I thought I would move away from the usual statistical diatribe and clearance rate discussions, which the REIV listed as 55% with another 49 auctions still to be recorded and talk about The Real Estate industry as a whole. Most people who are buying, selling or leasing a home, as a tenant or landlord will have some contact with an Estate Agent.
When selling your home you have three distinct choices to make.
The majority of people in Victoria who are not selling their home to someone they know such as a friend or a relative will use a selling agent. This agent may work for themselves or be part of a large franchise group. The agent will offer you an appraisal of your property. This is an estimate, in his opinion, of what the property will sell for taking into account current market trends, supply, demand and his/her capabilities. They will offer suggestions on method of sale. Some agents prefer to auction properties, others like a private sale method, of which there are some different names, such as expressions of interest, sale by set date, sale by tender or even sale by forthcoming auction. The agent will also make suggestions around marketing your property. For this, the agent will ask for both payment for the marketing and also a commission, usually a percentage of the sale price if they successfully sell the property.
When choosing an agent your main aim is to work out how they are going to add value to your sale. Most agents in Victoria will be looking for somewhere between 1.5% & 2.5% of the total sale price. So if your property is going to sell for $500k and the agents commission is 2% then you are going to be paying the agent $10,000 + GST if he sells your property. They will also ask for money for the marketing. A typical marketing campaign for an auction is about 1% or $5000 on a $500k property. In other words it could cost you $16,500 ($15,000 + GST) to sell your $500,000 property. You need to make sure the Selling Agent is going to add at least the value he is charging you.
A second option is; you can sell your home yourself. If you are completely comfortable that you know what the market value of your property is, you can market it yourself or there are a growing number of companies online that will market your home for you. You still handle all the enquiries, potentially run open for inspections, and handle any negotiations. When you organise a solicitor to produce a vendor’s statement, simply ask him to include a contract of sale and you can effectively handle the sale without assistance from a Real Estate Professional. This is becoming increasingly popular as the internet increasingly plays the largest part in advertising a property for sale. We call these “for sale by owner”. Please be aware that most of the time that I have dealt with an owner they have been well below market value. I have purchased about ten properties in this fashion and I am sure a selling agent would have made the owner more money than what the agent would have cost.
The third popular way of selling your property that is slowly gaining some favour is to sell with a vendor advocate. The vendor advocate offers to assist you in selling your property by finding the best agent to use. They usually offer to give you an appraisal of your property, interview the best agents in the area, choose the best agent, and negotiate their marketing fees and their commission structure. They do not charge you anything extra for this service as they share the commission that you pay the selling agent. The vendor advocate does not have to be a qualified, licensed real estate agent. They are commission sharing and therefore only the agent they choose needs to be licensed and may well simply be the one that will pay the vendor advocate the highest share. It goes without saying that anytime you hire someone to negotiate their own commission down; you will probably not get a good outcome. Be aware this also means you are paying two agents to do one job. It is highly unlikely you will get value for money under this scenario.
There are times where vendors will need to hire a consultant to organise the sale of their property. If you do, pay someone directly for their time to interview, assess and negotiate the selling authority on your behalf. By law, this person would have to be a licensed estate agent acting in a consultant’s capacity. At least then, you know they have no vested interest but doing as you have asked.
I am a buyers advocate, we do not participate in any vendor advocacy however I am asked to consult on properties frequently. Whilst I would not say that all selling agents add value to the selling process, I would have to say that the majority do. Whenever I am buying a home direct from the owner, I know I have a tremendous advantage in the assessment and negotiation of the property. When I am dealing with a vendor advocate, many times it is incredibly difficult to work out who is in charge. In fact quite often I know deals have been lost simply because there are two people trying to run the sale. And for those vendors I have spoken to who engage a vendor advocate, almost all have told me their commissions were much higher than the going rate. In other words, they paid more in commission not less.
If you are selling your home, I would consider the best option for you is to use a reputable selling agent or of course a capable licensed consultant; a good place to find these is the Real Estate Institute of Victoria. Members of the institute have to be licensed through the Business Licensing Authority; they have to have professional indemnity insurance and have to maintain their skill levels with courses run by the institute. But always interview at least three. Ask plenty of questions, and agree on property value, marketing fees and commission. Remember all estate Agents fees and charges are negotiable. It’s the law.
Ian James
Director
JPP Buyer Advocates