Buying a speculative house (known as a spec house) is a great way to purchase a new home or investment property. A professional builder builds a spec house on the speculation it will be able to sell the home easily for a profit. To do this, builders design these move-in-ready homes to be as appealing to as many buyers as possible. However, if you invest in a spec home before it is completed, you may be able to choose tile or countertops or pick out paint colors or light fixtures.

Real estate broker Tim O’Shea, Jr., of Keller Williams Shore Properties, explains the process of buying a spec home built by Dakan Homes and recent changes to how commissions are paid to real estate agents.

What’s the process of buying a spec home from Dakan Homes? For instance, if I’m driving in Ortley Beach and see a Dakan Homes sign that says “House for Sale”?

Many Dakan Homes customers call me to learn more about spec homes in progress. Dakan Homes is building a spec house now in the Vision Beach section of Ortley Beach. Using that one as an example, if you call me to discuss that house, I’d meet with you in my office and get to know more about you and your family: where you’re from, your familiarity with the area, the style of house you’re looking for, how quickly you’re looking to buy, etc. The most important question is if you’re looking to buy a finished house or build on a piece of land. A spec house is almost the best of both worlds: the land is already purchased, and the house is being built. This accelerates your timeline to move in or rent the property out since many early milestones have already been completed.

When we meet, I walk a potential buyer through the floor plan, pointing out where the bedrooms and bathrooms will be located, the size and features of the lot, etc. I usually can share photos from the site taken by a drone from several elevations so buyers can see what sunset and sunrise will look like from the home’s decks. They can also see if the ocean or bay is visible from the property.

Can a buyer select the finishes in a spec house, or is everything builders’ grade?

It depends on the build stage, but most spec home buyers can select things like tile, countertops, light fixtures, and paint in a Dakan home. Potential buyers can tour several model homes to see the craftsmanship firsthand and understand how the finished home will look. Sometimes, there’s still an opportunity to add an elevator or pool to the project. The sooner you inquire about a spec home, the more opportunities you’ll have for customization.

Recently, a buyer wanted to put a larger island in a spec house under construction. Rob and Julie Shino, the owners of Dakan Homes, contacted the cabinet maker and got a larger island because the home wasn’t too far along the build process. We don’t want to rip out materials already installed, but in this case, the cabinets hadn’t been installed yet, so that we could make the change.

What if a client doesn’t know what they want? Will someone help them pick out finishes?

The Dakan Homes team—particularly Rob and Julie—are very good at offering suggestions and providing input on the available design elements. They also can provide samples to help customers get a true sense of the materials. There are also several homes that customers can tour to see different floor plans, window styles, tile and more. Sometimes, customers ask what design decisions are best to boost resale value or are appropriate for a rental property. We can help them with those decisions.

Can a customer choose to build a bigger house than the planned spec home?

Probably not, because we have to adhere to a floor area ratio. This means you can only build a house on a certain size lot. For example, in Ortley Beach, you can’t build a 3,000-square-foot house on the typical 40-foot by 67-foot lot. The largest house you can build on a lot of that size is 2,200 square feet. You also can’t install an inground pool on a lot that size, so it’s important to know what you want before you commit to a spec home or parcel of land. 

Is the price of a spec house negotiable?

Once someone is interested in a project, the builder and buyer will work to agree on the price based on the customizations the client wants and Dakan Homes can make due to the build timeline. Rob and Julie will discuss what’s included in the base price and provide an estimate for any customizations. Sometimes, it’s as simple as paying the difference between a GE Profile range and a Viking range, for example.

Do you represent Dakan Homes in the actual transaction or the buyer?

I always represent Dakan Homes. Sometimes, I am dual-disclosed, which means I can represent both parties in the sale.

I understand that new laws that impact real estate transactions across the country took effect in August. How do they affect buyers?

The law regarding how commissions are paid changed in New Jersey on August 1 and nationwide on August 17. For 50 years, the seller paid the commission to the buyer’s agent. The commission rate in New Jersey has always been negotiable. So if I listed and sold a house for $500,000 and the commission was 4%, 2%—or $10,000—would go to the listing agent, and the same would go to the buyer’s agent, all paid by the seller. However, in southern states, where the commission rate is 6%, sellers were upset about paying so much commission, particularly to the buyer’s agent. Sellers launched a class-action lawsuit that the National Association of Realtors and many other agencies fought and lost.

Now for a realtor to show a client a house, the client must sign a lengthy Exclusive Buyer Agency Agreement. The agreement states that this person is your agent for several months. If you go to an open house or use another agent to see a house and buy it, you’ll still have to pay the initial agent commission. I don’t think this is fair. I’m doing what I can not to seek commission from the buyer since sellers can still compensate a listing agent. 

Another option is for the listing agent to set a flat fee from contract to close. If the buyer can’t afford that fee, their attorney can submit the offer and represent the buyer going forward. While this may seem like a great cost-saving measure for the buyer, the problem is that attorneys can take vacations and are often unavailable on nights and weekends, whereas most realtors are available practically 24/7. It will likely be difficult for buyers to get the answers they need because this type of work is not what a real estate attorney typically does. In addition, real estate lawyers aren’t paid enough commission to provide 24/7 service. 

Is this law set in stone?

There is a movement to fully decouple commission, meaning that the seller will only pay the listing agent, and the buyer will only pay his or her agent. A seller will only be able to compensate the listing agent; they won’t be able to give concessions to a buyer’s agent or a buyer under this new law.

Another issue is that buyers didn’t have to pay their agents before, so they could choose a family member or friend to represent them, regardless of their skills. Now, there’s a value attached to the person the buyer chooses to represent them since the buyer will need to pay them a commission. As a buyer, it matters who you choose as your agent. For a $2 million house, the commission to the buyer’s agent is $40,000—a year’s salary for many. Because of this, I think commission rates will decrease to perhaps 2% percent to the listing agent and 1% to the buyer’s agent. Until then, buyers should be thoughtful about who they agree to represent them because they must pay their agent a significant amount out of pocket. Downstream, the new laws may force many realtors out of the field because once you sign an exclusive agreement with a buyer, you’re tethered to them for a few months and expected to give top-notch service and attention during that engagement. Many agents only work part-time; they don’t have that much time to give. 

We’re all getting used to this new national law. I believe it will soften and adapt over time as legislators see its real-world impact on buyers, sellers, agents, attorneys and everyone in between. It’s even more important that buyers and sellers choose an agent that understands local, state and national regulations and can advise them accordingly.