Last week an article appeared in the Australian Financial Review* about buyers’ agents and it made a lot of good points. However, I felt there was more that needed to be said to help readers make more informed decisions. So I “borrowed” the title and decided to fill in the gaps myself.
The article starts out by pointing out the risks of double-dipping which were recently highlighted in the case against infamous “The Block” buyer’s agent Frank, who was convicted and disciplined in the Victorian courts earlier this year. The article states that “buyers need to check the qualifications, experience & independence of their agent” and I wholeheartedly agree!
Buyers’ agents can add enormous value when it comes to finding, evaluating & negotiating a deal on the right property. I know the difference we make to our own clients’ property searches (which, I might add, goes way beyond simply buying property – this is a people business!). There are some excellent, ethical professionals out there and, like every industry, there are some pretty poor operators too.
Unfortunately, the barriers to our industry are very low, so consumers do need help to be able to sort the wheat from the chaff. The AFR article identified the main risks to be aware of and following are some ways to combat them.
Kickbacks and commissions from sellers and developers.
I personally think it’s appalling that someone can call themselves a “buyers’ agent” and yet receive payment from the vendor as well (or even instead of) their buying client. This can and does happen, but you can easily ensure that your buyers’ agent is not one of this breed:
- Use an exclusive buyers’ agent. Making sure that they are a member of REBAA is a good starting point.
- Check their disclosure documents. In NSW they will need to get you to sign a Section 47 form prior to you buying a property. This form specifies any kick-backs and commissions that they receive. It’s a requirement of the Act, so if they don’t have one for you to sign, they are dodgy.
- Ask them for a list of recent sales. If they have a whole bunch from the same building or development, that’s a warning sign.
- Interview and reference check them. You can use these questionnaires to quiz them and their past clients.
Inexperienced and unscrupulous operators.
The AFR article correctly pointed to “poorly enforced state & territory professional standards” and these are failing to protect consumers. I also believe that (in NSW at least) the licensing requirements are woefully inadequate. It is currently true that a completely inexperienced person can get a license via an online course and start trading as a buyers’ agent in less than a month. Currently, the only solution for the industry is self-regulation and there are two industry associations (REBAA & PIPA) who seek to raise the bar. Consumers need to do their own due diligence:
- Check whether the buyers’ agent is a REBAA member. There are different membership levels which depend on experience.
- Ask for evidence of longevity. Case studies, speak to past clients, ask for the recommendation of property lawyers and ask them about their working history.
- Ask local sales agents who the good buyers’ agents are. In-depth local knowledge is essential for a buyers’ agent to add true value.
The fee structure gives a big hint about potential conflicts of interest.
The article mentions a number of percentage based fee structures. In my view, these are counter-intuitive because it means that the more you pay for a property, the more you pay your buyers’ agent. Consumers can seek out professionals who offer sensible fee structures:
- Fixed fee – quoted up-front and any additional expenses detailed prior to sign up.
- No success fee – if you pay for advice regardless of whether you buy any particular property (often it’s what you don’t buy that saves you in the long run) then there will be no temptation for an agent to “sell” that particular property to you.
- Watch out for time limits on the agency agreement. These usually go hand-in-hand with lower fees and you could be pressured to buy quickly or hand over more money at the end of the time period.
- Postcode limits are equally problematic, especially if you have a tight budget and are buying in a rising market. You need an agent who will offer solutions and look outside the square!
Avoid even the hint of in-exclusivity.
The article gives an example of a sometimes buyers’ agent who flips over to sales and then back again. He claimed that he can avoid a conflict of interest by not selling from his own sales book to buyer clients. Surely I am not the only reader who thought this was absurd? What if he happens to list something that is perfect for one of his buyer clients? What if he is having a bad month and thinks: “just this one time…” Sales agents think differently about property to buyers’ agents. I know this from experience – I have been both (at different times of course!). Sales agents are skilled at objection handling and they truly think that all property is good, as long as the price is right. A smart buyers’ agent realises that only a very small proportion of real estate is actually any good, therefore a critical eye is essential. To be safe, consumers need to find a specialist buyers’ agent, who continually hones their skills and deepens their market knowledge.
There was a claim made in the article that I need to contradict. The journo said that buyers’ agents “are typically engaged by luxury & prestige buyers”. This is simply not “typically” the case and his own example of a Sydney yoga teacher who bought a one bedroom apartment is a far cry from this type of client. It is a fact that home buyers with smaller budgets are precisely the people who need a buyers’ agent because they can’t afford to get it wrong.
And another furphy about buyers’ agents is his claim that we operate “in a discreet sector where nearly half the properties are sold off-market, which usually means the property has not been widely advertised”. It’s true that we get access to off-market properties, however, to properly service our clients we need access to ALL available property – both on and off the market.
I have a vision: a day when every buyer is equally represented in every property transaction. Where it is difficult to become a buyers’ agent and the industry standard is elevated to reflect the sheer amount of money that changes hands with every sale. We are a long way off this, however, there is information out there to help consumers make informed choices and select expert advice. Of course, you can start by emailing me…
* The AFR article was written by Duncan Hughes and published on July 21st, 2016. If you have a subscription you can read it here.
Published:- 25 July, 2016
Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.