Buyers Agent, Sales Agent, Property Investment Advisor. They all sound the same right? While in some respects there are crossovers, there are some fundamental differences. If you're considering engaging one of these to help you invest in property or build a portfolio then here's what you need to know.
Who am I dealing with?
A Buyer's Agent. The key is in the name with this service provider. Essentially, they’re an agent that is helping you to buy a property. They’re hired by you and they work off a brief provided by you. You could think of them as a personal shopper; you tell them what you want to buy and they go find the best fit for you based on their contacts, knowledge and any research that they draw from.
A Sales Agent. You’ll probably be familiar with these service providers. They are typically your high street guys and girls such as Ray White and McGrath. Where a Buyer's Agent helps you buy, a Sales Agent helps you sell (simple when you break it down I know!). You’ll have come across their adverts on one of the big listing sites as they are hired by someone wanting to sell their property (ie. the vendor). That’s not to say these service providers don’t help people buy too (stay with me here). If you’re looking to buy an investment property and you have a set idea of where you want to buy and what, then you could just approach the local sales agents in that area and they will ‘help’ you. The key here is that they have been hired by the seller, not by you. It’s all about which side their bread is buttered.
A Property Investment Advisor/ Consultant (let's refer to them as PIA’s). Unlike a Buyer's Agent or a Sales Agent that may work with people looking for a property to live in (owner occupiers) as well as investors; PIA’s only work with people that are looking to invest in property. They often work with off-the-plan properties and have an ongoing stocklist of available properties that they have pre-selected from developers. Here’s where things might get confusing. Whilst a Property Investment Advisor may give you some good advice and guidance, supported by some sound research, there is typically a conflict of interest. You see, they are employed by the seller (i.e. developer) to sell their product. It all comes back to bread and butter!
How do they get paid?
If any service provider dodges the question of how they’re getting paid and if your instincts haven’t already told you to get out, then do so quickly!
Any service provider confident in their service and approach should offer this information up (ahem) freely. And don’t just think because they haven’t mentioned it, you shouldn’t bring it up. Yes, asking the question about how they get remunerated can sometimes be uncomfortable but you’re about to disclose all your financials to them. So in the words of Jillian Michaels “get comfortable with being uncomfortable!” It all comes down to transparency.
The general rule of thumb is
- A Buyer's Agent gets paid by you the buyer
- A Sales Agent get paid by the person selling the property
- A PIA also gets paid by the seller (i.e. the developer of whichever project they recommend you buy) but offer different services over an above what a Sales Agent offers
How much do they get paid?
The concept of “fee-for-service” is fast becoming the trend in the property space. It all relates back to the question “in who’s best interest are you operating?” This is where what each service provider is getting paid is as important as who’s paying them.
Typically, you’d pay a Buyer’s Agent anywhere from $5,000 to 2% of the property they help you buy. If they’re supposed to be getting you the best price on a property, then it seems counterintuitive that their fee is a percentage of that property price. The closest you’ll get to true fee for service with a Buyer's Agent is to negotiate a flat fee.
A PIA gets paid anywhere between 4% and 15% of the property price by the developer. This massive fluctuation depends on where the property is, what’s happening in the market and how much they’ve spent on marketing and display suites. In recent years Sydney developers paid the lowest as the market has been booming. Whereas now commissions are at their peak nationwide because the general market condition is challenging meaning less buyers out there.
There are a few reasons that PIA’s command higher fees, one being that they often have built up a network of brokers and financial planners referring their clients to them. A developer will pay top $$ to PIA’s with good networks. And yes there is the potential for these guys to be swayed into presenting you with properties that they'll generate a higher commission on. The only way to reduce this bias is if the PIA takes the same amount of commission from each developer they work with. So again ask the question, as they are legally required to tell you what they’re getting paid.
A Sales Agent gets paid much lower than a PIA, typically around 1%-3% of the property price by whoever is selling the property. Competition is fierce amongst Sales Agents and their industry is shrinking thanks to technology disruptors and emerging companies offering a flat fee.
