By Alistair Helm*
This is an age-old question and one that will generate opposing responses based on the perspective of the responder.
A few moments spent on the Trade Me forum category of real estate would have you believing that private sales were a viable option and given the projected saving of many tens of thousands of dollars in commission thereby seeing the seller better off than by using an agent; although they would be hard pushed to say that they achieved a higher selling price than an agent.
Conversely a conversation with an agent would generate a response reflective of the competitive tension that an agent can generate between competing buyers such that the agent will secure the best price which would be the highest price attainable in the market. The latter caveat being very important.
For like it or not, the fact is that there is no evidential way to prove that an agent can secure a higher price than a private seller. The fact is that the price attained for a property is governed by a unique set of circumstances that can never be replicated. There is no such thing as a ‘Control’ in real estate.
What I mean by this is that in the scientific faculty everything is evinced by a Control by which any experiment is measured. Testing of drugs, improvements in battery technology, new microchip technology all of which are assessed by a Control that allows scientists to say that this version B is x% better than version A.
In real estate this is not possible. No two houses are identical; for whilst they may be two identical apartments or two town houses or even two 3 bedroom family homes in the same street, each will be different as a function of their orientation, conditions or layout. Mix into this the very unique circumstance of the buyer pool that is so small for any property and you begin to realise that every transaction is a very unique set of circumstances that occur at a point in time and can never be replicated.
Think for a moment about the sale of a particular property. Could it achieve the same sale price a week later? In theory yes, but the probability is that it would not as the price that was achieved was a function of the buyer pool at that moment in time, a day later, a week later and one or more of those buyers might have exited the market having bought another another house and equally a new buyer or set of buyers might have appeared as they suddenly became ready to make a purchase decision.
So unlike the ability to set up an experiment to test price sensitivity for a consumer product in two supermarkets in different areas of the country to test demand the property market does not afford such controls. It is therefore impossible for anyone to say that they could achieve a higher price than anyone else. The price achieved for the sale of a property is a function entirely of two aspects of the property selling process.
Maximum exposure
The ability to achieve maximum exposure of the property for sale within the buyer pool is critical to engage and motivate prospective buyers to review the property. Any lost opportunity in this area is potentially the most damaging to the sale process and impact the sale and the sale price. Exposure is not simply being on the web, it also goes to the presentation of content with particular focus on the images of the property and how they are laid out.
Competitive tension
The ability to motivate the prospective buyer pool to actively compete to challenge one another to buy the property is key to a successful sale price. This does not assume that the only method of creating competitive tension is an auction although this can be an effective public tool to create emotional tension. A standard well facilitated negotiation between active buyers is just as likely to achieve a favourable result as would a tender. The key to creating competitive tension is the facilitation process which is in someways the greatest skill and attribute of a professional real estate sales person - the ability to maintain buyer interest and bring buyers literally to the table to make an offer and to be motivated to stretch to challenge competing offers so that the final offer meets or exceeds the expectation of the seller.
There is no doubt that the component of the property selling process comprising creating maximum exposure has in many ways been taken out of the hands of the real estate agent as the online medium is the aggregation of this exposure through sites like Trade Me Property and Realesatate, however to fully optimise the potential to achieve the best result for the seller the role of the agent is hard to ignore or dismiss as it would take a unique set of skills for a private seller to replicate this capability.
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The above article was written by Alistair Helm, and is republished with his approval. The article was originally published on Properazzi here.
29 Comments
Probably the first thing prospective buyers go into a property looking for, are reasons NOT to buy it, that is where agents come into their own, as they are able to field objections that you might otherwise not want to put to the vendor (owner) like "The colour scheme is god-awful isn't it?" or anything else you might want to object to. The agents job is to then help you figure out if the problems are solvable or not, some are, some aren't.
I've bought and sold sections privately, so no concerns were raised about colour schemes. I can't imagine why you would need an agent to buy or sell a section, punters can go for a look, haggle over the price and reach an agreement. I'd have to agree about selling your own home through an agent, it is a very personal thing to have to show someone through your bedroom, bondage dungeon or whatever. And you can always negotiate the agent's fees
I am totally amazed at how much New Zealanders are willing to pay someone to sell their homes. The average agent is a failure in their chosen earlier career or they have no qualifications at all so they get into real estate to try and make some money.
You give them a key, they take people to the house and when someone falls in love with it they buy it and then the agent gives you the key back. For that we pay them thousands if not tens of thousands. More than someone who is operating on you. We are all suckers.
They do it because they could not get a job in any other area that pays them so much for doing so little. You don't see people who are successful in their trade ,profession or business getting into real estate. If you make enquiries of the agents you meet you soon find most of them have no qualifications at all or generally were very average in their previous line of work. There are exceptions to the rule but they will be there for the money and will be "good " at what they do. In other words they will be smooth talkers and manage to get more listings than others and make more than the average incomes that agents achieve.
