Buying Property For Dummies Read online

  From 2012, real estate agents will be licensed and regulated on a national basis, replacing the former state-based real estate agent licensing system.

  Understanding a real estate agent’s motivation

  When you’re dealing with real estate agents (known also as selling agents) as a property buyer, the first and most important piece of information to remember is that their primary obligation is to look after the best interests of their client. That means they’re working for the seller (ordinarily known as the vendor) of the property — not for you, the purchaser. (Agents have a legal obligation to act for the vendor, so they’re not acting wrongly at all.)

  Many selling agents are on fairly low-base salaries and make most of their money from the commission they make on the sale of a property. The commission they earn is a percentage of the sale price of the property. Sometimes the commission is tiered, so the agent may get an extra bonus if they sell the property above a certain pre-agreed price. Understandably then, the primary motivation of a selling agent is to sell a property for as much as they can possibly get. When the property sells, the agent gets paid.

  For a selling agent to sell a property at the highest possible price, she aims to encourage the interest of as many buyers as possible and promote competition among them. Everything an agent says and does is motivated by this aim. When you regard everything a selling agent tells you in this light, your expectations are more likely to match the outcomes achieved.

  Not all properties are quick and easy for a real estate agent to sell. Sometimes, when a property is taking months to sell, an agent’s primary motivation is just to get a property sold and off his books so he can make time for other properties. This scenario can provide a window of opportunity for the canny home buyer (see Chapter 12 for more on negotiating with the agent).

  Getting to the truth on property value

  One of the biggest criticisms of selling agents is that they’re flexible with the truth.

  Dealing with the purchaser: When selling a home, the agent’s in a position to quote buyers a lower price than you might think a property should sell for. Some states now have guidelines to curtail this practice — called underquoting — by forbidding agents to state a price below the vendor’s asking price or their own current estimate of the likely selling price. But agents generally quote at the lower end of their own estimated range, a practice they defend by arguing that their role is to maximise the number of people who make an offer or attend an auction. A favourite saying of real estate agents is ‘Quote ’em low, watch ’em go; quote ’em high, watch ’em die.’

  Dealing with vendors: When trying to get the listing of a property, a selling agent may over quote the price she thinks the property is going to sell for — at least at first. Then, if the property fails to draw offers at that price, she may backtrack, talking down the original quote.

  Ordinarily, a selling agent talks up the value or features of a property — just as any salesperson does. He places more emphasis on this aspect of a sale if the property is lagging on the market. The agent can also exert pressure on you as a potential buyer in more subtle ways by suggesting that the vendor is anxious to sell and that if you put in a good offer you may be able to snap it up quickly. Another ploy is to talk up the interest of other buyers in a property in an attempt to get you to raise your offer price.

  Be sceptical about an agent’s selling approach, and do as much research as possible in order to see through the smokescreen to the most likely truth. Here are some questions to ask that may help show a selling agent you’re alert to separating truth from trickery:

  Are there any problems with the property?

  Has the vendor already bought elsewhere?

  Have you received any other offers?

  How long has the house been on the market?

  Why is the vendor selling?

  Don’t count on getting straight answers to these questions, but the way the agent answers them may give you clues as to whether she’s a trustworthy professional or one to be wary of.

  You can’t always rely on an agent to tell you the whole truth about a property. While the contract will inform you of any really important issue about a property (a problem with the title, for example), an agent is unlikely to draw your attention to the fact that a property has rising damp or that a freeway is going to be hugging your letterbox in the near future.

  You can investigate issues relating to a property by organising a pre-purchase building inspection report and getting your solicitor to do some research on the title. A building inspection report checks the overall condition of the property inside and out. See Chapter 5 for all you need to know about this pre-purchase report.

  Laws in most states and territories now prohibit some of the misleading practices that were widely used by selling agents until recently. One of the most notorious was ‘dummy bidding’ at auctions, where agents planted employees or friends among the auction crowd to pose as a buyer and bid the price up to a pre-determined level. Some agents were also known to take imaginary bids from non-existent bidders. Today, agents in the Australian Capital Territory and some states must register all bidders to prove that every bid is genuine. (You can find out more on dealing with the auction process in Chapter 11.)

