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advertising really sells real estate, why do you need a real ... if/when they quote a higher expected selling price for
HARRIS PARTNERS

REAL ESTATE REPORT Issue 106

PUTTING A VALUE ON

REAL ESTATE AGENTS A t a time that many are predicting real estate agents could be replaced by technology or a DIY outfit, it is worth assessing the true value that a real estate agent brings to the transaction. Some may be tempted to ask if they bring any value at all? And that is a good question to ask. Most people that have bought or sold realise that the right agent is an asset and the wrong agent can be a liability. If there is one profession we have no shortage of it surely has to be real estate agents. Oversupply in any market suggests downward pressure on price. However, is a cheap real estate a good one? If advertising really sells real estate, why do you need a real estate agent?

Word of mouth becomes the replacement barometer for many people when assessing agents. This is a worthwhile method of assessing agents but not a sole indicator in and of itself.

There are now a multitude of websites that allow consumers to put forth their experience with the respective estate agents. Many of these websites are simply referral websites that sell leads to agents. Putting a value on estate agents is best broken down into segments. Experience – Given the high stakes involved in real estate transactions,

Price – Many home sellers consciously or unconsciously value an agent more if/when they quote a higher expected selling price for the subject property. Given the agent is negotiating on the owner’s behalf, and not buying the property from the owner, a high quoting agent is not really a valuable commodity. In order to build true credibility and value into a high quoting agent, negotiate the terms of their employment.

Is an agent that is being paid by the seller still a good agent for the buyer? Just how do you put a value on real estate agents? Given most people transact every 5 to 7 years, it’s difficult to rely on personal experience. Many buyers and sellers are only suitably positioned to understand the value in estate agents at the end of the process. Sometimes it’s too late to undo the mistakes.

it is frightening how easily someone can become a real estate agent. In NSW, a rookie salesperson can go from absolutely no experience to selling real estate, after completing a 5 day course. The course is not quite multiple choice, but it is not far above it. An agent with a track record, good or bad can be assessed and valued accordingly.

If the agent agrees to forfeit or reduce their commission-, if your property sells below their ‘quote price’, this becomes a very valuable and quantifiable guarantee.

Just how do you put a value on real estate agents?

Conversely, you can also reward the agent more for a higher price if you wish.

Continued on page 3

IN THIS ISSUE: Putting a value on real estate agents

Expensive web ads drive off market transactions

Suburb Snapshot: Forest Lodge

Avoiding seller’s remorse

(02) 9818 2133 www.harrispartners.com.au

EXPENSIVE WEB ADS DRIVE OFF MARKET TRANSACTIONS Dear Readers

I

n this month’s edition of the Real Estate Report, we look into seller’s remorse. Many people are aware of buyer’s remorse, but we look at how sellers increasingly experience many of the same emotions and how best to manage the process. Real estate agents across the country are increasingly moving towards off market transactions. An off market transaction is defined as one where the agent only markets the property to their database and known buyers rather than listing on prominent media websites. Given the sophistication of industry Customer Relationship Managers (CRMs), it is plausible that an estate agent can expose a property to the vast majority of active buyers in the market. However, these CRMs have existed for quite some time. Whilst they facilitate the effectiveness in off market sales, they are not the cause of the recent spike in transactions. Off market transactions have spiked because agents and consumers are looking to avoid the high cost of real estate websites. Start up companies that were started in a garage less than 20 years ago are now billion dollar companies on the back of real estate advertising.

The price that agents and home sellers have been asked to pay for a web listing has increased nearly every year for the past 2 decades. Agents happily went along with the price increases because they simply passed the increase on to the vendor. Now, the vendor does not want to pay! We are now at a stage where the market is beginning to reach a price resistance point. Private sale companies promising to save the consumer commission flank agents to the left whilst excessive advertising fees flank them to the right. The real estate agent is being squeezed by a cheaper competitor on one side and an unjustified expense on the other. Agents need to innovate to survive.

Home buyers buy homes not real estate advertisements. Sellers are well advised to keep this in mind.