As previously said they are overpaid for what they do. Greeting tire kickers is well worth it when you get so well paid. I believe in the UK agents get 2%. We pay around 4% and even more stupidly pay for the advertising. The mind boggles.
Gordon- you clearly have little knowledge or understanding of the real estate market. Firstly I suggest you do your homework and find out the average earnings of a real estate agent. Secondly, I think you are living in the past- agents choose real estate for a variety of reasons and NOT just because they are failed in their previous careers. I was a successful senior marketing manager in various large corporations but after 20 years was tired of corporate bull---t and some ignorant males who were in many cases only half as good as their female counterparts. I left behind a very nice salary, company car, med insurance, super, shares etc to go and do my own thing. I had the same ignorant attitude as yourself when someone approached me to go into real estate- thought it was an industry of failed males or females who just wanted to work part time. How wrong I was- after 10 years in real estate and now having left the industry I can honestly say it is the hardest job I have ever done- and I was successful but to be successful requires focus, working long hours , 7 days a week. Tell me another job where you can spend 60 hours with one vendor ( as I did on one occasion) and not get paid a cent because the vendor was not prepared to meet the market?
If you want your car fixed do you go to an experienced mechanic or just some chap down the road who works in his back shed and does the odd job? Selling what is in most cases your largest asset I would think it irresponsible to leave it to someone who may have only ever sold 1, 2 or maybe 3 houses in their life????
sorry don't respect your argument.
Gordon is mistaken on the hours it takes to make a real estate agent for sure. Yes you have to live, breath and excrete real estate without a break to succeed. But you can't call it work because you don't produce anything, it is totally parasitic in nature. So sure you did some long hours Ulander, but I think it is you that misunderstands your real contribution to society.
You won't respect my argument because you worked in this totally dishonest industry for so long. I would get out too after realising that people think you are getting down to the bottom of the barrel besides politicians and car salesmen. I spent thirty years dealing with agents. Now I am retired I can talk. They are generally uneducated people who work at it as they can do nothing else that creates such easy income. They are incredibly overpaid for what they do and they will lie or fail to say something when they should say it. They work for purchasers despite being paid vastly inflated wages by the vendor.
Sorry Zanyane not good enough. A lot of people work a lot harder over weekends and after hours but do not make the insane returns that agents do. As I have said you give them a key, they show some people through and say what a lovely house it is. Someone buys it and then they return the key to you and give you a massive invoice, sometimes equating to thousands per hour. We are all idiots who use them.
Sorry Zanyane not good enough. A lot of people work a lot harder over weekends and after hours but do not make the insane returns that agents do. As I have said you give them a key, they show some people through and say what a lovely house it is. Someone buys it and then they return the key to you and give you a massive invoice, sometimes equating to thousands per hour. We are all idiots who use them.
I am sorry to say that I have reached that conclusion too. I would like the industry to be far more more transparent. With Agent A, did vendors sell for the price that they were hoping for? Did the agent manage to secure a better price? How much more value , on average, does the agent add?
If I was an agent, I would promote my service in those terms. Not (just) how many sales I have made, but exactly how much value was added as result of my expertise. A prolific seller is a warning sign, as far as I am concerned.
What is the outcome of all of these auctions? How many houses are sold above the reserve price? No names needed, just the numbers. We only hear the good news stories, which appear sporadically in the media. Aren't there hundreds of auctions every working day? Shouldn't the real estate pull outs and websites feature page upon page of stoked vendors eager to share their stories?
For all I know, 80% of auctions fail to sell the house at the reserve price - which is costly for the vendor - so they take a bath and sell up at a price much lower than they wanted because the whole experience was so unpleasant and costly. I have had this experience related to me first hand from real people. So am I wrong? Have I just heard the hard-luck stories? I have no way of knowing because there is no source of information that allows me to assess whether auctioning a house is likely to be the right thing for a vendor, to do.
In the absence of this information, I have to conclude that agents love auctions because more often than not it forces a sale (any sale) and we know making sales is how they make a living. There is nothing wrong with that - good on them. But I feel crucial contextual information is withheld which means the vendor has no choice other than to simply believe what the real estate industry chooses to tell them.
Quite right Julz, the first thing a agent will start saying to you is that they are the best agent/business to sell your property BUT the market is not as strong as it was, you need to be realistic, etc. They will simultaneously convince you that they are the best person to sell your property but that your expectations are too high.
I have been to quite a few open homes that are being sold by the vendors. Many do a really good job at marketing their properties.
I prefer the face to face contact and general discussion with the vendor. Vendors know the property and usually provide any information readily.
I think there are many benefits for both vendor and buyer without using an agent.
