Builder, Developer, or Broker?? Who's who when it comes to New Construction Homes

What does it mean when a new construction home is built by “Builder ABC” but the developer is “Company XYZ”?  Isn’t the builder and the developer of a home the same thing?

Well…not exactly.  Sometimes yes.  Sometimes no.  Sometimes kind of.

When you’re a buyer looking at new construction homes, it might get confusing when the sales agent talks about the developer and/or builder backing the project.  This post is to help clarify the different entities that may back a real estate project, and how they might be interconnected. 

For the purposes of this discussion, we can break down a new construction project into 3 pieces:

1.     The money (“Who’s funding the project?)

2.     The construction (“Who’s building the project?)

3.     The marketing and sales (“Who is listing the property and interfacing with the end consumer?”)

 A different company or entity can be responsible for each of the 3 pieces.  Or a single company might handle 2 or even all 3 of the pieces.  It just varies from project to project.

It’s often helpful to think of the “Developer” as the investor(s) responsible for sourcing the financial capital (i.e. money) for the project.  It can be a single investor, or it can be a group of investors working together.  The “Builder” is the company / general contractor that is actually constructing the home. 

The third piece is handled by a Real Estate Brokerage who lists and markets the property, and handles sales with the end consumer.

So depending on the project, a new construction home might have a different Developer, Builder, and Listing Brokerage.  Sometimes the Listing Brokerage might also be the Developer, but they hire a different company to be the Builder.  Sometimes the Developer is the Builder, and they hire a different Listing Brokerage.  Like I said before, it just depends.   

When it comes to home warranties, sometimes the Builder will issue and service its own home warranty, so if you have a problem after you close on the home, you go directly to the Builder.  Other times the Builder will hire a third-party home warranty company (ACES is an example).  So in this scenario, after closing you’d have to go to the third-party company to address a construction issue.

For a homebuyer purchasing new construction, it can be helpful to know the different parties involved in the home project you’re considering. One reason is that sometimes this context can help you during negotiations – understanding who’s involved, what their possible motivations are, and therefore what leverage you might have.  You might also get some insight as to a Builder’s / Developer’s track record of reliability.