Agent Fees

Why Avoiding Paying Fees Could Be A False Economy

By Chris Gray

CEO, YOUR EMPIRE

No one likes paying fees. Our parents idea of wealth creation was to ‘look after the pennies and the pennies will look after the pounds’ and ‘why pay someone else, if you can do it yourself?’ Their generation was very much about doing everything yourself and controlling how much money you spent.

Times have changed though. We don’t repair TVs and washing machines these days, we simply throw them away and buy a new one as labour is so expensive and technology changes so quickly, it would be out of date anyway.

In a similar vein, the thought process of today is that you can’t be an expert at everything and so you’re better off spending an extra hour doing what you do best at your job and outsource a task to a specialist that does that particular task all day every day and can do it better than you in half the time.

When it comes to property, paying fees can be a very expensive exercise given that a typical sales agent charges 2% + GST which can add up to $25k - $30k on a $1m property when you add in the advertising and auction fees. That can lead some sellers to be tempted to try and sell their own home. How hard can it be? Put up an advert, open up your home, write down some names and numbers and then agree a price. If it’s your home, surely, you’re going to negotiate harder than an agent who just wants to move on to the next listing?

There is some logic in that thought, however the reality is, most buyers don’t like discussing buying a property with an owner. They feel they can’t speak openly about the pros and cons for fear of insulting the seller and the owner might tell them anything to get a sale. That’s why so few properties are on the ‘for sale by owner' sites. Sure, there may be more in regional or remote areas, but you don’t get many around the more expensive city areas as buyers like to go with the norm.

Not that anyone really cares, but sales agents do actually work hard, and they put in more hours than a typical blue-collar worker or suit in the city. They are often doing deals late at night or on the weekends

and they’re lucky to get a whole day off. Their value though is in their marketing, the presentation of the property, bringing in competition and then negotiating a higher price. An average agent can sell a $1m property for $1m, but a great agent could sell it for $1.05m - $1.1m. Who cares what their fee is if they net you extra cash?

I know many wouldn’t agree with me, but I would argue that an owner occupier might sell that $1m property for $950k. They celebrate the fact that they’ve saved the $25k agents fee but really, they’ve lost more and it’s a false economy. Even if they did sell it for $1m, they’re still potentially down by $25k - $75k on where they could have been with a great agent.

The same thought process extends to property management and buyers agents fees.

Some investors believe they can rent out and manage their own properties. So many times, I’ve heard one say, “I’ve got such great tenants, they’ve been with me for over 10 years, and they always pay the rent on time.” No wonder they pay the rent on time (1) that’s what they are legally responsible to do, or they get kicked out and (2) you probably haven’t out the rent up in 10 years and you’re under renting it. They know they’re on to a good thing and that’s why they pay the rent.

Tenants have so many legal rights these days, I wouldn’t manage my own properties just for that reason. How well are you going to manage your property through COVID and the multiple requests for discounted or free rent and when you stand in front of a tribunal, how well do you know the law compared to your tenant? If you simply don’t give them the right brochure at the right time, suddenly you’re in the wrong and haven’t got a leg to stand on.

Legalities aside, I would say that in 95% of cases, a property manager will either save you double their annual fee in having less vacancy or by being able to keep the rent at market rates rather than a discounted rate.

Buyers agents typically charge the same 2% + GST fee as sales agents, however it seems much easier and common to be able to buy your own property rather than go through the process of selling a property. So surely when it comes to buying, is it better to do it yourself and save that $20k - $25k?

Yes, it does look that way at first glance, but it’s actually very similar to the sales agent proposition when you have been in the industry for a while. Any buyer’s agent can buy you a property and whilst they might save you some time and hassle, will they actually save you any money?

If you’re trying to buy a $1m blue chip property in a blue-chip location from a great agent, you’ll often have to go to auction and end up paying $1.05m - $1.1m under competition. So, what if a great buyer’s agent could buy you that same property off market or preauction for $1m? Are they worth that $25k then?

And what if that great buyer’s agent could turn you off that brand new wonderfully looking property, that’s actually in a poor location, has some major defects and/or is overpriced and get you into a much better located ugly duckling that has renovation potential and will perform better over the long term. Is that professional advice that gives you an extra 1% growth or $10k per year for the life of the property worth something?

Rather than go to the extreme of selling, buying, or renting a property yourself, an alternative could be to simply pick a cheaper agent but is that a false economy too? Well given the examples above, an average agent will buy or sell a $1m property for $1m, but a great agent might make or save you $50k - $100k on the same transaction. So, do you really want to save $10k on a fee and go with the half price agent?

So, the next time you’re thinking of paying any professional, maybe consider asking yourself these questions

1. How will I do this job compared to a professional that does it all day, every day?

2. Why would this professional be charging half of what everyone else is charging?

3. Do I want the cheapest professional or the best professional?

ABOUT THE CONTRIBUTOR

Chris Gray is CEO of Your Empire, a buyers’ agency that buys homes and investments for time-poor professionals – searching, negotiating, renovating, and managing property on their behalf. Chris has spent over 10 years as the host of ‘Your Property Empire’ on Sky News Business channel, where he’s interviewed various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information, visit www.yourempire.com.au and follow Chris on Facebook: @YourEmpire