  Getting a real estate agent to help you find a property

  If you think finding a new home is just a matter of ringing a local selling agent, telling her what you’re looking for, and then sitting back to wait for the agent to send properties your way, think again. Some selling agents may work like this — for instance, in quiet suburbs and country areas. However, in inner-city areas, unless you’ve got a couple of million or so to spend, mostly you’re on your own in your search.

  As the average first home buyer, you need to do a bit of work to chase up properties for yourself. Agents are working for the sellers of a home, not the buyers, and most have enough on their hands chasing the next commission to concern themselves with every potential buyer who walks through the door.

  The best way to get an estate agent to help you is to show that you’re serious. Start by calling the agent and ask if any of the properties on their books might suit your requirements. When you’re asked to leave your name and number, don’t expect a call back right away with the first suitable listing. Be proactive and call again every week or so to show you’re a genuine, or motivated, buyer.

  If you find an agent prepared to help you find a home, make sure you do your homework. Be clear about what you’re looking for and what you can afford. Busy agents don’t pay much attention to someone who walks in saying: ‘I’m not sure what I’m looking for, but I want to buy a house.’ Before you contact any agent, review your list of must haves for your dream home (I show you how to put this list together in Chapter 3). Remember to be realistic and a little bit flexible with your wish list.

  Some people hope that by developing a relationship with an agent they’re likely to hear about and, perhaps, purchase a property before the property is officially listed. An agent, however, is unlikely to accept any offer before getting as many buyers interested as possible.

  Give the selling agent a rough (but accurate) idea of the price range you’re looking at, but don’t tell him your upper limit. Very often the prices he quotes miraculously inflate to match your top price.

  Putting In an Offer

  If you’re keen on a particular property and want to make an offer, you need to do so through the agent. Each state and territory has its own procedure for putting in an offer. In some jurisdictions, you need to make an offer in writing, sometimes by using a special form. Agents are only obliged to forward formal written offers to vendors. (Find more information about putting in an offer in Chapters 11 and 12.)

  Be aware that the agent may use your offer as proof to all potential buyers that other people are interested.

  Putting in an offer, even in writing, does not guarantee that you are the buyer of a home. It is not until both you and the vendor sign a contract
of sale and you pay a deposit that the transaction is finalised.

  Dealing with Buyers’ Agents

  A growing demand in recent years for agents who act for the buyer means another style of agents has entered the property market. Buyers’ agents, also called buyers’ advocates, are often ex-selling agents who use their inside knowledge of the industry to help buyers find a suitable property and negotiate on their behalf.

  Sit back, put the kettle on and your feet up while you read about how you can let a buyers’ agent do the leg work and take the hard work, and the stress, out of looking for your property.

  Buyers’ agents claim to help buyers by

  Getting you access to properties not yet advertised — ‘the silent listings’.

  Looking for faults and flaws in a particular property — both in terms of structure and suitability to your needs.

  Removing emotion from the purchasing decision and process — you can hand over the emotional and stressful aspects of looking.

  Saving you the time and stress of finding suitable properties — you tell the agent what you’re looking for, how much you can spend and where you’d like to buy, and he comes back to you with a selection of properties that may fit your bill.

  Using their understanding of the property market, as well as their inside knowledge of the tricks and traps of the real estate trade to get you a better price on a property — agents can advise you whether your preferences are realistic, given how much you have to spend.

  Finding a competent buyers’ agent — avoiding the pitfalls

  Like selling agents, buyers’ agents need a real estate agent’s licence, and are regulated by the real estate agents Act and regulations in each state.

  Theoretically, this legislation ought to protect you from disreputable conduct among buyers’ agents. But an Act doesn’t protect you from incompetence. Here’s why:

  An incompetent buyers’ agent isn’t any better at finding you a good property at a good price than you are — and the agent charges you a lot of money for the service.

  Some incompetent buyers’ agents may become victims of a selling agent’s ploys and actually end up pushing up the price of a home by signalling their interest too strongly.

  How do you find a competent buyers’ agent? The easiest way is to get a referral from someone you trust and respect. To put your mind at ease about a buyers’ agent’s competence, especially if you have to resort to finding an agent through the Yellow Pages, here are some questions you can ask:

  Can you make available details of some examples of successful purchases from the past six months? Having access to the names and numbers of two or three clients so you can interview them, instead of relying purely on testimonials, acts as a confidence safety net.

  Do you also act as a selling agent? Buyers’ agents can also be selling agents but not for the same property.

  Do you ever recommend against buying a property?

