You don't get a better sale price with an agent

Most of what people think they know about real estate is misinformation.

It helps to explain why so many Australians who attempt property investment have a bad experience and sell out at a loss.

Most of the questions I get from people, at seminars or via email, spring from a misconceived notion of the state of play in real estate.

Common examples include:

• “With house prices surging around Australia, do you think ….?”
• “Now that the property boom is over, what …?”
• “I want to buy property within 5 kilometres of the CBD to get the best growth, but ….”
• “Given what we have a housing shortage, do you think  ….?”

Or the dumbest question of all: “When do you think the bubble will burst?”

There are myriad examples. It seems the depth of research achieved by most consumers is a scanning of newspaper headlines. Australians are adept at absorbing myths, misconceptions and misinformation from media sound bytes.

One of the greatest of real estate myths popped up last week. Like most pieces of misinformation in real estate, it was created by a press release from an organisation pushing its vested interest.

It sought to perpetuate the great furphy, much cherished by real estate agents, that you will always get a better sale price if you employ an agent, as opposed to selling privately. It was apparently based on a survey of the perceptions of real estate consumers.

This was self-serving nonsense which contradicted my own research and considerable experience in the market.

The opposite is true. Your best chance of getting a top price for your property is to sell it yourself. You will also save thousands in commissions and marketing costs. The only time you should engage an agent is when you don’t have the time to handle the marketing process yourself.

Part of the argument from the agency community is that when you employ a selling agent you gain their negotiating skills. This is a hilarious concept. I am still waiting for my first encounter with a real estate agent skilled in negotiating.

Another part of the argument is that agents are motivated to get you the best possible price, because they get more commission.

The only time you should engage an agent is when you don’t have the time to handle the marketing process yourself.

This, too, is nonsense. The only motivation of a selling agent is a fast sale. The faster the better. Their motivation is convincing the vendor to accept the offer on the table.

In terms of commission, the difference between a $450,000 sale price and $470,000 is negligible. It’s $20,000 worth of difference to the vendor, but only small change to the agent. The agent’s motivation is to get the vendor to accept the $450,000 offer quickly – not to work hard to get the buyer to lift their offer.

As a buyer, my toughest negotiations have always been with private sellers. They will fight tooth and nail to get their price. Most real estate agents, on the other hand, are pushovers. They just want a quick sale and will devote their energies to talking the vendor down in price, rather than trying to talk the buyer up.

So the typical scenario is this. The vendor wants $470,000 and the agent wins the appointment by telling the vendor they will indeed get $470,000, perhaps more. Then the agent will go to work on “conditioning” the vendor, which means acquainting them with the reality that their property really isn’t worth $470,000.

A potential buyer offers $420,000. The agent uses that to further condition the vendor. The agent’s motivation is, always, a fast sale. So the agent’s energy will be focused on getting the vendor to accept the low offer, rather than negotiating hard to convince the buyer to lift their offer. The former could mean a sale today, while the latter course could mean a sale weeks later, or no sale at all.

I know about this subject. One of the books I’ve published was on this very topic. I conducted a lot of research before writing it. And the overwhelmingly conclusion my research revealed was that private sellers get higher selling prices than do agents.

In my property buying career, I have never paid the asking price for a property marketed by an agent, always considerably less. I’ve never had to fight the agent. The agent has always taken my offer and worked on the vendor.

It shouldn’t be that way, but that’s the way it is.

Terry Ryder is the founder of hotspotting.com.au. You can email him or contact him on Twitter.