There are several areas in Real Estate that are rarely spoken of. The area of advice and responsibility is one however, legislation has added to the grey
There are Fair Trading guidelines that govern how participants in the real estate industry perform, their responsibilities and what they can and cannot do. These regulations also govern who can get paid and who can participate in a Real Estate transaction.
Part of these guidelines is how house values are to be advertised and put to market. Here are some things to consider:
Whilst agents are typically backed by Principal and Indemnity insurances, their assessments of value are generally “all care and no responsibility” and definately no credance should be taken with any financial advice.
The role of Valuers and for example Building Certifiers is different as they have ongoing culpability for what they have committed to in their advice and reprots. Agents both Sales and Buyers agent roles do not offer financial advice per se yet the purchase of the family home is one of the largest areas that affect the average Australian household and professional advice can be major assistance.
While Agency roles have an “All care and no responsibility” aspect thier ability to assist in property matters is undeniable. From having strong market overviews to localised and specific property knowledge a professional with daily exposure to the market and its nuances can be invaluable for knowledge, leadership and advice. All agents however, should have professional indemnity insurance to cover any unfortunate circumstances or contingencies.
Ultimately real estate transactions are really about rapport, knowledge, trust, and influence. Develop this relationship with an industry professional(s) as it can be rewarding, insightful, comforting, and give you access to normally unavailable stock, as well as saving you money.
When a selling agent gets a listing they generally have had to compete against several agencies to win the listing from the Vendor. I successful the agents enter into a signed agency agreement with their vendors. This Agreement is where the agent’s recommended value of the house is nominated with a tolerance of 10% in range. In a strong market, greed often wins with greedy vendors and overzealous or shrewd agents quoting a high price for a property to get the business or marketing rights to sell. Typically, these prices should be within the realms of comparable sales and listings within the immediate geographic zone and timeframe.
What if there are no similar sales to compare to? What if the market is running and what was purchased yesterday for a price is not relevant today (as we have seen through 2021)? What if the Vendor is just unrealistic and wants an excessively high price?
When the property is marketed these agents then work hard to identify the value of the home in the market. Often they will have to work to close the gap between the Vendor’s expectations of price and what the market is telling them. Particularly relevant after a high market. Through 2021 vendors’ price expectations were being exceeded by the prices obtained. The sellers were in control. Price quotoations by agents were not only being achieved but on many occassions smashed as people competed to acquire property. But what happens when market setiment turns or ‘cools’? Bridging this price gap can be interesting.
For agents, this quotation gap is also their reputational risk. When sentiment turns in the market (due to interest rates, credit tightening, war, elections, etc) Listings that are overpriced, or “Overcooked” can lead to the agent losing the vendor as a client (for non-performance). this situation causes a break in the marketing momentum of the property for the Agent and puts the agents listing at risk. This also makes it hard to realise the initial price expectations that were quoted. At this point, control can shift to the Buyers advantage with regards to control of the price or ‘offers made’.
A sale only occurs when the Buyer and Seller can meet and agree. If they cannot meet there has to be an adjustment or accommodation until agreement is met or the buyer no longer participates.
The initial price that a property is marketed for will typically reflect the agency agreement range not where the market is operating. In the subsequent days and weeks, the price expectations will increase as the agents get feedback on the property, yet adverts will remain the same. Yes, they are bait balls to get you in but they are not also obliged technically to raise the advertised price unless formal offers have been received and considered at the higher prices.
In reality, the price is rarely adjusted or offers are not accepted before the auction (in a hot market) – as confidence is high. However, if the market shifts and purchaser numbers dwindle or cannot perform then the number of sales occurring prior to auction will increase. This happens as the market feedback on value has dropped, or their are not enough interested purchasers, or the vendors are feeling nervous or have uncertainty of selling at auction – confidence is fading.
