Keep your eye on the games real estate agents play

By MARY HOLM

I have worked in real estate in England and New Zealand, and in my view the industry in this country does have problems.

The fees are too high, and the perceived glamour and the possibility of huge earnings attract far too many people for the number of properties available for sale. A few do spectacularly well, but most don't.

A high percentage, struggling to survive on commissions alone and with minimal support from employers, simply drop out.

The other consequence of inflated commission rates is that too many salespersons, when such a large chunk of their income is at risk, put their own interests ahead of those of the vendor.

The most common shortcut by a listing agent is to keep the new listing away from office colleagues as long as possible, so that all the first viewings are by their own potential purchasers.

The vendor is then pressured into accepting the best offer from that limited range of viewers, without realising that better offers may be forthcoming from other parties blocked from viewing because the lister did not want to share the commission with another salesperson.

In England, there were no entry examinations and no requirement that agents belong to any professional body, yet ethical standards were higher than here.

If it were possible to overhaul the whole industry here, the first step would be to reduce commission rates and require employers to pay part of the salesperson's income, with the aim of encouraging respectable people to sell real estate as a long-term career and employers to see sales staff as an investment.

The number employed in the industry would drop. Each sale would bring in less commission, but there would be more listings available per person.

Having income from more sales reduces the temptation to risk one's reputation for the sake of securing one more sale.

Also, salespersons would not have the time or the need to befriend lonely old ladies to persuade them to put their big old villa on the market and move to a unit.

Your earlier correspondent was annoyed that agents know so little about what they are selling. On this one I am on the agents' side. Too often they are dependent on the honesty of the vendors as the only practical source of information about the property.

Surely the REINZ could devise a form on which prospective purchasers could submit questions for written reply by the vendor, who would take responsibility for the accuracy of those answers, thereby relieving agents of the liability.

Thanks for some great tips for sellers, buyers, salespeople and even owners of real estate firms.

First, for sellers:

* Before signing anything, insist on meeting all the salespeople from the firm at your house.

* Also insist on widespread advertising from the start, so that all potential buyers, not just the ones your agent is working with, know about your house.

For buyers:

* Don't wait for the REINZ. Put your questions in writing anyway, and request written answers from the seller. If they won't respond, what are they hiding?

For agents:

* Try another job. Or look for firms that do the following

For firms:

* Consider paying a retainer to your sales staff. Surely, in the long run, it's in your interests to have competent and experienced people on your team.

* Tell the world, via ads, that you are doing this. Many people may prefer to list with you.

I have sold three properties privately.

Some years ago I sold a house in a deceased estate in Ponsonby. It sold in a week. I also sold a section in Tauranga within a few weeks.

The last house I sold was this year for nearly $400,000 in a central part of Tauranga. Agents said buyers were waiting.

I advertised privately in the BOP Times on a Wednesday, and had an unconditional agreement by noon the next day, saving $16,000 in fees.

I have my own beachfront house at the Mount with a value of $2.5 million.

I am constantly pestered by agents who have buyers waiting. The agent's fee is over $60,000.

A good sign on the main road outside my house, maybe a few thousand dollars for advertising, and I guarantee this house will go.

Agents' response to reducing their fee is, "What if we can get you more?"

It's all claptrap. If someone wants your house they will buy it. Just be patient.

Who better to sell your own house? I know everything and all the selling points and features. Agents often don't point all these out. I accept sometimes you need extra help, but give it a go first.

I've often criticised American Robert Kiyosaki's popular book Rich Dad, Poor Dad, but I think he makes an interesting point about hiring agents and others.

"I have expensive attorneys, accountants, real estate brokers and stockbrokers," he writes. "Why? Because if, and I do mean if, the people are professionals, their services should make you money. And the more money they make, the more I make."

The only problem is the way most New Zealand real estate commissions are structured. Here's an example: The salesperson gets 4 per cent of the first $200,000, 2 per cent of the next $300,000, then 1.5 per cent of everything over that.

Let's say an agent says your house is worth about $550,000. If they sell for that, they get $14,750.

But if they sell for only $500,000, they get $14,000. Your price is cut by 9.1 per cent, while they get only 5.4 per cent less.

