Should you consider using a buyers' agent?

In this month’s newsletter I’ve asked an associate of ours, Rich Harvey from Property Buyer – a buyers’ agency – to outline the reasons for using a buyers’ agent. Just as the real estate agent we’re all familiar with acts for the seller, a buyers’ agent is engaged by a prospective buyer to assist in locating and negotiating the purchase of a property.

I asked Rich to outline circumstances in which he thought buyers’ agents could add most value, and circumstances in which it might be better to do without their services.

Rich’s response was that he couldn’t think of circumstances where the right buyers’ agent wouldn’t add value. Well I can’t fault him for self belief! Perhaps he’s right. My own initial thoughts about this are that the benefits for you of a buyers’ agent are the greatest where:

• You’re time poor.
  
  
• You’re not well connected in the real estate industry or otherwise are not confident that you know the right price to offer for a property.
  
  
• You’re not confident that you will negotiate in a rational and unemotional way to get the best price. Not many people are confident, and in these circumstances someone who is more distanced from the transaction can be a great help.
  
  
• You can be a bit of a procrastinator. As John Lennon put it, “life is what happens while you’re busy making other plans”. There are lots of busy people who plan to buy a property, get their finances in order and so on. If you’re a bit of a procrastinator, if your actions sometimes lag a little behind your plans, a service provider can be like a personal trainer, whose company and prodding help you take the action you really want to take.

Factors that would militate against going with a buyers’ agent would include – obviously enough – the opposite of these things. If you have the time and you don’t value it highly, if you can do the necessary research and you’re a good, cool negotiator, if you usually find the time to do what you plan to do, then maybe you should go it alone.

Of even more importance is trust. One of the things that keeps my money out of the hands of many professionals in finance and investment markets is that there is plenty of churn in these markets. People are typically paid on the margin they make, rather than their own performance.

A famous young economist in America called Steven Levitt demonstrated that real estate agents tend to achieve a price for houses which is 2% lower than the price they receive when they’re selling their own house! When you think about it, the way agents are remunerated, most of the incentive in their commission encourages them to make the sale, and only a small part of that improves with a better sale.

With buyers’ agents, remuneration is a difficult business, because after they find the house it’s a bit late to start negotiating on their fee and building in rewards for performance – for instance the lower the price achieved the higher their commission. In the end you have to go with your gut instinct as to whether you’re dealing with someone of integrity. I think you are with Rich Harvey and we’ve referred some of our clients to him.

And we’ve realised we can add some unique value at Peach. When we refer someone to a third party, we always ask for their feedback . And we keep recommending the people who keep getting recommended back to us – because of their performance. We figure that that’s the best way we can do you a favour. And doing our clients a favour is the best way we know of doing ourselves a favour. So far it seems to be working out. Our clients keep coming back to us. And from what we can see so far, they come back to Rich as well.

August 2005

The observations made here are general and indicative. They are not warranted as free from error in any respect whatsoever. We are not financial or tax advisers and you should not rely on any aspect of these comments without taking independent financial advice relating to your own specific circumstances. We suggest you obtain advice on a fee for service basis rather than from someone who earns commissions from investments they recommend.

Rich Harvey, Principal, propertybuyer

Dr Peach (aka Nicholas Gruen) recently asked me when it was appropriate to use a buyers’ agent. The public awareness of buyers’ agents and their service offerings is becoming better known as property buyers appreciate the need to leverage time and money.

Why use a buyers’ agent?

Many think that using the services of a buyers’ agent is too expensive. This is not the case. Buyers’ agents can save you money, time and stress, whatever your budget. In the US, over 50% of the population use a buyers’ agent to assist in the purchasing process. If you choose a licensed, professional buyers’ agent, the saving you make on your next property could run into tens or hundreds of thousands of dollars, could be less stressful and is likely to take less of your precious time.

The key difference between a buyers’ agent and a traditional selling agent is who they represent. A buyers’ agent works exclusively for the buyer, whereas the selling agent works for the vendor (seller). By law an agent cannot act for and accept a commission for both parties in the transaction. A good buyers’ agent is independent and therefore has no ties to agents, developers or specific properties. The buyer only pays them their agreed fee at the point of property exchange. They receive no commissions or kickbacks from sellers or their agents.

An important question to ask a buyers’ agent is whether they are truly “exclusive” or “independent”. If they accept sales commission from vendors or developers then they cannot be classified as “independent” as they are acting in the interests of the seller. Only deal with a licensed buyers’ agent (you can check licences via the Office of Fair Trading in each state) and one that is a recognised member of the Real Estate Institute.

Just as a quality finance broker will help borrowers find the most suitable home loan from a wide range of lenders and mortgage products, a good buyers agent will seek out the best opportunities available in the market and negotiate in the best interests of the buyer (not the seller) and help buyers select a property that meets their individual criteria.