  How do you charge? Check how much the agent’s formula works out in dollars on the particular price of the house you’re considering.

  How many properties have you bought for clients over the years? To be worth your hard-earned money, buyers’ agents need a very good understanding of the property market in general, and specifically what makes a good property.

  How many times have you bought a property prior to auction?

  What experience do you have in real estate? Preferably, the agent has years of experience in real estate, both as a selling agent and as a buyers’ agent. The agent also needs to have mastered the art of negotiation. Note, though, that some good buyers’ agents haven’t worked as a selling agent.

  Many buyers’ agents claim to be property investment consultants. While many agents do have a lot of knowledge and experience to offer someone who is looking at property as an investment, your best bet is to approach this advice with a grain of salt. Some are really just in the business of promoting properties they’re earning a commission from. Check what kinds of properties they’re recommending to you. Be suspicious if they’re newly built properties and if the properties seem to be a part of a multi-unit development.

  To juggle or not to juggle

  Some buyers’ agents act as selling agents simultaneously. As long as they’re not simultaneously buying and selling the same property, the law allows this juggling of roles. But is it ethical? Some buyers’ agents say they refuse to act as selling agents, claiming it causes a conflict of interest and arguing that an agent should clearly be acting either for buyers or sellers.

  Counting the costs of using a buyers’ agent

  If engaging the services of a buyers’ agent sounds like the answer to your prayers, remember to investigate the costs.

  Buyers’ agents can charge for their services in three ways:

  Flat fee: Where you pay a fixed amount for the agent’s services no matter what the eventual purchase price of the property.

  Percentage fee of your budgeted purchase price: If you’re looking for a property around the $450,000 mark, for instance, the buyers’ agent may charge you a 2 per cent fee of $450,000 whether he’s able to buy a property on your behalf for $430,000 or $465,000. This percentage fee is agreed to at the beginning of the search process.

  Percentage fee of actual purchase price: The buyers’ agent charges you 2 per cent of $465,000 (where that amount is the actual purchase price).

  Sometimes agents charge an engagement fee of several hundred dollars upfront as a form of retainer for their services. When they find and successfully purchase a property on your behalf, you’re charged a further ‘success fee’ that may be charged in any of the three ways just outlined.

  If you engage the buyers’ agent solely to make a purchase on your behalf — either through a private sale or through an auction — the agent is likely to charge you a lower fee than if sourcing the property as well. The costs to you may include an engagement fee, whether the agent’s successful or not, as well as a success fee if the agent makes the purchase.

  Whichever way a buyers’ agent charges you, the agent is required by law to give you a clearly set out listing of all fees, including an estimate of the real dollar value. For example, on a property value of around $450,000, the agent can’t just tell you that the charge to you is 2 per cent of the eventual purchase price of your home. The agent must set out the dollar value of $9,000, plus any other engagement fees, building and pest inspection fees and legal fees.

  Negotiating a purchase on your behalf

  Even if you feel confident to find a suitable home yourself, you can engage a buyers’ agent to make the actual purchase on your behalf.

  Buyers’ agents claim that, because they understand the psychology of negotiation and can see through the ploys so often employed by selling agents, they can sometimes get a property for a better price than you could on your own. Or, a buyers’ agent can help ensure you don’t miss out on a property — for instance, if you don’t have the expertise to put in an offer that an agent is going to take seriously.

  Getting someone to bid on your behalf is especially helpful in the frenzied atmosphere of an auction. A buyers’ agent can be very adept at working an auction crowd, and at intimidating the auction agent and other bidders to get a good price on auction day. Some buyers’ agents have become notorious for their entertaining techniques on auction day — a performance that they justify as a response to the theatre and frenzy of the average auction.

  Understanding What (Selling or Buyers’) Agents Can and Can’t Do

  The government regulator, the Australian Competition & Consumer Commission (ACCC), is responsible for ensuring small businesses comply with the Trade Practices Act 1974. The ACCC, in consultation with the Real Estate Institute of Australia (REIA), makes available a guide specifically for the real estate industry. This guide, Fair and Square: A Guide to the Trade Practices Act for the Real Estate Industry, informs real estate agents about their rights and responsibilities under the Trade Practices Act.

  Agents m
ust not

  Make false or misleading statements about a property.

  Make predictions about property trends that they can’t substantiate.

  Make property valuations that are unrealistic.