Why you might use a vendor's advocate
In a previous article published here entitled Selling agents and buyers' agents work together but have opposing goals, I covered the definition of these agents’ respective roles in today’s property industry and how the two work together. But what about vendors’ advocates?
If real estate selling agents act for the seller, buyers’ agents act for the buyer, where on earth do vendors’ advocates fit into the equation? Surely they must be the same thing as real estate agents – after all, doesn’t the selling agent represent the vendor? So what is the difference?
Firstly, they are all licensed agents but have different roles in property transactions. In Australia buyers’ agents have only been around for about 15 years, and their alter-egos, the vendors’ advocates have only recently begun to emerge in their specific role in our property industry. To further confuse the issue, buyers’ agents and vendors’ advocates are often the same person, although by definition they never sell real estate themselves.
Vendors’ advocates are independent agents who act exclusively for the seller of a property. They offer a value-added service including:
- A written market appraisal of the property including local comparable sales and current listings to establish a market value range
- Advice and recommendations for selecting the best real estate agent in the locality
- Advice on real estate agents’ exclusive sale agreements and proposed commission fees
- Recommendations on the best method of sale – auction or private treaty
- Advice on strategy and proposed marketing campaigns
- Vetting and screening buyers' offers presented to the seller through their appointed real estate agent
In the US advocates have been around for decades and are widely used by both sellers and buyers, but in Australia the concept is relatively new and falls into a grey area that is still unclear to many consumers.
The issue comes down to two reasonable questions:
- Why would a seller engage a real estate agent (acting as a vendor’s advocate) to then recommend another real estate agent to sell their property?
- Isn’t there an inherent conflict of interest involved in this process?
The answer to the first question is that a vendor may decide to engage an independent professional to advise him on the whole process and look after his interests in the sale. He may be based overseas or simply doesn’t have the time to arrange the sale himself.
The answer to the second question is much trickier and lies in understanding who actually benefits from the transaction.
Brief research of fees charged by vendors’ advocates in the Australian states of New South Wales and Victoria reveals that many do not charge a fee to the seller. They are paid a conjunction fee or “referral fee” by the real estate agent they originally recommended as the best agent to exclusively sell a property.
The issues involved with this arrangement are:
- The vendors’ advocate may be tempted to recommend the selling agent who pays her the highest split of the final commission, or choose an agent with whom she has a good relationship (but who may not necessarily be the right person for the job in terms of achieving the best sale price for the client).
- There can be confusion between who is actually handling the negotiation process, and in whose interest.
- If the vendors’ advocate is receiving a split of the sales commission the real estate agent’s motivation may be degraded. If offered a listing they will usually take it even if their fee is reduced, but will they then give the sale 100% of their effort?
Other vendors’ advocates charge a fee directly to the vendor (usually about 0.5% of the sale price). This system avoids a conflict of interest, allowing the vendors’ advocate to act independently and without bias for the client, and it encourages the selling agent to put his best effort into the sale for the benefit of all stakeholders.
Either way the fact is the market for vendor advocacy is growing at a fast rate in Australia. If vendors feel they can benefit from this new service by engaging a property professional, then why not?
The service is ideal for vendors based overseas and anyone else who needs independent advice in the sale of what is often their most valuable asset – their home.
Tim Mansfield is founder and principal of Sydney-based buyers' agency Prime Property Buyer.