Why this matters: With buyers mostly sitting on the sidelines, agents and brokers observed another lackluster spring sales bounce in 2025, as new and resale residential sales continue to trend downward. Against the backdrop of high mortgage rates, stubborn asking prices, and looming economic troubles for job holders, agents and brokers must plan – or learn – to participate in California’s unique pricing advantage offered by builders of new homes over resale owners.
Is new always better?
In no other market — other than real estate — are people expecting to pay more for used items than new. In fact, nationally, people don’t. However, in California new homes are 24.7% less expensive than the median price of resale homes, as reported in a July 2025 study.
Very few states price the sale of used homes higher than the price of a newly constructed home. California has the biggest disparity, around $193,682 more for the median resale home than the median price of a new home.
As is always the case, California’s housing history is greatly affected by its geography. An American Housing Survey found only two types of locations increased the value of a home on their own: one being in a metro area, the other living near the Pacific. For California, firsttuesday has long added a 1.5% annual rate as the premium paid for property located in California, part of the mean price trendline calculation which also includes the annual rate of consumer inflation.
The demand for California property is driven by the simple, worldwide desire to live in California.
With its extensive coastline, variety of climates, and inviting outdoors, the question of where to live in the Golden State is not answered by a homeowner’s preference for a type of style or suburb, but where the house is located.
Cheaply constructed existing homes resting on beautiful, picturesque California lots fetch a high price tag, like the newly constructed one next door. Through the decades of home construction, different styles and trends of cheap subdivision design flowed and still flow today.
To the rest of the nation, newly built houses like in California, imply energy efficiency, insulation, and smarter home systems. Since California is forced to navigate higher costs of living, building materials and ownership, the appeal of a new home takes a hit in more desirable locations.
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Why do builders sell for less?
Profit motivated home builders are not just able to offer the products at a lower cost in a market like California, they are willing to do so. Unlike individual sellers, builders work directly with providers to reduce the cost of everything they need.
For example, there are mortgage lenders who prearrange lower interest rates for the builder’s buyers based on volume of originations. In order to quickly move their properties, they “buy down” the mortgage rate as the price of marketing to attract buyers by offering lower than market mortgage rates. Sellers of existing homes and their seller brokers are not in the loop to work through these negotiations, but buyer agents who figure it out are.
During times of sky-high mortgage rates, low rates alone tempt hesitant buyers and let the builder close out a tract and move on to their next construction project.
Builders also painstakingly avoid employing brokers and paying fees. Even escrow and title work are discounted for builders. They rarely seek out broker representation until the market drops and builders and their sales staff need help locating buyers to clear out unsold inventory.
A prudent buyer broker takes steps to protect their expectation of a fee knowing their buyer is likely to look into new housing, not just MLS inventory. To clear that hurdle, brokers must represent buyers, not builders. That means a buyer representation agreement signed by a buyer is the only leverage they have to collect a fee when their buyer makes a deal with a builder, whether or not the broker exposed their buyer to suitable builder inventory.
The seismic legislative move in 2025 mandating written representation agreements between a buyer and their broker (usually negotiated by an agent of the broker) establishes what a buyer broker expecting a fee is to do. However, nearly all brokers retain the embedded habit of fee fixing.
As custom, the seller broker sets all fees on a deal by continuing to work around the statutory mandate. Custom, for the moment, is preempting state law mandating separate negotiations by each broker to independently set their fee with their client. The DRE is yet to take up the task assigned to them to police implementation of buyer representation agreements.
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The motivation in today’s housing market
Sellers of existing homes for sale are motivated to stay with their home, and for lots of reasons. The sticky price phenomenon emerges during a dip in pricing when sellers hold on tight to old ideas about their home’s price, for as long as they have a job. Half-rate mortgages taken out in the past decade have huge financial benefits only those compelled to sell are willing to give up.
Even when the fair market value reviewed with their seller broker indicates otherwise, sellers are allowed to be stubborn, holding out for that one buyer who may be willing to pay too much. This is why prices are quick to change on an upswing, with sellers and their agents acting fast to raise prices, but slow to come back down in recessionary times. Unlike excess consumer inflation, excess asset inflation causes home prices to actually drop and drop a lot over a three-to-five-year period.
However, buyer agents will find builders are rather well informed. Builders are fully aware the 2025 sales volume through August was 27% lower than the same time frame in 2019, the last “normal” year for housing before the pandemic economy. While builders dislike working with brokers, they read the word recession handwritten on the wall.
Brokers who look into the inventory a builder has for sale gain knowledge of a cache of less expensive homes the builder does not and will not make available for sale via an MLS publication. A builder’s goal is to keep costs down to only what they need to spend to sell out their project.
MLS and fee-fixing arrangements are forces driving builders into their own marketplace. They will stay there, away from seller brokers, so long as they can keep prices below property available for sale in the MLS environment.
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How do agents make it work?
When a builder’s inventory is the most attractive and best deal in town, agents who secure written representation agreements with their buyer-clients — as mandated by California law in all sales transactions — protect their efforts invested with buyer-clients. Again, inventory for sale need not be in an MLS for a buyer broker to negotiate an acquisition for their buyer and be assured a fee by the client. There is no seller broker representing a builder to fix the buyer broker’s fee.
You might recall the days of FSBO (for-sale-by-owner) pre-2008 when the seller, like a builder, was not dealing with the MLS marketplace – solely to avoid excessive broker fees. 2026 may well be the year of déjà vu.
Only when there is a significant drop in asking prices for sale through a seller broker, will a builder employ a broker to independently represent them — in writing or otherwise. And a buyer broker without a statutory compliant buyer representation agreement is not going to get paid by a builder regardless of the amount of time or effort put into finding property for their buyer-client. Oral commitments to pay fees don’t mean much to builders (or judges), but brokers don’t get the remedy.
Remember, the builder does not owe the fee unless they hired the broker by entering into a written seller representation agreement – or entered into a purchase agreement prepared and submitted by the buyer broker which the builder accepts. Of course, as prepared by the broker or their buyer agent, the purchase offer will contain a fee provision for the builder to pay the fee on closing. Standard stuff, just much overlooked in the past 17 years of ever-increasing property prices.
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