Agents are a critical component to any successful real estate transaction, it’s NOT like bypassing up a cabbie for an Uber driver, although the same lack of training and protection issues apply.
An associate and I were discussing the growing trend of vendor’s choosing to sell one’s property asset by bypassing the use of a fully qualified licensed real estate agent, whilst we took a ride with an Uber driver between meetings.
It’s a trend that has gained momentum with the growing access and ease of multiple social media platforms, like Gumtree or even E-bay, but it’s a disturbing trend that is occurring throughout society, and perhaps not dissimilar to Uber albeit the risks I guess, are more easily calculated or controllable given the only risk of getting in the Uber is the lift itself, between a predetermined point A and point B.
In real estate, to the inexperienced, it sounds like a great idea, “hey why not avoid those agency fees, right?”, however, sadly the opposite can be very true, to bypass an agent can lead to a very costly and drawn out process, after all it’s the agent that ensures the seller receives sound professional representation throughout the sales process, negotiations and of course confirms and finalises within the contract the highest possible price upon the most suitable terms.
It’s also the agent that builds competitive tension among buyers. Maintaining arm’s length negotiations is a critical way of keeping the vendor in the ultimate position of power. If a vendor deals directly that power swings dramatically to the buyer, and sadly can signal the start of protracted delays, negotiations on price and frustrating indecision, a position the buyer loves as pressure inevitability mounts and can lead to significant reductions in price “to finally get a deal over the line”.
Most of the time, the agent will achieve a price and terms beyond the vendor’s expectations, and hence the commission payable typically pales into insignificance as compared to the uplift achieved by good agent representation.
In some cases, although most buyers wouldn’t realise it, but it’s the purchaser who is being protected from a perhaps flippant, perhaps unrealistic or an undecided seller. Having an agent involved ensures all processes and legal documentation is in order, and a legal right has been obtained from which to engage with the market and sell the property, and very importantly a transparent legal process is followed throughout.
Overall there are plenty of reasons to appoint a specialist agent, but here’s five;
A real estate agent’s full-time job is to professionally and transparently act as a liaison between buyers and sellers. This means that the agent will typically have good access to other ‘of-like’ properties and can guide both the buyer’s and seller’s around the likely market and price expectation. The agent also satisfies themselves of the key selling features and any due diligence (independent analysis / reports) required to support and justify the purported asking price. After all its extremely important that a sale reflects good value to both parties. As a fulltime licensed real estate agent, the agent knows what is needed to get the deal done. In Smith Agri Internationals case, we have built a sophisticated international database of over 3,500 institutional, pension funds, emerging funds and High Net Worth Individuals all interested in Australian Agricultural and Timberland assets.
To emulate such a database built over 15+ years would require extensive advertising across multiple international media, on-going attendance at institutional forums and roadshows, a very expense exercise, I can assure you. Appointing Smith Agri International in fact saves our vendor clients significant advertising cost as advertising widely in the agricultural market can be very ‘hit or miss’. Most of time marketing through our extensive database produces results without that cost.
Of course, if you are looking to sell your property yourself, you will have to solicit calls from interested parties, tire-kickers and alike, answer questions and make appointments. Keep in mind that potential buyers are likely to move on if you are busy or don’t respond quickly enough. Alternatively, you may find yourself making an appointment and rushing to the property, only to find that no one shows up. The games played by buyers and sellers can be many and it’s the agent’s role to deal with all and protect the vendor and buyer.
Some people may think direct negotiation without an agent, between buyers and sellers is more transparent and allows the parties to better look after their own best interests. This is probably true if the parties are known to each (perhaps farming neighbors) and assuming both the buyer and seller are reasonable people who are able to get along. Unfortunately, this isn’t always an easy relationship and even transactions that involve families can quickly deteriorate into a distrust between parties. Appointing an agent ensures that important arms-length interaction likely to deliver the best price and terms suitable to both parties. Of course, it’s much easier for the real estate agent to play the ‘bad guy’ in a transaction if needed, preventing any bad blood between a buyer and seller that can easily kill a deal.
Keep in mind that a seller can reject a potential buyer’s offer for any reason. An agent helps by speaking on behalf of the vendor in tough transactions and smoothing things over to keep both parties from getting too personal. The same is true for the vendor, who can benefit from a strong real estate agent who will represent their interests without turning off potential buyers who want to niggle about the price or terms.
If you decide to buy or sell a property, the Contract of Sale is there to protect you and ensure that you are able to back out of the deal if certain conditions aren’t met. The interaction between the solicitors and agent are very important in ensuring all features and conditions are properly conveyed and there are no grey-areas to either party.
An experienced real estate agent deals with contracts and conditions on a regular basis, and is familiar with which conditions should be used, when they can safely be removed and how to use the contract to protect you, whether you’re buying or selling. Similarly, the agent has extensive experience in past ‘of-like’ transactions and the likely categorisation of the property and corresponding GST treatment. An agent also understands the rules for foreign investment and the complexities of dealing with the Foreign Investment Review Board (FIRB). Transparent discussion between the vendor’s solicitor and agent can further save the vendor significant legal discovery costs and streamline the sale process to the benefit of both parties.
If you are working with a licensed real estate agent under an agency agreement, your agent is bound by common law (in most states) to a fiduciary relationship. In other words, the agent is bound by law to act in their clients’ best interest (not his or her own), hence an agent can’t knowingly lie or misrepresent a property.
Agents typically, rely on referrals and repeat business to build the clientele base they’ll need to grow their business.
Finally, if you do find that your agent has misrepresented the property, you will have more avenues for recourse, such as through your agent’s business, professional association (such as the REIV) or possibly even in court if you can prove that your agent has failed to uphold his fiduciary duties.
When a buyer and seller work together directly, they can (and should) seek legal counsel, but because each is expected to act in his or her best interest, there isn’t much you can do if you find out later that you’ve been misled about multiple offers or the properties condition. Besides, having a lawyer on retainer anytime you want to talk about potentially buying or selling a property will likely cost far more than an agent’s commissions by the time the transaction is finalised.
If bypassing a real estate agent to save money, keep in mind that it’s highly unlikely that both the buyer and seller will reap the benefits of not having to pay commissions. If selling your property on your own, you will likely price same based upon comparable ‘of-like’ property prices achieved within your area. Typically, these properties will have been sold with assistance an agent. This suggest that the seller gets the keep the percentage of the home’s sale price that might otherwise have be paid to the real estate agent.
However, buyers who are looking to purchase a property sold by owners may likely assume they can save some money on the property by not having an agent involved. They might even expect it and make an offer accordingly. However, unless buyer and seller agree to split the savings, they can’t both save the commission.
While it’s possible for someone to sell their own property, a quick look at frequently asked questions on “for sale by owner” websites highlight the process isn’t as easy as many people assume. And when you get into any difficult situation, it really does pay to have a licensed professional on your side. It’s certainly not like jumping in an Uber.