Here are 7 key reasons why you might want to use a buyers’ agent:

1. Use a professional negotiator to obtain the lowest possible price
   
   
2. Gain access to a wider choice of properties (many not even advertised) via the contacts/ network of the buyers’ agent
   
   
3. Reduce the amount of time searching for property
   
   
4. Eliminate the stress and frustration of being shown inappropriate and unsuitable properties by selling agents that don't listen to the buyers needs
   
   
5. Have an independent professional buyers' agent on your side
   
   
6. Source the right type of property in locations with good prospects for capital growth
   
   
7. Help investors build their property portfolio steadily by buying in growth areas.

Unless you can commit to the property search full time and get to know the market extremely well, it may be difficult for you to adequately evaluate the market. In deciding what to buy and where to buy and how much to pay, you should consider using the services of a buyers’ agent. They will also ensure you don’t pay too much by providing background information about the true value of the property you are seeking to buy, so that you can make an informed choice.

A buyers’ agent can help you in different ways, depending on the level of involvement you seek. They can do all the searching and negotiating for you, as well as co-ordinating all of the necessary support services like solicitors, building inspectors and property managers. Alternatively, if you like doing your own searching, they can assist you just at the negotiation and evaluation stage.

Recent Success Stories

Jason and Sarah had known for some time that they needed to do something about creating wealth for their future. They had been to numerous seminars and “information evenings” and almost signed up for an inner-city apartment but pulled out before signing the contract. They called me to ask about the services of a buyers’ agent. I met with Jason and Sarah in their home and explained how we undertake extensive research and only select property that meets strict investment criteria. They had tried to get out and do inspections over the last 2 years, but with their jobs and demands of children, time was a scarce resource. They engaged me to find an investment property and within two weeks I had located a brand new 4-bedroom house and which was secured for $40,000 under market appraisal.

Ruth had found the apartment she really wanted to buy in the same suburb as where she lived. She found out about my services via a friend who recommended me. At our first meeting, Ruth said that she had shown some interest in the property to the real estate agent and since then the agent had not stopped calling her asking her to make an offer. Ruth felt that by engaging an independent buyers’ agent she would be able to obtain a better price. I then inspected the property and conducted my own price evaluation of the property. I also managed to obtain more information about why the vendor was selling. After two weeks of protracted negotiation we finally secured the property for $200,000 under the asking price. Ruth was absolutely ecstatic as she was willing to pay full price for the apartment.

Rajah is an experienced property investor (over 20 properties) and a mortgage broker. Rajah wanted to purchase an investment property that also had some development potential. After meeting with me and explaining our services, Rajah engaged me on the spot. He gave me a specific brief and price range. Within 3 weeks I had located an excellent opportunity via my contacts and negotiated a delayed settlement that suited both parties. Rajah will be able to undertake some minor renovations on the existing property and then be able to subdivide a separate block from the property.

Current market update

Despite the negative press saying that property is in decline and the investors have fled, the smart investors and home-buyers realise that now is an excellent opportunity to get into the market and buy properties below long-term market value. I believe that the remainder of 2005 will provide some of the best opportunities to find real value in the property market.

These slow down periods are a normal part of the property cycle. The best time to buy is when vendors are more willing to negotiate and there is uncertainty in the market. It is now over 18 months since the peak of the market in late 2003. While some parts of the Australian property market are seeing some price declines, in other areas price growth is still occurring. It is important to realise that falling prices only last a short time and do not occur in all areas. The smart investor and home buyer look at the history of property growth, and while taking into account the cycles, take a long-term perspective and select property based on proven investment criteria.

Given the constantly changing market conditions it makes sense to engage a professional buyers' agent that can work exclusively for the buyer to both source the right property and negotiate the lowest possible price.

The current real estate market can be characterised by:

• Prices are falling or increasing only slowly
• Less investors (less competition)
• There are generally fewer buyers
• Properties are on the market for longer
• Rental vacancies declining/ more people renting
• More properties are sold at prices considerably below asking prices
• Rents may start to increase
• Agents actually call you back and chase you to get a sale.

With a down property market opportunities abound! The key is to recognise value and only purchase properties which have the correct fundamentals for:

• future capital growth
• adding value/ renovation
• development potential
• strong rental yields.

Propertybuyer has just been nominated as a finalist in the Real Estate Institute of NSW Buyers Agent Awards for Excellence 2005. We help property investors, home buyers, expats, overseas buyers and developers to source properties that meet their specific needs or criteria. If you are thinking about buying a home, investment property or development site, email rich@propertybuyer.com.au and request our FREE report on the Top 20 Criteria for Buying Investment Property. You may also like to visit our website for more information at www.propertybuyer.com.au or click on our Buyers Wishlist to let us know what you are looking for. Call me on 02 9954 7177 or 0402 267 703 for a chat or to arrange an obligation free meeting to discuss your specific property needs.

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