Q&A: Should buyer's agents take commissions?
Property investors and, increasingly, home buyers are being encouraged to look towards hiring a buyer’s agent to assist with their purchase. Understandably, when throwing hundreds of thousands, and sometimes millions, of dollars into an asset you want to get it right.
However, not every buyer’s agent is made equal and there are some profound differences between the different experts in our space.
If you missed it, last time we asked 'How close should a real estate agent get to a buyer's agent?'
In our Tuesday Q&A, Property Observer has taken the debate to Miriam Sandkuhler, the founder of Property Mavens and author of Property Prosperity, and asked her the questions we wanted to get her opinion on – from whether commissions should be allowed to how much she thinks we should be paying.
What do you see as the key role of the buyer’s agent?
The role of a buyer’s agent is to research, source and negotiate to buy a property on a client’s behalf. They must always act for the client and advocate on their behalf, protecting their interests.
Just as a solicitor will act for both defendants and plaintiffs, a licensed buyer’s agent can act for a buyer or a vendor (in a selling capacity), but never both at the same time.
A buyers’ agent is in the market and negotiating every day, so their skills are well-honed and because they understand the market and the sales tactics real estate agents use, they are well placed to advise clients on how to buy the right property at the right price.
They also have access to the same information and databases real estate agents use which are not readily available to the public and can source ‘off market’ properties before the public finds out about them.
Most people only ever buy a few properties in their lifetime and can make the mistake of assuming because they have owned property; they are expert enough to identify an investment grade property.
Unfortunately each year I see people who have made this mistake - and paid the price in the tens of thousands of dollars.
Do you think a buyer’s agent should receive commissions from a developer?
Absolutely not.
If someone is receiving a commission from a developer, they are a sales person working for the developer and not for you, the buyer.
Whoever pays the fee is the client. That means if you are receiving “free advice” you are being sold to and the “adviser” does not have your best interests at heart. That includes someone calling themselves a "buyer agent" who is not charging you a fee or is rebating it when you sign a contract or at settlement.
You should always ask an agent, accountant, mortgage broker or financial adviser, if they are receiving fees from anyone else. If you believe you are not being told the truth, refer them to Consumer Affairs in your state.
Never deal with anyone calling themselves a buyer agent who does not have formal real estate qualifications, as they cannot legally represent you in a real estate transaction and won’t be covered by professional indemnity insurance if things go wrong”.
You can search the Consumer Affairs website in your state which will have the Public Register of licensed estate agents. A buyer’s agent or buyer’s advocate should always be a licensed estate agent or agents representative.
What other sources should a buyer’s agent accept payment from? (E.g. property management referrals)
The issue of receiving referral fees is a matter for each agency to determine and the regulations differ from state to state.
For example in Victoria, if a buyer’s agent (or selling agent) receives a referral fee from a property management firm, the landlord is required to sign a commission sharing authority approving the arrangement to ensure it’s a transparent transaction.
Some buying or selling agents elect not to take referral fees at all and merely require that a high level of service is delivered to the client. This is my preferred way of operating, because when there is no money changing hands, I can hold a service provider to account and keep the client’s interests at the forefront.
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Do you think there is an issue in the industry of unscrupulous practitioners?
As with any industry, there are always some practitioners who are more professional than others and a minority who behave unscrupulously.
The biggest problem in the industry is people masquerading as a ‘buyer’s agent’ when in fact they aren’t qualified property advisors or licensed real estate agents and are taking a commission from a developer or a vendor to sell you a property.
Another problem I see with some buyer agents is when they let their egos gets in the way of a good outcome at an auction - determined to get a ‘win’ at any cost and show others they have ‘beaten’ another buyer or buyer’s agent.
I have seen occasions where two or more competing buyer’s agents bidding on the same property have driven the price well beyond its true value and this is not acceptable.
A buyer’s agent should never lead you into overpaying for a property to ensure an outcome for them. It can lead to problems financing the purchase, because if the bank valuations do not stack up, the client can be left in a precarious financial position.
Even worse, in my view, is where a buyer’s agent ‘switches hats’ and sells clients property they have bought on the market or developer stock to their clients. If a buyer’s agent tells you they have bought a great property they have come across and suggests you buy one too, but don’t charge you a fee, they are either profiting from the sale or earning a commission. While this is not illegal, the ethics of this in my view are highly debatable. At a minimum they should at least be transparent as to how their fees are being earned and who they legally represent in the transaction. In addition, if they own the property but charge you a ‘buying fee’ to purchase it, there is a definite conflict of interest here, even if transparent.
An emerging problem is accountants, financial advisers or others giving advice on which type of property to buy for a super fund (SMSF) or with a family law settlement. Again an adviser must be qualified and have years of experience to understand what type of property will suit these different scenarios.
There has been some media attention recently on ‘collusive bidding’, where multiple buyer agents from the one firm bid at an auction to try and secure a property for a client. I don’t think it is unreasonable to do this because as a buyer’s agent they are just trying to counter the tactics auctioneers and agents use to sell property.
How can a buyer ensure they don’t end up using one of these buyer’s agents?
Be aware! In some states there is no legal definition of a ‘buyer agent’, and the term can be misused.
To ensure you are engaging a professional buyer’s agent, ask them these questions:
- Are you a licensed real estate agent or agent’s representative?
- Do you have a qualification as a buyer’s agent?
- How and when do you get paid?
- Do you only buy property or do you also sell property for developers?
- How many clients do you work with at any one time?
- What happens if you bid for me auction and miss out?
- How many properties will you negotiate/bid on for me? Will my fee change or is it fixed?
- How will you protect me from overpaying for a property?
- What recent client testimonials can you offer as evidence of your work?
What prices are reasonable for a buyer’s agent to charge?
The level of a fee must be linked to the value of the service delivered.
Buyer’s agents charge fees in different ways – sometimes fixed or sometimes as a percentage of the purchase price. Many charge an engagement fee upfront with the balance paid on securing a property, while others have no upfront fee.
One method isn’t necessarily better than the other, it all comes down to the firm’s policy.
The old adage ‘you get what you pay for’ is what all consumers who want to engage a buyer’s agent should always keep at the front of their mind.
When engaging a buyer agent, be clear about what your needs are, what service is being offered and if your needs will be met for the price.
If you don’t think the deal is good value, then check with other buyer agents until you find someone you wish to engage. Gut feeling, compatible working styles and personality can also make a difference.
Note: Some of this information came from Property Prosperity, with Sandkuhler’s permission.
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Property Observer readers, and industry members, what’s your take on the debate?