Let me continue my tuition from my last blog when I discussed What’s the best way to engage an estate agent and school you up on the relationship property owners have with Real Estate Agents.
What Really Drives the Agent
In most cases the Agent will be engaged by the Seller and therefore owes the Seller legal obligations.
In many other circumstances though, particularly where the Buyer seeks and relies on the Agent’s advice, the Agent will also have legal responsibilities to the Buyer along with the Seller.
So, is the Agent the Seller’s friend or the Buyer’s friend?
There is no doubt in my mind that the reality is that the Agent is no one’s friend, but he is not the enemy either. My overwhelming experience is that Agents act for themselves and not the Buyer or the Seller regardless of who is paying the bill, and regardless of what the law says about their obligations.
This reality may seem self evident to you but the simplicity of it is rarely appreciated by investors.
Buyers and investors often get caught up in the emotion of the negotiating process or are swayed by the Agent’s sale skills and the point about what drives the Agent is usually lost.
Follow this simple story with me to illustrate my point.
An investor purchased a unit, renovated it and placed it on the market for sale for say $400,000.
She open listed it with three or four local Agents and they all generally agreed that $400,000 was a realistic sale price.
After about six weeks, when the investor was beginning to worry about whether the property was saleable at the listed price, she received an offer from a salesman for $370,000.
It was a cash contract with a quick settlement and the educated Buyer had added a clause to the Contract stating that unless his offer was accepted within one working day it was automatically withdrawn.
The pressure was on the Seller and she succumbed to it, signing the Contract for $370,000. Settlement took place 30 days later.
Over the following month, the Seller became anxious about the outcome of the sale and decided to make some more enquiries to “back test” whether the guilty feeling that she had been “fast talked” out of another $30,000 was correct.
She spoke to the other Agents that she listed the property with and was told that around the time she signed the Contact one of them who worked in the same office as the saleswoman who sold it, was close to submitting an offer of $400,000.
Unwittingly she told the successful salesman of this fact.
The Seller also learnt from another salesperson in another office that they too were ready to submit a higher offer.
The naked truth of the story is that the successful saleswoman was acting for herself.
She was looking down the barrel of making no sale at all and a $370,000 sale was a lot better to her that no sale. A sale price of $400,000 to the Seller meant an extra $30,000 in her pocket, which was more than half of the profit on the deal.
But to the Saleswoman, the extra $30,000 meant about another $700 commission to her office of which she received about $350.
There was just no real incentive for her to push for the extra $30,000. Her true motivation was just to make a sale.
In sharing this story with you, I am not being judgemental about the Real Estate Saleswoman as a lot of people, if they found themselves in sales, would take the same approach. Instead what I am trying to do is educate you to the way in which the investment world really operates.
And this education process is ongoing.
You must keep schooling yourself because as an investor you never know from which port you will next set sail or when the next wind of opportunity will blow your way.
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