For them, it's better to take the money and run off to the next sale, rather than put in more hours for not much more gain. So they talk you into accepting that the market has dropped. But it's not better for you.

It's possible to negotiate a different fee structure, putting more weight at the top end. How about a flat fee of $6000 on $500,000, and then 20 per cent after that? The new commission, compared with the old, would be: On $500,000: $6000 versus $14,000.

On $525,000: $11,000 versus $14,375.

On $550,000: $16,000 versus $14,750.

On $575,000: $21,000 versus $15,125.

The salesperson gets much more if they bring in a really good price. But you won't mind paying $5000 extra if you're still netting $20,000 extra.

I negotiated such a deal once, although agents I have worked with since have refused to negotiate. It makes you wonder how much faith they have in getting the price they wave in front of you.

If you're in a strong position - the salesperson really wants the listing - give it a try.

But back to your point, about whether you need an agent at all.

When you sell your own house it's rather like spending lots to do up a house before selling it. You will never know how much more you would have got if you had used an agent, or how much less if you hadn't done up the house.

Obviously, some salespeople would make more difference than others. While we buyers all reckon that agents' patter is immaterial, some agents do consistently outsell others.

But whether even a top agent could bring you more than $60,000 extra, minus the cost of the sign and some ads, is highly debatable.

Kiyosaki goes on to say, "People who sell their house on their own must not value their time much." But, in New Zealand anyway, the extra hours it takes to sell your own home could be handsomely rewarded.

More of an issue, perhaps, is the stress of negotiating prices - especially if it happens to be with someone you know. And there's little doubt that some people are better negotiators than others.

But perhaps you could hire a professional to do the negotiating. That won't cost $60,000.

Yes, real estate fees are huge, but no one has been able to come up with a better way yet.

I'm a real estate salesman. Over the last 20 years or so in my area (Bay of Plenty) as many as 20 companies have set up with flat fees or lower fees. Not one of them remains today. (The largest was probably some lawyers.) In this sellers' market it's so easy to moan about agents and sell privately. I predict that within a year people will again be ringing up agents pleading, "Please sell my home."

I have travelled up to 500km in the pursuit of selling a home, then had the owner give that house to someone else to sell. The key here is that most professionals, tradesmen etc get paid whether they do a good or bad job, or in fact never even do the job. Real estate salespeople only get paid for results.

I have just been talking to a person who sold his home himself. He was of course very pleased he saved the fees of $7000.

He sold for $195,000 on a full section. We actually sold one a few doors away for the same price on a half section. My value on his home is $220,000.

If only he'd had phoned me I would have given him that info for free. Just a thought in our favour perhaps.

I'm sure agents have a better feel for pricing than DIY sellers - which is why a smart DIY seller will discuss pricing with several would-be agents.

But, with every house different and every buyer and seller's needs different, even the best agent can't accurately predict sales prices.

Maybe you would have got him more, after commission. Maybe not. It's certainly more feasible when the fee is $7000 than when it's $60,000.

I wonder why the 20 companies that offered flat fees and lower fees failed. It will be interesting to see how our man who is offering $4000 commissions, in last week's column, fares - although we can't draw sweeping conclusions from a sample of one.

Does anyone know of any research on the subject?

As for your 500km trip, and the fact that you get paid only for results, I doubt if many hearts are bleeding for you. Sure your job must be discouraging at times, but nobody is forcing you to do it. And let's face it, if you haven't done very nicely thank you in the last few years, you shouldn't be in the game.

One last point: Not many professionals or tradespeople get paid if they don't do the job, or even if they do it badly. At least I hope not.

Oh, Mary, shame on you!

One of your correspondents two weeks ago inquired about share portfolio monitoring software, which you said you were not aware of.

Your very own Herald website has a marvellous StockWatch program, which will do all your correspondent wants. I've used it for a number of years now, and it's excellent.

So it does, at:

www.stockwatch.co.nz

.

Not being a buyer of individual shares, I don't need such a service, so I didn't know about it.

Your response was one of many to the reader's request. I could fill the column with them, if it weren't for the outpouring over real estate fees.

Still, I really appreciate all the replies, and plan to run several others over the next few weeks.

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