If an agent asks you to fork out huge amounts of money on an expensive web campaign, tell them you want to Agents that have signed lengthy sell your home not buy advertising. If contracts committing to put every the agent passionately believes in the listing as an upgraded prestige or product, they can pay. premiere listing are feeling the price pressure the most. Consumers It is this push back from consumers inherently know that you don’t need that is inadvertently driving off market to spend $5000 or $10,000 on web transactions. advertising to find buyers. Particularly in a boom. The consumer refuses to pay for expensive web ads and, increasingly, The vast majority of the money spent so too are the agents. Off market on web promotion is about building transactions are increasingly the agent’s profile or brand. There is becoming the happy medium between absolutely no research to suggest that agent and consumer. home buyers respond more favourably to a property because it is or isn’t a All the best large expensive advertisement. Peter O’Malley & the team at Harris Partners

Suburb Snapshot: Forest Lodge 2000

2008

2016

Average House Price

$421,548

$782,563

$1,556,917

Average Unit/ Strata Price

$289,000

$350,729

$962,891

Sold by Auction

2

5

8

Sold by Private Treaty

22

25

35

YTD

Highest House Price

$730,000

$1,470,000

$2,190,000

Highest Unit/ Strata Price

$370,500

$495,000

$1,900,000

zz

Source APM

Continued from page 1 This is not as silly as it sounds. Many vendors are aggrieved that the last $10,000, $50,000 or even $100,000 means a lot more to them than the agent. If the agent is on a flat commission rate of 2.5%, that equates to $250 for the agent and $9750 to the vendor on every $10,000. You can easily see why the agent is keen to get the property sold and ‘move on’ under a flat commission arrangement. Transaction/clearance rate – In searching for new business, agents’ marketing messages consist of themes such as ‘we sold it’ and ‘we have a 100% clearance rate’. Whilst there is a value on the transaction from a vendor’s perspective, it should not be defined as the primary value offering. High clearance rates benefit agents and high prices benefit sellers. Agents get paid on the sale more so than on attaining the best possible result. A fair incentive based fee arrangement will ensure your agent is focused on a sale at the best possible price, not just a sale. After listing/sale service – There isn’t anything so persistent and keen as a salesperson in pursuit of the listing. But what happens once you list? Too many people are unaware of exactly ‘what happens after we list?’ Those that have poor experiences with agents often highlight lack of feedback as a source of frustration. Prior to employing an agent, get a written outline of the feedback process once you are on market.

Putting a value on agents This may seem draconian. Once you have signed with the agent, it becomes much more difficult trying to build value into their service. Risk of campaign – Vendor Paid Advertising (VPA) is the trap that most people don’t see coming. They naively think they have signed up to an ‘aggressive marketing campaign’. They work out too late that the agent has benefited from the campaign through brand exposure at the owner’s expense. Furthermore, if the offers come in below expectations, the owners have to wave goodbye to the VPA they ‘invested’ in or sell for less than originally desired. Whichever way they turn, it’s a lose/lose. There is no way out from pain. Before signing with an agent, ask yourself, what is your risk and what is the agent’s risk? Fee – When you hire an agent, you are employing them to negotiate on your behalf. They are negotiating on your behalf with your money. Your home is not a generic commodity. It is a unique offering that has a different value to different buyers at different times. To assess the agent’s ability to negotiate with your money, see how they negotiate with their own. Ask them to reduce their commission and see how they handle themselves. The wheels might just come off the whiz bang agent you were about to hire!

Fiduciary duty – An agent has a duty to act in the legal best interests of their clients, usually the seller. Buyer’s agents make up a fraction of the agent market but they are growing in popularity. Even though agents have a duty to act in the seller’s best interests, this does not mean they should use duplicitous or unfair tactics on buyers. If they do so, they will probably have a credibility issue in the market-place. The best agents for sellers are those that have credibility for being straight and fair with buyers in the market-place. Telling a buyer they can buy a property for $900,000 when the seller’s reserve is $1 million will usually back-fire to everyone’s detriment. Personable – Respecting the agent is more important than liking them as your new best friend. You are not employing a friend, you are employing a professional to negotiate on your behalf. The best negotiators have a personable and assertive manner. They can disagree with you, without being offensive. A big grin and a ‘whatever it takes’ desire usually signals a desperate sales person. The best agents are listeners not talkers. Big talkers miss small clues that can bring a negotiation together in the seller’s favour.

