Do you pay more with or without a buyers agent?
When you engage a sales agent to sell your property there is a fairly well established industry fee structure and its pretty easy to compare one agent’s offering against the next. But when you look into the way buyers’ agents charge, it’s not as clear and simple to understand.
Before I go into the different types of services and fee structures, it’s important to note that there is one major difference in the way selling agents and buyers’ agents are paid. Your sales agent is effectively paid on a contingency arrangement – you only pay IF you sell. There will probably be some additional marketing costs that you will be up for regardless of whether you sell or not, but the agent makes nothing (or very little) out of this. Their fee is usually a percentage of the sale price – the more you get, the more you pay.
A buyers’ agent, on the other hand, is paid on a fee for service basis. You will pay for their expertise and advice so it’s not a great idea to engage a buyers’ agent unless you are committed and ready to buy a property.
There are a number of different services that buyers’ agents offer and a variety of ways in which they structure their fees. An agent usually charges either a percentage fee or a fixed fee. Personally I think it is counter-intuitive to charge a percentage of the sale price. Clients expect their buyers’ agent to save them money, so it doesn’t make sense for the fee to go up along with the purchase price.
Here are some of the example fees:
|Service||Percentage fee||Fixed fee||Limitations|
|Full property search||Different agents charge fees ranging from 1% to 2.5% of the purchase price.||Scaled according to price bracket OR determined by individual search parameters.|
Examples range from $8000 to $50000+
|Some agents put time limits & geographical limits – others will work until you have bought a property. Most require payment of a retainer and some charge progress fees.|
|Single property evaluation & negotiation||Percentage of purchase price (lower rate than the full search percentage).||Examples range from $2000 to $10000, dependent on the property type.||This service is specific to one property that you have found through your own searching.|
|Auction bidding||Percentage of the purchase price is more uncommon.||Most often a fixed fee – some include a success component.||Success is largely determined by your budget and the agent cannot advise you on suitability of property nor bidding limit.|
Why pay somebody to help you buy a property?
Many people are concerned that they can’t afford to pay a buyers agent, especially if they are already finding it difficult to secure a property within their budget. However, when it comes to buying property it’s important to realise that you could be paying in other ways by not getting expert advice. You could pay in terms of time out of a rising market, where the longer you take to buy something, the more chance you are priced out of your preferred area. You could pay in terms of buying a sub-standard property that has limited capital growth. This is a lot easier to do than most people realise. You could pay by paying too much for a property, either because you don’t have a good handle on values or because you are out-negotiated by the sales person.
It’s crucial to understand that the odds are stacked against a lone buyer dealing with a professional sales agent. They hold all the knowledge and most buyers play a hopeful guessing game. Buying a property without a buyers’ agent is like playing poker, blindfolded, with an agent who is dealing the cards.
I recently read an article in the Australian Financial Review which highlighted another area of risk for the unrepresented property buyer: dealing with property spruikers who push over-priced low-grade properties.
“In places where the prices are slowing and the market’s getting harder… We’re seeing some developers using third parties or investment planners that sell property as an investment product. You’ve got all these groups that aren’t real estate agents selling property that they can’t sell in the market. It’s all the off-market transactions.”
“These properties are typically lower-quality ones, such as on main roads or away from public transport, sold by investment advisers at inflated prices for commissions as high as 5 per cent… Clients should be buying from reputable groups like us and not from other spivs in the market.” David Milton, CBRE’s Sydney-based managing director of residential projects.
Source: AFR March 6, 2016 “Property industry warns of failures as wave of apartment settlements looms”
When you consider the risks involved with making the wrong purchase or getting caught in a tricky negotiation, can you really afford NOT to get expert advice?
How do you choose the best buyers’ agent for you?
Given the variety of fee structures out there, it can be very difficult to determine which agent offers the best value. I encourage you to focus on their results by looking at their case studies & testimonials. Ask to speak to past clients and also canvas selling agents in your chosen suburbs to see who they feel are the best buyers’ agents in the area.
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.