“It is an unusual situation where two people come to an agreement but only one (the house seller) has representation,” says Byron Rose, chief executive of Sydney-based buyer agent Rose & Jones.
That’s starting to change with more and more people choosing buyer agents to protect their interests.
They’re also becoming accepted by selling agents and they are often the first to receive a call when a new listing is made. But like other real estate sectors, there are cowboys, and home sellers are being warned to avoid dubious operators with conflicts of interest.
Buyer agents first appeared in Australia in the early 1990s, most likely in Victoria where the strong auction culture there created a demand for professional representation for buyers. But numbers began to surge in the 2000s boom with out-of-town property investors seeking local expertise to help them locate and buy property.
Real Estate Buyers Agents Association of Australia president Jacque Parker says that there are now 150 to 200 buyer agents in Australia who are licensed and independent; it’s still a small number, but Parker, also director of House Search Australia, says member numbers are up 25 per cent in the past year.
In the US, the majority of buyer agents are dual agents: they get a commission from the selling agent and the buyer. But in Australia and Britain, buyer agents are exclusively independent: only the buyer pays them and they get no commission from the seller.
Buyer agents’ clients tend to be time-poor professionals who don’t have time to inspect a number of properties. They are often moving interstate and don’t have local knowledge, which means they don’t know if they’re overpaying. They also don’t know the history of properties and how different agents work. “The nuance really does add up,” Parker says. “We save them from making costly mistakes.”
Scott McGeever, managing partner of Brisbane-based Property Searchers, is one of the most established buyer’s agents in Australia. A former property valuer, he morphed into a buyer agent after being contacted by an offshore buyer seeking a beachfront property. He ended up helping them buy a Coffs Harbour compound for a couple of million dollars that sold a few years later for $11m.
McGeever says clients don’t have time to get market knowledge and don’t have time to school themselves. “They’re more than willing to pay $10,000 to $20,000 to make sure they don’t lose out by $50,000,” he says, adding clients are typically in the 35 to 55-age bracket.
When McGeever started, all his clients were investors, but as the market has become more educated about buyer agents, half his clients now are home buyers. The number of local clients has also grown to about 40 per cent. A buyer agent represents a buyer at all stages of the process. McGeever helps clients clarify and define what they want.
For investors, that means establishing goals, such as capital growth; for home buyers it’s finding the right areas in terms of schools, transport and proximity to amenities such as airports. Then the agent helps with the search. “Time is a massive factor,” McGeever says.
REBAA’s Parker says she would search everything on the market, make inquiries about 50 to 60 properties, inspect half of them, then shortlist 15 and present them to the client; she would then set up inspections. A report on the property would be provided if the client wanted to go ahead. “It’s a whole complete process; it’s not just picking properties off the internet,” she says. “It’s a very time-consuming process looking for property.”
A major trend has been for selling agents to contact buyer agents directly with off-market deals. “Agents are becoming more educated on buyer agents and the advantages of calling another professional knowing that person is a genuine client who won’t muck around,” McGeever says, adding that all clients must have pre-approved finance.
Direct approaches “shortcut a deal without having to put it on the open market”, McGeever adds. “The vendor saves marketing money; and saves themselves going through open homes.”
He says that off-market sales in the past year have surged from 15 to 50 per cent. McGeever says a lot more clients are also engaging him for auctions.
“They’re just pressure-cooker situations with agents begging people to pay another $5000, $10,000 or $20,000,” he says. “If you can save $20,000 on a purchase that you don’t have to pay, that’s not to be sniffed at. Having a clear head acting on your behalf can be absolutely invaluable.”
The buyer agent then helps negotiate the deal. “We’re there to assess the property critically and negotiate the best deal on behalf of our clients,” McGeever says. “People fall down on negotiations. Buying a $500k house, people often pay $20k more; $2 million, $100k more. The fee is only a small portion of that.”
Buyer agents typically charge two fees: an upfront, non-refundable retainer; and a final success fee. Parker says the upfront fee is necessary considering the significant time spent finding properties. “We’re not selling agents; we’re a service provider,” she says.
As a general rule, Parker says that most buyer agents charge 15 to 30 per cent of the final fee upfront. So if they are charging $10,000, the retainer would be about $2500. Fees vary from state to state, but generally a full search would start at $10,000, depending how big and how much property and the length of time involved.
Rose & Jones’s Rose says fees often need to be negotiated for clients at the high end of the market. He generally charges 2 per cent of the purchase price, but that could fall for prestige homes.
Rose worked at Jones Lang LaSalle but saw a gap in the marketplace. “The buyer was 100 per cent unrepresented,” he says.
Rose & Jones operates in all markets ranging from $500,000 to $20m-plus. Rose says it can take up to 12 months to put together a $20m to $25m sale.
Clients use buyer agents for discretion.
“They don’t want to be noted or seen in the market,” Rose says, adding that buyer agents don’t have to disclose clients’ names. “We maintain a high level of confidentiality.” Rose wouldn’t name clients or high-profile deals that he has worked on.
Real Estate Institute of NSW chief executive Tim McKibbin says he is positive about the impact of buyer agents in the market. “Because of the complexity and difficulty of acquiring property,” he says, buyer agents are growing in importance. “A lot of people now are also time-poor.”
The industry hasn’t been immune from scandal, however. Recent media reports have focused on buyer agents receiving undisclosed commissions.
“There are cowboys out there,” Parker says. She says that buyer agents can recommend property managers and tradespeople to clients, but if they receive a commission for the referral in NSW they need to fill in a Section 47 form with NSW Fair Trading, with similar requirements in other states. But Parker says a buyer agent should never accept fees from vendors or developers. “They do not ever sell real estate,” she says.
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How to spot a dodgy operator
THERE are basic steps to weed out dodgy buyer agents, Jacque Parker says. They should be fully licensed, preferably a member of REBBA, or at least a member of its state-based REI.
Membership of REBBA is rigorous. They need to be fully licensed in their state or territory, registered with the office of fair trading, have professional indemnity insurance (NSW mandatory but not other states and territories), and their buyer agent activity must be the majority of business. They need at least 12 months’ experience and must be endorsed by two acting members of REBBA.
Parker says potential clients can check an agent’s licence qualifications online via the Department of Fair Trading.
The main thing is to speak to former clients. “If a buyer’s agent can’t provide you with recent buyers, there’s something wrong,” she says.
Byron Rose says that when he started there was a lot of resistance from agents. “They didn’t quite understand how we would fit into the transaction,” he says. “There was initial reluctance to deal with us.” Rose says that buyer agents were a threat to real estate agents’ commission. “Unrepresented buyers over-pay on property because the industry is so slanted to the vendor and selling agent,” he says.
But Rose says traditional listing agents now brag about their buyer agents contacts to get listings. “We’re now seen as almost an equal stakeholder in the transaction,” he says.
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