2/174 Bridge Rd Glebe sold in less than 20 days on market with 3 genuine offers being made. 404 Darling St, Balmain NSW 2041 p: (02) 9818 2133 f: (02) 9810 6432 e: [email protected] www.harrispartners.com.au

AVOIDING SELLER’S REMORSE B

uyers who have bought a property often suffer buyer’s remorse. Buyer’s remorse stems from a sense of guilt or regret from the buyer that they bought the wrong home or over-paid. A lot of people are aware of buyer’s remorse but few give consideration to seller’s remorse. Seller’s remorse is just as prevalent as buyer’s remorse. Given you only sell a property once, it is understandable if there is enormous angst during the sales process. Seller’s remorse is also manifested through a sense of regret, once a transaction has been made. The sellers may regret the sale because they feel they undersold or made the wrong decision in the heat of the moment. Sellers who sell before buying in the name of safety can get caught out in a strong market. It is a horrible feeling to sell into a rising market only to see prices on your proposed purchase rising whilst you are ‘out of the market’. This is why many people, wisely or not, choose to buy before selling, in a strong market. Another cause of seller’s remorse is

vendors that are not following the market closely. They sell for what seems a high price. Only when they enter the market as a buyer do they realise they sold for a high price but not the highest possible price. In early 2016, the Inner West housing market was performing quite strongly. At the same time many in the media were talking Sydney house prices down. If a seller took their lead from the media commentary rather than the market conditions at the coalface, they could easily have undersold and deeply regretted doing so. The greatest prevention of seller’s remorse is planning and research before transacting. If you research the target market that you intend to buy and/or sell in, you will have an increased understanding of prices. If you do purchase prior to selling, it is crucial that you get a delayed settlement on the purchase. This allows enough time to run a full and patient campaign to achieve full market value for your existing home. If you are pressured or committed to sell a property in a short timeframe, you may find yourself being crunched by circumstances (or your real estate agent).

Anyone that is crunched in a real estate transaction usually ends up being afflicted with remorse. High pressure sales tactics lead to remorse for the client after the transaction. Admittedly there will be times where the agent has to provide decisive and unwanted news. As a client of the agent, you need to decide whether you are being given decisive market intelligence or the agent is employing a high pressure sales tactic. Be wary of sales people that don’t allow you time to think. Every sales training book ever written has a section on how to overcome ‘we want to think about it’. As a lawyer once mused, ‘Real estate agents move quickly and lawyers move slowly. They do so for the same reason. They both know that people change their mind’. To avoid seller’s remorse, ensure that any decision to sell is a considered position. Whilst a high price seems good today, it won’t feel so good tomorrow if you find out you could have achieved a better price or superior terms. Ensure that you make a considered decision rather than a rash decision. A quick decision is not always a good decision in real estate.

If you are pressured or committed to sell in a short time frame, you may find yourself being crunched by circumstances.

RECENT SALES SOLD - $ Confidential

SOLD - $ 535,000

2/174 Bridge Rd, Glebe

7/12 West St, Croydon

3

1

2

2

SOLD - $ Confidential 16 Devonshire St, Croydon 3

1

2

1

1

SOLD - $ 1,030,000 1 Reuss St, Glebe 1

1

SOLD - $ Confidential

SOLD - $ 1,630,000

209 Norton St, Leichhardt

88 Thompson St,Drummoyne

2

3

1

2

1

SOLD - $ 1,440,000

SOLD - $ Confidential

4 Mitchell St, Five Dock

63 Hereford St, Forest Lodge

3

3

1

1

2

SOLD - $ 765,000

SOLD - $ 650,000

1/1 Hordern Ave, Petersham

9/15-17 Thomas May Place, Westmead

2

1 3

2

1

(02) 9818 2133 www.harrispartners.com.au