Real estate - Buying, Selling, Renting

Introduction

This is a rant, so I will start early and be as tactful as I can.  They say that buying or selling a house is the most stressful time of your life, short of losing a loved one, I tend to agree. Why is this? What about trading real estate is so stressful?  In my opinion the problem is the business model under which real estate agents trade. Their involvement makes something that should be a simple process into a complicated manipulative one.  I felt violated after I sold my last house.

Selling your House

In theory, this should be easy - List your home with an agent, choose the best offer, celebrate.  This may be the case if you have a particularly desirable property.  Try selling an average or substandard property in a depressed market.  This is when you find out who is working for whom.

I have figured out that agents are looking for a fixed fee to sell your property.  Sell a $600,000 property and they will want 2%, Sell a $400,000 property, they will take 2.5% it all works out to be about $15,000.  And here is the kicker,  if (when) they fire sale your property, in my case a listing of $610k taking offers of $560k, who loses?  I get $50k less than I was planning, the agent, Just on $1,000, money they didn't have anyway.

Fire Sale:

A successful real estate agent is one that can sell many properties, getting the maximum price for your property doesn't rate very highly in their order of priorities.
Agent Practice #001: "Suggest" an optimistic property value to gain the business, sell it fast.  This is not in your best interest.

Value of an agent:

What do you get for $15k?  Does your property sell for at least $15k more if you use an agent?  The short answer is probably not. Particularly if you have a commodity property,

So why use an agent? 

Not sure I have a good answer for that one.  90% of the advertising is done on the internet.  A few photo's and a description and you are done.
Home opens/Open House - have someone stand around while potential buyers and sticky beaks wander around checking out your home.  1 hour 6-8 times during the sale........I still don't know where my $15k has gone.

What you are getting is the convenience of not having to do this work yourself.  Don't be deluded that it is helping to sell your property for more.

Discount your realistic asking price by the agents fee, and it will sell fast, without the agent.  If your property is empty, consider the interest payments/opportunity costs. $600k @5%PA that's $600 per week that you agent is costing you by not selling your property.  Waiting 2 months for the buyer to give you an extra $5k , just to break even.....

My view is that agents are parasites sucking money out with little or no positive input into the process.

Get your bank to do a valuation (They know exactly what your property is worth), discount the agent's fee and your property will sell like hotcakes.  You may even get buyers in a mini-bidding war, you will probably get half of your non-agent discount back.  The buyer doesn't care agent or not, they are price driven!

Agent Contracts

Agents will tell you that they are "Working for the Seller" which is true when you are a buyer.  In reality they work for their agency and are maximizing income.  Servicing the seller is not high on the list of priorities.

Assuming that you use an agent, agents sell houses on a daily basis, they know exactly what they need to force you to pay their commission.   The agent contact is highly detailed and has far more clauses in it than the deed of sale/ letter of offer documents.  Is important that you weaken the agents position of power contractually.


Key points:

• Fixed Agent fee. Not critical but can help simplify cost estimates and calculations for penalties and bonuses 
• Fire Sale Penalties - If the property sells below your fire sale value, heavily penalize the agent. My suggestion is -20% until they reach fixed marketing costs (Approx $2k).  Two things can happen here: 1. it will be hard to find an agent to do this, 2. you will get an honest assessment of your property's market value (this is probably the most valuable information you can have).  To "snare" and agent willing to do this you may need to offer a carrot - a 20% performance bonus if it sells above your "Exceeds expectations" figure. This works in a depressed market, properties always sell well below their initial asking price. 
• Exclusive Period.  This clause allows the agent to collect their commission no matter who sold your property.Keep it short, 4 weeks if you can
• Inclusive period.  This clause allows the agent to collect their commission for any buyers that they have "Introduced".  Ever wonder why they get you to write down your name at a home open?  This is an "introduction" to the seller.  Keep this shorter still, 2 weeks after the exclusive period would be a good target.
• Net Sale price range.  Try to use "Net" sale price limits in the contract.  This way it exposes the agent's commission to the sales negotiation process. They may reduce their commission to make a sale. It helps to re-prioritize the importance of the sale price over the sale.
• Aggressive marketing campaign. Some agents go heavy on marketing "to get more prospective buyers". Put on your buyers hat for a moment and ask yourself how you look for a house.  Realestate.com, Domain.com, REWA.com, Gumtree.com by area, by price.  You only notice the agent when you are looking for a phone number to confirm that the home open is going to be when advertised. 

Honest agents

The real estate business model rewards dishonest practices, so blame the game, not the player.  That said there are honest (ethical) agents out there.  They get repeat business and referrals from satisfied customers.  They will give you accurate valuations and will discount their commissions to make a sale, although they don't normally have to because the know what your place is worth.

If you find one, tell everyone you know, these guys deserve all the business that they can get.

Buying a House

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Blog Points:
Manipulation, Pseudo-auctions, Auctions

Finding a Rental Property

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Blog points:
Create Scarcity, bidding wars, deposit scam, Stressful environment.

Renting out your house

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Blog points
Property repairs
What do agents do for their money?

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