Be Smart - Don't Take That Advice!

When people come to me for property advice, two of the most common concerns I hear (and the ones which form the biggest barrier to entry) are that they don't know where to start, or are having trouble making a decision. Whether you're an investor or owner-occupier, we often see first hand why using a professional to help you achieve your goals can make a phenomenal difference to the outcome.

Firstly, as with anything in life, education is the key. It constantly astounds me that people go to their friends and family for investment advice or validation of their plans when more often than not, their friends and family have little to no experience in property purchasing or investment themselves. I don't say this to put people down - we are brought up to take advice from those around us with whom we feel comfortable and from whom we have historically sought advice and guidance. The problem is that unless your friends and family have achieved what you want to achieve, then they are probably not the best people to be asking for help and we often don't stop to think about that.

Ask yourself - if you want to learn how to fly an aeroplane, do you ask your friends and family or do you find a professional flight instructor?  The answer is obvious. So why do people ask their friends and family for help with property purchasing or investing unless they are successful property professionals or property investors themselves? For most people, buying a property is something that done once every 7-10 years, if that. The average person buys 2-3 properties in their lifetime which is not a regularity on which any significant recurring skill can be built - and make no mistake, buying property is a skill. The nature of what they are doing is masked by the belief that because they have bought property in the past, they know how to buy a property now, taking into account all the nuances and varied aspects of a property purchase in what might be very different market conditions to when they bought years ago. This is particularly the case when purchasing an investment property.

I believe this is a flawed way of thinking and one which can cost you literally hundreds of thousands of dollars over the life of the purchase. I'm going to skip the macro and micro research process on all the other elements of buying that need to happen before you actually start looking for the property itself. These steps are too numerous to list here and would require their own dedicated post. Although some pre-work is required, there is one way to cut a lot of the time, effort, research and skill required to ensure you are making a good purchase. Use a Buyer's Agent. How and why? I'll explain in a minute. First, let's look at a real life example using real numbers that happened very recently.

The client we were searching for had been looking for a property in Sydney for a while before they came to us, and was becoming very frustrated with the process. Failed auctions, time, money and many sales agent just not willing to even engage with the client on several occasions lead to a loss of hope and high frustration. The client engaged us and the search commenced. After finding a property within brief that was due to go to auction, due diligence was completed and an upper price limit of $1,375,000 was placed on the property (this is only disclosed to the client and is not the starting point for negotiation, simply the purchase dollar limit that we arrive at after substantial due diligence and data analysis).

The expectation was, however, that being an A grade property (and even in the current Sydney market), if the property went to auction it would likely exceed this amount. After the clients' inspection and presenting them with our in-house due diligence report, we approached the sales agent to make an offer. First offer - $1,321,000. The offer was rejected by the vendor with a surprising counter offer of $1,350,000. Amazing result, right? Here's where it gets interesting. Our client, after many failed attempts to buy a property, was extremely keen to accept the counter offer to ensure the property wasn't lost. Most people without local market knowledge and professional experience would have accepted (in reality, it was still a good price) but this is where the value in a good buyer's agent is realised - we believed we could do better. Based on a number of factors, we convinced the client to let us try to get the price down further: the client agreed. Some settlement conditions were tweaked in favour of the vendor and a further offer was submitted of only $4,000 more. Second offer - $1,325,000.

The vendor accepted the offer.

I shouldn't have to point out that this saved our client a further $25,000 which, only the day before, they had been willing to pay. Let me write that again - a saving of $25,000! By inserting the professional expertise between the emotional buyer and the seller, the result had covered our fee and obtained an A grade property at exceptional value. This is not withstanding the hours and hours of ground work and due diligence that the buyer did not have to put in by employing a buyer's agent. Although that result is easily quantifiable and speaks for itself, there are other reasons why you should use a Buyer's Agent. Here are a few:

‍1. Time. After having purchased a number of properties for my own portfolio and having inspected hundreds more, I've also assisted clients with research and assisted others with negotiating tactics and pre and post buying considerations. However, for my personal interstate purchases I used a local buyer's agent. I am more than happy to pay a professional to take care of the process for me as I simply do not have the same level of experience and expertise in certain interstate markets that a local buyer's agent has. If you are in the same boat, this reason alone can make a phenomenal difference to the outcome and to your sanity!

‍2. Money. Aside from the example above where money was clearly saved in the negotiation, a good buyer's agent will actually get the job done! One recurring theme I see all the time is that many people decide to purchase an investment property and have good intentions, but time gets away (as with example one) and this can cost you money! How? Imagine if you'd planned to buy a property in Sydney in mid 2020 but just kept procrastinating or were unable to find the time to do it. You decided not to use a buyer's agent because you felt you could do it yourself and didn't want to pay the fee.

A year later you still hadn't purchased and the market had grown well beyond what the original fee to employ a buyer's agent would have cost you in the first place. Additionally, you're now paying more stamp duty on a higher priced property and you've lost significant gearing ability in lost capital growth - and you still don't have a property. When you do finally get around to it, you're going to end up with the same property you would have had six months earlier, but now you'll be paying a much higher price in a growing market. Not only this, but if you don't know what you're doing, how do you know you are actually buying the right property for the right price?

By paying a relatively modest sum to engage a buyer's agent from the outset, you could potentially save yourself hundreds of thousands of dollars in the long run.

‍3. Research, Due Diligence and Professional Experience. Unless you know how to research and complete due diligence on a property, it's hard to understand the amount of work that needs to go into completing proper due diligence to ensure you're not making mistakes. Furthermore, a buyer's agent buys property for a living. Understanding which issues are acceptable, which should result in a lower price, and which would be walk away items can be tough, but buyer's agents see the full range and are well versed in understanding what makes a property a good vs. bad (and it's not always obvious to a buyer off the street).

Scared of going to auction or negotiating? That's part of their skill set and they'll do that on your behalf as part of their service too. One big risk is that if you don't do proper due diligence and purchase a property without completing the required amount of work, you may find out later that the extension out the back is not council approved or the property is in a flood zone (or any other number of items that need checking). This could result in some very unpleasant experiences and possibly a lot of money. A buyer's agent does all the research and due diligence for you, removing the burden and providing a level of protection by reducing risk.

Conclusion

This has been a fairly long post but I just want to make one more point that I am very passionate about. No matter which road you decide to take with your purchasing or investing, please ensure you are taking advice or using buying services from a company or individual that is fee-for-service and is not spruiking "free advice!". These people are not property advisers or buyer's agents and are just marketing companies or individuals selling you properties that have large commissions built into the purchase price which are being passed on to you, the buyer. These commissions actually inflate the price of the property leading you to over pay for the property relative to what it's worth on the resale market.

You can ensure you are using a reputable company by only dealing with those who are PIPA or REBAA members. This will ensure you are dealing with an organisation that subscribes to a code of conduct and is passionate about the long term viability of the real estate and property investment industry. Seek advice from a PIPA Qualified Property Investment Adviser or REBAA member Buyer's Agency and never take "free advice" without full disclosure as to how that person or organisation is being paid. This is some of the most important research you can do.

MyPropertyPro is a REBAA member Buyer's Agency and PIPA corporate member and makes a full commitment to both codes of conduct. Contact us today for a complimentary and obligation free consulation.