Market Comment – Monday April 13th 2009

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Vendor Advocacy
Vendor advocates are popping up all over Melbourne. The majority of Buyer Advocates in Melbourne do some sort of vendor advocacy.(Apart from a potential legal conflict of interest, the moral dilemma would be next to impossible to cope with). There are quite a few selling agents who are promoting vendor advocacy quite strongly. After the debacle 10 days ago with a vendor advocate I thought we would look further at
Vendor Advocacy. The worst situation is the Vendor Advocate who is not even licensed.

Typically a vendor advocate will interview three agents within the area the vendor is selling and make a recommendation as to which agent to use. Once an agent is chosen, the vendor advocate will negotiate the commission. This is a fundamental problem. The vendor advocate is being paid a percentage of this commission. In other words the vendor is paying an advocate to try and lower his own fee. Doesn’t really make sense does it?

The vendor advocate will then monitor the entire sales process. They will work alongside that Agent during the selling campaign making sure, on the vendor’s behalf, that the marketing and advertising are right, the costs are crystal clear and under control and the Agent does everything they say they will do. What surprises me is that, after the “vendor’s advocate” has decided who the best agent in the area is – why does he need to do this. Are all Real Estate agents so unscrupulous that they need monitoring? Why doesn’t the Government do something about these agents?

If you look at all of these facts then, look at motivation of the agent you will also see another huge negative. If the agent is paying the vendor advocate up to 40% of the commission it leaves only 60% for their agency. If the Real Estate agent has three houses in a similar area, with similar attributes, at a similar price; two of which are paying 100% commission and 1 of which is paying 60% commission, which ones do you think he or she is pushing the hardest?

Finally, all offers are “vetted” by the vendor advocate. If there is to be any negotiation sometimes the vendor advocate does it, even though he hasn’t dealt with the potential purchaser before, sometimes the agent does it – then what is the vendor paying an advocate for or what’s worse, neither of them communicate clearly and the following can occur:

After inspecting a property with our client, we found that it was of interest. It was an unusual property that was well over the average value in the area. I spoke to the principal of the agency and asked how the offers were going to be handled. This is not unusual as many agents do things differently. Some will have a boardroom auction; others will say put your best offer forward others will say first person to offer ‘X’ dollars will buy the property.

When queried the principal of the agency told me a “Vendor Advocate” was in charge. I asked who was holding the authority. Her reply was that her agency held the authority but the vendor’s advocate was putting the offers to the vendor. She asked me to call him. He explained to me that if we presented an offer of $850,000 that would buy the property – no ifs or buts. I qualified this with him and asked when this would happen. He explained that at 5.00pm he was meting with the vendor. If we had a signed offer he would have it countersigned. At 4.55pm I called him and said I had a signed offer and it was being faxed through to the agent now. His response – the property is yours. I asked for signatures straight away. He replied we would have them within the hour.

At 5.45 the principal of the real estate agency calls me to explain the property has been sold to someone else. Documents are signed and the deal is done. I asked what had happened and was told there was an offer of $881k and this was accepted by the vendor. When I explained what the Vendors advocate had told me – she replied I would need to take this up with him. I explained that my clients had asked me to find out – “what buys the property” I explained I was not asked for more money, nor was I asked for our “best offer”. So whilst my client missed out so did the vendor. Due to a total lack of communication, the selling agents made it impossible to have any real competition.

When I was finally able to catch up with the vendor advocate, I asked what happened. He explained that he was unaware of the other offer. The other party had been told the property would be sold at 5.00pm and they had not made an offer of $850k. They were told that another partywas involved and were given an opportunity to increase their offer above ours by the agency principal. We were not given the same consideration; in fact we were told verbally we had secured the property and we were just waiting on signatures.

Overall a total lack of communication between the agency and the vendor advocate meant their vendor did not get the best price. As a buyer, when dealing with vendor advocates you must try to communicate with both parties. Even when everything seems very obvious, even when you are told what is happening, it may not be the case. As a vendor, be very careful who you choose to be your vendor advocate. More often than not you will do much better going directly to any of the more recognised agents in the area.

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.

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