I know of someone who had a private deal on their house for 460,000 through Trademe, fell over on finance. Gave it to an Agent who sold it in competition for 505,000. Also someone else who had a property on for 369k private, couldnt sell it, gave it to an Agent who took it to Auction and sold it for 405,000.
I think a good Agent earns their commission.
Generally people buying through an agent have an expectation of the asking price, buy talking to the agent they alredy surrender much of their bargining power, as the agent can wait, and put pressure on the seller for quick trade.
Selling privately means the seller has surrendered power as they are seeking buyers, any buyer knows they can walk away knowing the seller will be left waiting.
In negotiations there is huge advantage to the party that can afford to walk away from the deal...
You are obviously an agent trying to support your trade. I won't call it a profession as anyone can get into this trade after failing at some other line of work. You just have to be prepared to lie to people and at the same time be thick skinned as people in general think you are dodgy like car salesmen. Anyone could put up the two examples you gave . To achieve such results you probably had to hold back negative aspects about the properties in the first place. How many purchasers have heard the following words. "I will get you the property at this price" when the vendor is paying the commission. They are so dodgy in the practice of their trade.
There is always the third option available during the type of market we have now. As they have to do stuff all to get a sale but listings are falling approach the agents to drop their commision. If an agent walks into your house and knows he will trouser $40 K for a few open homes he would be fool not to do it for $20 K as well. Set up a reverse auction/beauty parade where the option to market the house goes to the lowest bidder.
We know they are all lower than whale manure so make them sweat.
It depends on what you're selling; if you are selling a cheap property targeted at young FHB who are internet savvy then you'll capture most of your target market with a TradeMe add. If you're selling a 1m plus 5 bed house in a leafy suburb your target market is cashed up baby boomers; some of whom only look in the property press or have a buyers agent working for them.
Have sold the last couple of houses myself. Pretty straight forward. Spend the preceding months educating yourself to the process, visit open homes in your areas- ask questions use the good responses. Do all the normal stuff like clean, mow, paint anything that’s crappy. Get a valuation, sales data, lim, building report. Take some good photos, make a flyer up. Go to Whitcools and get the std sale and purchase contract, then photocopy up a dozen info packs, list on trademe.
Run the open home. Have some friends mooch around as a prospective buyers, to keep an eye on the punters. Create competition - have the same friends make comments to their spouse about all the great aspects of your house when others are in earshot "this room would be perfect for the baby", “what a great view”, “its in zone for this and that” etc etc. Get them to fake making an offer in front of the other punters to show how easy it is (Agencies use fake bidders at auctions so why shouldn’t you). Let people know its "under offer". When asked how much say "not sure but recent sales indicate this sort of range and the market is rising so who knows. Here’s a free valuation and building report for your bank", then pause, smile and ask "would you like to make an offer"? Dont forget to take your friends out for a really nice dinner once you sell.
Finally ....and this is where agents set the hook on their clients - don’t get greedy (may not apply to debt stacking PI’s just chasing capital gain). Look at the sales data objectively and decide where the value range most likely lies. Accept the facts and have a price you will sell it for.
Seems a lot but you have to do most of this anyway, the savings are well worth it. If your honest that you don’t have the time, then use an agent because they have already invested this time in the process and accept that the $30-50k you will pay is the cost of your time doing what ever else you chose to be doing.
That is eactly how to do it averageman! Thats all one needs to know to become an agent; if you have charisma and can make people think thier special because they buy the thing.
Take note everybody. The main aim of the game is to talk the price up, manipulate and pressure people once you've got them on the hook.
That what the succesfull agents do.
The only problem in the current market is that its been talked up for the last 20 years.
How much more money can one squeeze out of people?
I think the main reason a lot of people use a real estate agent is so they can sell their property without disclosing all the faults. They just don't tell the agent, then he legally is unware of the faults and doesnt need to disclose them. I've had a number of building reports find things that are obvious to anyone who would of lived in the house, but if they didnt tell the agent, he wouldnt be aware of them. Like that termite infested home on cambell live. I personally would be more than comfortable buying and talking directly with owners. With all the internet data on house values, qv etc, a fair price, less the commission, should be obvious to both parties.
If you are selling privately, you have to treat it like a job. Do you research on price, hire a professional photographer and get professional signs made up which do not say private sale on them. Create professional looking flyers. Do leaflet drops in the local streets. Put adverts in the paper. Remember, you are only saving the agent's fee, not the marketing costs. Make the house look clean and clutter-free (hire storage if you have to). Have all the reports available for inspection. Collect details from all parties and follow up with a phone call to get feedback.
Negotiate a price with the buyers (or if you are no good at this, get a friend to do it) then have your lawyer send them a contract. Treat all buyers with respect and negotiate in the order they make offers. If you follow this process you can easily get within the max price less 4%+GST. Last house I sold, several people thought I was an agent
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