Today, I’m sharing my experiences when using real estate agents to sell properties, and why I often choose to sell privately. I’m also bringing to light some challenges in New Zealand’s real estate industry that contribute to the housing unaffordability crisis. However, please note: those familiar with me know I’m not the biggest fan of the real estate industry, particularly in New Zealand. I often don’t feel I get value for money as a vendor.
I acknowledge that the real estate industry in New Zealand is suffering some of its worst sales figures for maybe 20 years. I’m actually going to go into bat for the 80% or so who are barely scraping a living from an industry that seems to be slowly drowning in unnecessary compliance and bureaucracy.
Let me back this up with a few examples of many:
- Anti-Money Laundering Vendor Check
If a real estate agent wants to list a house, they have to do an anti-money laundering check on the vendor. Why? At the time of listing there is no sale in place, and shouldn’t that be the domain of the banks or lawyers when money eventually changes hands? - Property Appraisals
Agents who give an honest and well-thought-out appraisal with predicted sales price often lose listings to agents who give inflated sales predictions. This leaves room for complaints and subsequent fines when expected sales don’t materialise. Additionally, the low-to-high price range in appraisals is often so wide it lacks practicality. - Property Network
It’s getting harder and harder for agents to show their clients properties that the agent doesn’t have a listing for. This means the agents are less useful to buyers and collaboration and networking amongst agents and agencies is on the decline because of fear of breaking the rules.
These additional layers of compliance are helping push hundreds, if not thousands, out of the industry in New Zealand alone. The added costs in compliance and administration all have a cost and need to be factored into the property’s sales process and commission.
An Introduction Service
I believe the true value that the real estate industry plays is as an introduction service, much like an online dating agency. You like the location and aspects of a property, ask to be introduced, visit, take a look around, and then decide if you want to proceed further.
Throw in a bit of advertising and surely the role doesn’t need to be any more complicated than that. In my mind, the real estate agent simply organises that viewing appointment and repeats verbatim what the vendor has told them, with no personal or professional opinion offered. The real estate agent then helps negotiate a purchase price and terms between the purchaser and the vendor if it gets that far.
Then it’s time for the purchaser to do their due diligence, ignore everything the real estate agent has told them, and judge for themselves whether the property fulfils their needs and justifies their offer price.
In defence of the real estate agent we should be putting zero liability on the agent because they have no way of knowing whether what the vendor has told them is true, nor are they property specialists, so they wouldn’t know if there is a defect in the property they are selling. So why hold them accountable? It surely will just lead to more mistakes and litigation.
Sales Commissions
I didn’t want to discuss sales commissions as they vary far and wide from country to country, and company to company. But I will say I’ve had really good sales experiences in the UK, paying as little as 0.5 percent for a property sale, and the same agency has paid for the property advertising.
In New Zealand however, I’ve seen sales commissions greater than 4% plus taxes, administration fees, and 5 figure advertising fees being paid by the vendor. It all feels a little unjustified to me.
I do believe the real winners financially are the agencies themselves, often getting the lions share of the property sale for little effort on their part.
Is there a Case for Salaries, Not Sales Commissions?
Here’s a thought: what if every house had the same sales commission fee, not percentage? Also, is there a model where agents can be put on salaries and possibly incentivised with shared annual performance bonuses?
I mentioned this idea to a friend who owns a real estate franchise, and the response wasn’t the most positive one. The reason given was that the agents wouldn’t push so hard for new listings and sales. There’s an solution to this too, find employees who will fit their salary.
Liberties and Liabilities
Being a salesperson in most industries means certain liberties are often taken. Opinions are given, some exaggerations are made, and certain topics are left out of the conversation that might hinder the sale.
So, if we can’t prevent untoward behaviour or genuine mistakes, then how do we prevent these issues costing the purchaser?
My solution again, although not perfect, is simple: insert a mandatory minimum two-weeks due diligence clause after the offer is accepted for the buyer to do their homework. Put the onus on the buyer, it’s their money, and their risk.
Should I Sell Privately?
I recently sold some land privately. I paid around $150 for advertising on an online real estate platform, spent a few hours producing a swanky property memorandum, and personally vetted the buyers before conducting a handful of site visits. I received multiple offers, and the whole process took around two months from advertising to going unconditional.
The process was easy, and my lawyer handled the conveyancing. It was relatively trouble-free. We saved a lot of money and got a fair market price that made everyone happy. No auctions, no hassle.
Selling privately isn’t for everyone, but its an option and one that can save a lot of money if you can invest a little time and effort into it. Otherwise choose a local agent that has good references from people you can speak to. Don’t be afraid to negotiate your commission and admin fees down.
If you are persuaded to pay for advertising then be careful what you spend and where the money goes. Don’t be afraid to question everything, it’s your money and investment after all, not theirs.
Data Privacy and Accuracy
The final topic that I feel needs urgent attention is the lack of data privacy and reporting accuracy of our property information that is being put into the public domain.
I know several companies in New Zealand and Australia who are scraping, copying, buying, and seemingly making up key information about every property they can get their hands on. It seems their main goal is to gauge the value of your property at any given time.
In many cases, the information is inaccurate and, worse still, provides ownership information, which I feel is infringing our privacy. I looked up my own house on CoreLogic’s Property Guru platform, their information was so inaccurate that I had to double check it was my property. Having not given them permission to use my data I asked them kindly to remove it, but they declined, saying they had every right to keep my information.
Besides privacy issues, the real problem is that many real estate agents use this data to undertake property appraisals and negotiate sales, comparing one property to another, which again leads to valuing mistakes. There is an old saying about bad data: Garbage in, garbage out.
Final Thoughts
There are many industries, regulations, codes, and standards that need rethinking, resetting, and bringing up to date. But I am genuinely concerned about New Zealand’s real estate industry in particular, and its costly effect on the affordability of our properties.
Related
Navigating Real Estate: Our Buying and Selling Property Tips.
Real Estate Red Flags: A Lesson in Property Data, Security, and Privacy Concerns
