Monthly Archives: July 2014

Can you put it in writing?

When you are interviewing agents to sell your home, many will make appealing claims and promises. It may be the promise of a high price or the claim of superior customer service.

Consumers often experience a large gap between the promises made by sales people and the actual service provided. If you sign with an agent on the basis of certain claims they make, it’s only fair that you can hold that agent to account in the event they fail to deliver.

To ensure that you don’t fall victim to an over promising sales person, get all verbal promises in writing, before signing an agency agreement. If the agent’s price quote seems high, simply say to the agent, “that sounds good, can you guarantee it in writing?”

The best agents are more than happy to back up their verbal promises in writing. If an agent won’t guarantee the price they quote you, you need to ask why not before signing?

When employing an agent, you have the most power before you sign an agency agreement.

Do you have a buyer?

The best agents will always be able to introduce buyers to your property without asking you for any money. If an agent claims to have a buyer, as most real estate agents will, that should negate the need for spending money upfront on advertising. Unfortunately, many agents will initially ask a seller to spend money advertising their house and the agency.

While market conditions are healthy at present, the best buyers will always make themselves known to most of the agents in the area they wish to buy into. They are the ‘best buyers’ because they are keen to pay a good price to secure a property now.

An agent who can introduce buyers without cost or risk to you, protects your position in the event that you decide against selling, or if you don’t accept the offers that are submitted.

Exhausting your agent’s database prior to committing hard earned dollars on needless advertising, allows you the option of spending it later, if you feel that the campaign is lacking in exposure. Few people need to take this path though. Once they hit the market, they realise very quickly that the internet does the heavy lifting at a minimal cost – a cost the agent should be able to carry.

If you spend big dollars up front on advertising, you have probably spent big to advertise to a buyer already known to the agent. The cost to send an email to a database of 15,000 buyers is almost nothing. The best agents have large databases full of current and active buyers.

Many properties are selling within three weeks of hitting the market at present. An agent who confidently claims and can demonstrate to have potential buyers therefore needs to be scrutinised on another level. Can the agent negotiate well? You don’t want the best buyer negotiating with the worst agent. In reality, that could end up costing a lot more than a needless advertising campaign.

As a home seller, you should only pay for advertising once an agent has delivered the sale at or above the promised price.

The agent’s model

Here is how many agents selling models work – the agent quotes a high price to the home seller. The home seller likes the figure and says, ‘Great, how do we go about this?’

The agent claims it is only possible with a heavy advertising campaign and an auction. At this stage, a $5,000 advertising spend for a $1 million house seems largely insignificant.

When the auction fails to meet the seller’s reserve, the seller either accepts less or passes the property in, wasting the $5,000 spent on an advertising campaign. Heads the agent wins and tails the client loses.

The agent doesn’t want or need your $5,000 to find buyers. They want your $5,000 to increase your motivation to sell, i.e. drop your price on auction day. They also want your $5,000 to promote their brand to others in the community. Make no mistake, regardless of whether you spend $5,000 or not, buyers will come, ready or not, once your home hits the market. If an agent cannot introduce a buyer without cost or risk to you, the problem is theirs, not yours.

Rental Market Update.

The rental market has softened in recent times. Time on market has increased and overall inspection numbers are lower. As a landlord, you would be well advised to keep an existing tenant happy than face the prospect of finding a replacement tenant in a soft market.

Its important to recognise that rent increases are as a result of stronger market conditions, not a landlords right. If tenants are asked to pay an increase on rent, they will rightly review the market to ensure the request is fair.

A tenant that takes good care of your investment property can ultimately be a better tenant than a higher paying tenant that abuses the property. Higher rent is negligible if maintenance costs go up.

Whilst every landlord understandably wants a maximum return on investment, leaving a property empty for a few weeks to gain an extra $20 or $50 per week means  that it can take 12 months to claw back the lost revenue.

Vacancy is the enemy of property investors. The best returning investment properties are occupied ones.

Transaction costs

Transaction costs are an enormous consideration when buying or selling real estate. To buy and sell can cost somewhere between 8 and 10% in transaction costs. Unlike renovations or home improvements, transactions costs are dead money. Therefore, your goal should be to limit transaction costs. Its best to only purchase properties that suit your long term strategy, whether it’s your primary residence or an investment.

Stamp duty on a property purchase in NSW is about 4%. On the day you purchase a property, you need it to rise in value before you have broken even. Too many home buyer’s only realise the full extent of transaction costs after they have exchanged contracts.

Time is very kind to the real estate investor, yet transaction costs can destroy the profits if you are speculating on a making a quick buck.

Owner occupiers will benefit from purchasing undercapitialised properties that can be extended overtime, avoiding the need to sell and upgrade. The money saved in transaction costs can be redirected to renovation costs.

A full chapter is dedicated to managing transaction costs in Real Estate Uncovered.