Is it worth paying a Buyers’ Agent to buy your home or investment property?
Our parents' generation tried to get rich by looking after the pennies as the pennies would then look after the pounds. The modern generation's strategy is about how well you can do something once or twice compared to a professional who does it every day. So, is it worth paying a Buyers’ Agent tens of thousands of dollars for something that you might be able to do yourself?
We chatted to Chris Gray, THE EXPATRIATE Property Portfolio Specialist, who has presented over 400 live TV shows and interviewed some of the best property experts in the country and with a depth of experience dating back to the 2000s. Chris has overseen the purchase of hundreds and hundreds of homes and investments. Here are his thoughts on weighing up whether a Buyers’ Agent is right for you.
1) Can you perform better than even an average professional?
A professional in any industry, who has the experience of 100+ property purchases with a proven track record of success, is bound to be better qualified to do something than someone who does it once, twice, or even a few times. A lot comes from learning from your mistakes, gaining practical experience over time, and successfully completing multiple transactions.
2) How well do you know the agent and how well do you know all of them?
People do business with people they know, like, and trust, and the more they have those three attributes, the more likely they are to do business with them rather than with a stranger. When you use a buyer's agent, you benefit from the long-standing network the Buyers’ Agent has developed over time. For example, Kel, a Your Empire Buyers Agent, grew up in the Eastern Suburbs. Kel is part of the community from his time at school with the real estate agents. His parents know their parents. His wife knows their wives. He went to work as an agent for ten years and worked alongside them as a trusted colleague. He's now been a buyers agent for ten years, dealing with them every day. That's all he does – he talks to them every day, and he buys property for a living. Even with all the knowledge Chris Gray has, he is smart enough to know he can't compete with Kel – it's almost impossible to beat a 20 – 30-year relationship.
3) Can you identify the right property?
In a booming market, everything sells. In a flat or downward market, A-grade properties still sell. B and C grade ones don't. Chris doesn't follow the auction clearance rates. He knows an A-grade property still has a 90% clearance rate before, at, or immediately after an auction. If the auction clearance rate is 75%, A-grade is 100%, and B and C-grade is only 50%. So do you know what doesn't sell and why when the tables turn because that takes intimate knowledge? Do you know why the banks Exclude some areas and will only lend a certain percentage on specific properties?
4) When you find the right property, can you secure it?
Once you find the right property for you, are you guaranteed to secure it over the next buyer? Who will the agent sell it to if two buyers offer the same amount, and why? If you've never done business with the agent before, how will you go against someone that has bought 40 or 50 from them? If you've spent 6, 9, or even 12 months searching for that unique property, even if you offer more money than another buyer, will you still be guaranteed to buy it?
5) Can you buy a property that is not even advertised to the public?
Some fantastic inside advice is that as "Your Empire" buyers’ agents, never go to auction on an investment property and rarely go for a home purchase either. Why? Because if it's an A-grade property with competition, you'll nearly always pay more. We recommend that our clients sell at auction, but not to buy. So why would an agent or vendor sell to us prior to auction if they could get more at auction?
It's a bird in the hand, and often people will take less money for a more straightforward transaction. Do you get top dollar for trading in your car? No. So why do most people do it? They hate dealing with tyre kickers and want the money to enjoy a brand-new car quicker.
A top performing agent will make more money selling ten properties for $1m than concentrating on selling eight at a better price of $1.1m, so they're interested in volume and transacting quickly
If a vendor bought their property for $250k 20 years ago and it's now worth $1m, often they'll take that $1m for a quick sale, then go to auction and maybe get $1.05m
They love saving on fees. If they could sell for $1m with no agent, they concentrate more on saving the $20k agents fee than a person that got $1.1m at auction, paid an agent $20-25k, and netted $1.075m. The pain of paying out fees to an agent outweighs the pleasure of receiving extra cash.
They dislike agents, buyers, open homes, and the whole process
They are very private and don't want their friends, neighbours, tenants to know their business.
6) How emotional are you when buying?
Even when you're buying your dream family home, it pays to keep a financial head-on still as often your home is your biggest monetary asset on retirement and is also used to springboard your and your kid's financial future. It's very easy to get emotionally involved in a purchase, especially when you have one of the top agents selling it and using their skills to move your focus on the positives rather than seeing the negatives. Having a third party that isn't emotionally connected to a transaction can provide clarity throughout the purchase. Chris will typically not buy if the property doesn't have parking, we know it stunts the growth. He avoids buying when he knows there is about to be a block of units built right outside the front windows, and he finds out if a property has a sound construction reputation through the Building and Pest Report. Properties with existing building faults must be avoided at all costs.
7) If you pay $1 more than the previous bid does that mean you’ve paid the market price?
Unfortunately, it doesn't. Many buyers ars shocked when their bank valuers the property after the auction, and they've got to tip in tens or hundreds of thousands of dollars more after the fact. Many bank managers and mortgage brokers dread Monday mornings when they find out what their clients have paid at the weekend.
Buyers’ Agents typically charge around 2% + GST of the purchase price, which can add up to a considerable amount of money if you're buying a family home or multiple investments. It's even harder to write that cheque if you think how many hours it's taken you to earn it after tax. However, it's essential to weigh it up:
How much you will pay compared to what a Buyers’ Agent might save you from getting on to it earlier before the competition pushes the price up
Getting a property that you might not have otherwise seen given it was off-market
If the Buyers’ Agent will be able to find a better performing property as even a 1% difference every year can make hundreds of thousands of dollars difference
How quickly they can do it as if A-grade properties are constantly rising, a few months' difference can make the fee in itself
How efficiently can you do it from overseas?
Buyers’ Agents are definitely not for everyone, especially those with a limited deposit. If a first home buyer only has $100k deposit for a $1m property i.e., $50k or 5% down and 5% stamp duty, then a buyers agents fee would eat too much into that deposit and they would then only be able to buy an $800k property.
For clients who see the value in a Buyers’ Agent, we recommend that everyone gets an entirely independent valuation before purchasing. Valuers are conservative in nature, and so if you get to buy an A-grade property within that valuation range, it almost guarantees you never overpay for a property. It makes our job ten times as hard, which is why most other Buyers’ Agents would never do it, but it ensures that you've bought an excellent property for a fantastic price.
About Chris Gray: Chris Gray is CEO of Your Empire, a buyers’ agency that buys homes and investments for time-poor professionals – searching, negotiating, renovating, and managing property on their behalf. Chris has spent over 10 years as the host of ‘Your Property Empire’ on Sky News Business channel, where he’s interviewed various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www.yourempire.com.au and follow Chris on Facebook: @YourEmpire
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