It is known that mortgage brokers and insurance brokers are useful to get the best possible service at the best possible price. I thought I would share my knowledge of builder brokers, and whether they can benefit those building a home or development. Note this analysis and opinion is purely based on my knowledge and experience in Perth, Australia, and I have never actually engaged the services of a builder broker.
Similar to a mortgage and insurance broker, a builder broker claims that they can build a dwelling at the best price and terms. The argument is that by quoting on the same plans to various builders, since all the builders will be quoting on the same design, the most favourable price and terms can be selected. This is different to approaching builders individually, who will create their own designs and provide a cost, since all designs are different, it is difficult to compare like for like. Though, there is an advantage that each builder may produce a design that they can optimally construct due to their past knowledge.
A builder broker will create the dwelling design, usually the development approval drawings, so that it can be submitted to council for approval. The builder broker may guarantee council approval, which is a definitely a good thing. The price of these drawings may be significantly less than getting an architect to do similar, with the builder broker reasoning that their return are from the builder on signing up, so it is in their interest to take it that far.
There are a few catches, the copyright of the drawings will belong to the broker builder and will be licensed only if you use their services. Let’s say you have received development approval, paid your application fee, a few hundred or thousand dollars depending on the size, you are now at the mercy of the builder broker, if you don’t like their choice of builders, the subsequent quotes, etc, you can’t take your plans somewhere else. This leads on to the next point.
Conflict of Interest
There is a difference between a mortgage or insurance broker and a builder broker, the former can easily be compared by yourself, when you receive a loan from a mortgage broker it can be compared with any number of banks, all on similar terms and conditions. Similarly, with an insurance broker, the insurance premiums can all be easily compared. A builder broker, you don’t have a licence to use the copyright except if you chose to progress the build through the broker, with the builder broker arguing that this is how they make their fees. Understandably, this is true, but even throwing your own preference for builder can be met with backlash.
Firstly, though, let’s talk about the builder broker’s fee, besides the initial ‘foot in the door’ payment for producing the drawings, the bulk of the builder brokers fee is the commission from the builders. That is, a percentage of the building cost is given to the builder broker, let me say that again, the more you pay to the builder, the more the builder broker receives, how is that is your best interests. Which leads to my next point.
The builder broker will cloud however they can the comparison between builders, in order to favour the quote that gives them the largest cut. Firstly, each builder may give different referral fees, depending on past relationship, etc, you will never know, and that is why they are hesitant to introduce builders that are not on their shortlist, they may need to build new relationships, or know that there is not much commission through them. Secondly, they summarise the quotes into a simple table, so you can easily compare, you may never see the quotes, and their summaries are arranged to lead you choosing a builder that the builder broker prefers. Thirdly, brokers argue that they are simply taking the commission that the sales person of the builders would normally take, this may be true if the broker has a good relationship with a builder, but again, there is no transparency, and unlike a sales person what incentive does the broker have to negotiate a lower price.
A better alternative to a builder broker is getting a draft person or architect to design the dwelling for you. Once council approved, then approach builders individually, yes, you will be dealing with the builder’s salesperson, but if you don’t like what one builder is offering, simply move to the next.
In fairness, don’t show one builder’s quote to other builders, instead give them a rough indication of how they are placed and allow them to adjust.