How some real estate agents hoodwink vendors
How some real estate agents hoodwink vendors
Real estate agents came under renewed fire in 2021 as the perennial issue of underquoting reared its head again. Many buyers felt they were being misled by agents capitalising on frenzied demand and fear of missing out (FOMO), as prices surged across the country.
However, today I want to look at agents from a vendor's perspective.
Estate-agent bashing is an easy and populist sport. Although it pains me to jump in as well, to follow are a few ways where some estate agents let their vendors down.
Cynical expectation management.
Generally, estate agents compete for listings. In a perfect world the spoils would go to the agent who demonstrated the greatest competency, local knowledge and understanding of the prospect. While agents often can underestimate prices to potential buyers, the opposite is often true for prospective vendors. Unfortunately, too often the winner is the one who promises the best sales price and/or the lowest fees. I say unfortunate for two reasons. One, there really is no correlation between an agent’s prediction and the final result. In fact the high price estimate is often unrealistic and may be a sign the agent is overreaching for the prospect’s business – a questionable behaviour at best. Second, the fees saved with a cheap estate agent may well be a false economy compared to the money that can be lost in a bungled campaign.
For agents who win business based on over-promising, invariably the next move is to massage down the newly-won client’s expectations; to introduce ‘new’ information that entails a revision downwards of the likely outcome. This process is repeated – more ‘new’ information, further downward revision – until the final prediction is more in line with what it should have been from the start. Of course the ‘new’ information is neither new nor material– it is just some spurious though vaguely plausible concoction.
Not going the final mile.
By-and-large the commission structure underpinning agents’ fees works well. The greater the sale price they secure, the higher their fee. Everyone – client and agent – wants to maximise the price. But there are some agents who maximise their income by pumping turnover. To this end, they encourage vendors to accept modest offers from buyers. For example they may recommend an offer $50,000 below the true market value for a property because it was easy to obtain. Although they forgo the commission on that $50,000 (which might equate to around $1,500), they’ve calculated it’s not worth the extra effort and time to achieve it. It’s crass unprofessionalism – achieving this last bit for their client is exactly what an agent is there to do!
Disregard towards buyers.
One should never make assumptions about which prospective buyer is genuine and which is a ‘tyre kicker.’ Often it is the surprise package that buys the property. Just as importantly, they might be the under-bidder who pushes the final sale price beyond the reserve or even into ‘cream-on-top’ territory. Nevertheless, some agents are recklessly complacent about buyers, be it in terms of returning calls, clarifying information or simply in their demeanour. A major no-no for me is the inability to provide the regulated vendor’s statement material in a timely manner (although this may be the fault of the conveyancer preparing it).
Poor judgement regarding timing and method of sale.
An agent must be flexible and tactically astute. Listing a property for auction or as a private sale just because that is what one always does isn’t good enough. Careful consideration needs to be given to how similar properties have performed recently, the comparative strength of local supply and demand and what else is coming on the market now. Only then should the decision be made about the method of sale and suitable campaign time frame. I recall an especially woeful example of what not to do: two agencies listing near-identical properties within the same apartment block on the same Saturday morning. Both auctions suffered: buyers didn’t go hard on the first property (knowing there was a second coming along in an hour) which effectively set a low benchmark price. Buyers then refused to spend much more than the low-ball benchmark on the second.
Most agents stick to the areas they know well. But occasionally one sees a sale board from an out-of-area sales agent. The outcome is often poor for the vendor. First the agent simply isn’t across the characteristics and idiosyncrasies of that micro market. And second, they don’t have the deep database of local buyers that they can tap into during the sales campaign (Every now and then, the out-of-towner agent gets lucky and there is a perverse result. Buyers are drawn to the listing thinking they’ll might snatch a bargain, which means they don’t. But that’s the exception). These agents should know they aren’t up to the task, but can’t let a commission pass.
With record auction levels across the nation in the final weeks of 2021, strong competition among vendors for buyers is likely to remain a defining feature of the market in 2022.
Choosing the right agent to sell your property will be a crucial component in achieving an optimal price, ensuring you capitalise on the surging market values we’ve seen over the last 18 to 24 months.