What services are they offering?
The straight up service of a Buyer's Agent is to find you a property. This includes some form of consultation and in-depth brief taking from you (if you haven’t got one they should offer some guidance on where and what to buy) and assisting with that whole process of securing it. Through relationships with Sales Agents they can secure you ‘off-market’ deals (which simply means they get a heads up on a property before it hits any listing site). The better ones also do a financial analysis on the impacts on you of buying that property and help put a strategy around building your portfolio, however this may be an extra fee.
A PIA’s service offering is to match you with the right property for your circumstances from ones they have already researched and pre-selected from their developer contacts. Off-the plan developments worth investing in are also ‘off-market’ so you shouldn’t be able to find a PIA’s offering on a listing site. A financial analysis is just par for the course with these guys, as is in-depth research supporting their offering.
A Sales Agent’s service is to present your property in the best possible light and get the highest sales price the market will pay at that time. This means putting the glossy’s together with top quality images and marketing it everywhere!
Who’s setting the price of the property?
In the case of a Sales Agent and a Buyer's Agent the ‘market’ sets the price of the property (i.e. whatever someone is willing to pay). A Buyer's Agent, depending on their contacts (its not what you know!) and how quickly you can move, can sometimes negotiate a few ‘000s off the asking price.
With the properties that a PIA presents to you, there may be a battle between what the developer wants to charge and what the market is ready for. Developers will sometimes price for what they think it will be worth when its completed rather than what someone would pay for it today. However a good PIA will insist on a developer supporting their prices with an ‘as if complete today’ valuation. This also ensures the PIA’s commission is disclosed clearly and would be on top of the developer’s listed price (ie. not already baked into the price by the developer).
Where’s the justification for what they are presenting?
Aside from a traditional Sales Agent that will just show you properties like a “lucky lucky man” selling you his prize imitation Rolex watches out of this suitcase, most service providers will mentioned the “R-word” - research.
Sound research is essential when buying an investment property but knowing whether service providers research isn’t just fugazi can be difficult.
As the saying goes, statistics can be used to prove anything, so think about what story they are trying to tell and whether the information is coming from reputable unbiased sources.
Look for things like capital growth rates in the area, the current rental vacancy (and ask for an understanding of how this is calculated if you don’t know), the expected rental income, the anticipated yield, as well as social infrastructure factors relevant to the location.
Make sure you’re comfortable with the extent of their research, even ask who’s conducted it. Its OK if they’re a one person band but if they’re more of a sales person than a researcher if might be info they just replicate for anything they offer. Or worse, they may only offer what they have research for!
What's their track record?
In the words of Steve Jobs ‘you can only connect the dots looking back’.
Yes, everyone must start somewhere but ideally not with you! When weighing up who to engage to light the way for you, asking to speak to some of their past clients or seeing evidence of their track record could be a good differentiator for you. This will also give you a good indicator of what their ‘typical’ strategy is and for how many years they have been honing their skills.
A word of caution here. You may feel drawn to a service provider based on alluring headlines such as ’10 properties in 10 years’ or ‘we now own 25 investment properties and travel the world’. But whilst these may align with your aspirations, the reality may be different. People who have made their money in property up to this point may have done it in a way that’s less feasible in today’s market and finance conditions. Many have ridden on the coattails of Sydney’s boom where the rising tide lifting all ships has been more like a tsunami. Anyone can make money in that type of market, but not everyone knows how to grow a portfolio in a flat market aside from hard core saving.
What's their strategy?
As with any partner there has to be an alignment. One thing that can slip by unspoken when you’re selecting that special someone is, does their long-term strategy align with yours? As they say, there are many ways to climb a tree and without realising, you could be engaging someone who has a subconscious strategy that can only be picked up by looking at their purchasing history.
They may love seeking properties where there is an option to add value, but you maybe more of the set and forget type. They may believe in only having 5 properties max but you may have always wanted a 30 strong portfolio.
Having an in-depth conversation about what your property aspirations are and listening to the service providers reaction to this is an important first step.