced sales representatives, inspectors, and their broker of record.

With experience in reviewing and completing many new build purchase deals, realtors will know the common errors and omissions, things to consider, and common pitfalls. A builder and their own sales team may also be receiving a commission for all the upgrades and elevations they can sell – so having an experienced realtor on your side can be a benefit to you.

When new build sales start to decline, it is common to see an increase in builder incentives. We recommend reading an article we wrote on when builders offer the best incentives.

While choosing a reliable and trusted builder is important, it is also very important to know who your realtor is, and what they can bring to the table. Do your research on the realtor and their brokerage office – seek referrals and reviews from close family, friends, and neighbors. In today’s growing market, everyone knows a realtor or knows someone that does!