Good agents quote the higher price ranges as they are reached because they are aware of the collateral damage that underquoting can achieve to their reputation and the offence to participating buyers. There is also the question of transparency in a transaction which is a major complaint of most buyers. Adjusting prices as they progress is a way to attract the interested qualified buyers and reject the time wasters.
The listing and marketing of property is a great way to advertise the agency, attract ptoential buyers, have conversations, not only about the property being marketed but also other listings or who is ready to sell their property to leverage into the property being shown.
For a Sales Agent every person at an open home is a potential prospect as a purchaser of the mentioned property or a potential listing (for their current home or a future sale of the purchased property). This is one area where agency professionalism comes into its own.
In the latter months of last year many agents were bringing auction dates forward…this never happens in normal circumstances as the agetns wish to work every lead possible and exhaust all angles. A hot market leads to big early offers and the agents wanting to close the sale out, secure thier earnings, and focus on the next property. As the market declines longer auction lead up periods will remain, there will be no shortened auction dates and the agent follow up will intensify.
The “Trusted Advisor” term is being used by many especially on the byers agent side. In real estate this title is usually relationship-based and not often backed by the appropriate insurances… except in financial advice circles. To really own this title the property professional in an advisory capacity must be able to add such great value to the relationship, provide transparency, clarity, leaderhsip and trust to a client. They do this by showing their proficiency, knowledge, connnecting industry contacts, networks and providers of goods or services that really benefit their clients (in this case) as the purchaser. Trust is a title that it earnt. Generally no agent can provide you financial advice and if they did it would titled “Statement of Advice” with all compliances, disclaimers, endorsements and insurances.
Firstly, the consumer protection regulations on how property is advertised are a little contradictory. The way properties are advertised is a source of frustration. This occurs when the vendor agency agreements require an agent’s value perspective. This value must be supported by comparable market values. What if the market is untested, or the property offered is so unique, or it is offered in a hot market? The agents price is a guide only, the old prices constrain what a property is offered for and cannot be accurate to what the property could likely achieve. This is a gap in the legislation.
In reality, Agents will downgrade prices to attract a larger buyer pool with the potential to hopefully attract and elevate potential buyers budgets. Emotion and FOMO is great fuel for this. The regulations create a guideline to protect the consumer but also create a false price expectancy from buyers. A vendor cannot be dictated to about what price he can achieve from the market as they always want the best price. The selling agents job is to get the best price at that particular time in the market.
This later problem is exampled when an agent’s advertising campaign starts with offers “Price guide “x” only to find this is 5 – 20% under the actual sale price…Perhaps one of the largest buyer complaints received. A fluid market is difficult for most purchasers to budget for and get certainty particularly when they are subject to finance. Cash buyers are few.
Secondly, Financing is typically based on and connected to the valuation and past price history of that particular property. If a credit provider identifies an area as having too much credit risk the amount you can borrow will be reduced. They do this by downgrading or doing their own valuations versus what was achieved at a sale contract price. They can reassess the loan to value ratio (LVR). If they downgrade the LVR the purcahser will have to fund the difference between Purchase Price + Stamp Duty and the mortgage contribution from a lender.
Buyers often forget that whilst they have their name on the title, they only retain control and the leverage while they can maintain their payments. The mortgagor is the real controller if you have been financed.
The real estate market is simple but also complex. Understanding the nuances of the market in an area is only one part of the process. It is important to have a grasp of not only the value but also of the psychology of all the participants as they all interact differently. Every Buyer, Agent (Buyer and Sellers), Property, campaigns, and Vendor are different. Together they can make some interesting combinations. There is an art in understanding and navigating the market and avoiding inevitable potholes that appear. Each transaction remains alive and changing, nothing is constant until the property is sold.
If you want help navigating the market, understanding the participants, its pitfalls, and opportunities then call Buyers Agent Gary Damp, Advanced Buyers Agents on 0425 232 1125 to help navigate and secure your property safely
Underquoting is frustrating. Courtesy of Unsplash
