01 Apr How to create wealth in any market + Do you really need an agent?
- Have you missed the boat?
- Are you covered for drug manufacture in your rental property?
- Young property investor tells her story
- Do you really need an agent?
Here is what is on this weeks show….
Our property markets have performed strongly for a few years, but have now slowed down leaving many investors wondering is it too late this time round. They wonder if they’ve missed the boat this property cycle. Michael Yardney says ”Don’t worry about that, you can create wealth at any point in the cycle”. He explains more in the show.
Social researcher Mark McCrindle says while generational warfare over property is nothing new, the vagaries of the argument have changed. Gen Ys’ are growing up realising they might have missed out on affordable housing. As well job availability is sliding and access to welfare is shrinking. Meanwhile some Baby Boomers — Gen Y’s bosses, parents and politicians — suggest the solution is to sacrifice, work harder, and whinge less. Is it that simple?
We’ll discuss an email I received from a listener whose neighbours home was trashed during the production of methamphetamines – and to add insult to injury – he wasn’t covered by insurance. What lessons can we learn from this. I talk to a property manager and the boss of an insurance company that insures landlords.
Disintermediation is a really long word with a short, but scary meaning – the removal of the intermediary in a transaction. For real estate, it’s the word that asks the question: in these digital days, do a property seller and a buyer really need an agent to connect and mediate the selling of a property? Kylie Davis will attempt to answer that for us.
We hear from a young property investor who started buying property when she was 21 and has no intention of slowing down despite some earlier reservations from her financial advisor father. Katie King tells us about her investment journey so far.
Kevin: Right now, for a look at the battle between Baby Boomers and Gen Y’s, I’m joined by futurist and social researcher, Mark McCrindle.
Good morning, Mark.
Mark: G’day, Kevin.
Kevin: Have Baby Boomers actually priced Gen Y’s out of the market?
Mark: In a lot of ways, they have. The Baby Boomers have done really well in property. They essentially got into property when it was very affordable, certainly by today’s standards, and they’ve seen that asset pretty much triple in value in their ownership.
It’s been a 50-year economic miracle that they’ve lived through. They’ve seen their own wages rise, they’ve seen prices relatively pretty low, they’ve hardly been through a downturn, and they remain in this era where they can work later and accumulate longer. Also, their retirement benefits in terms of tax and the like have been pretty good. That’s been the perfect economic storm for them. Compared to their children, now – the Gen Y’s starting out – the Gen Y’s certainly have it tougher in property.
Kevin: So you believe there’s some foundation to that, the fact that it is a bit tougher to buy a property than it was, say, in my days.
Mark: That’s right. Normally, as one generation was easing out of their property ownership, that would free those properties up for the next generation to hit the suburbs. But what’s happened with the Baby Boomers is they largely did buy properties in the suburbs, but right at the time that they’re becoming empty-nesters, they’re certainly not looking to head off into retirement; they’re looking for a more suitable place.
They’re starting to head to those units. They’re starting to head to more of the urbanized areas, to be closer to our cities, and they’re actually competing with their children. This is right at the time that the Gen Y’s are looking for those same properties, those units that they can afford close to work and the like. Once again, you’ve got the Baby Boomers almost bidding against their children’s generation. That’s what seeing the unit prices rise.
Kevin: I have to say, though, that there were a number of things working against my generation when we went to buy property. Finance was nowhere near as easy to get as it is today. I do remember that in those days, too, the banks would only ever look at the principal money-earner. Even if they were husband and wife working, they would still only take the husband’s wage as being an offset against the loan.
Mark: That’s definitely true. Baby Boomers well remember those well over double-digit interest rates. You’re right. The majority of Gen Y households looking to buy a property have two incomes, plus they’re more than twice as likely to have a uni degree as their parents, so that gives some capacity for ongoing earnings and flexibility. Their parents helped them through university and let them stay home longer, so we can’t forget that.
Of course, the Gen Ys have got longer longevity. They’ll be able to work across different careers and reinvent themselves. They’re starting their earning years with superannuation, which their parents didn’t have, and it is a very stable employment market at the moment – quite low unemployment in historical terms – so they have a lot going for them. That’s for sure.
Wages are rising, and they’re starting their earnings at the highest graduate salaries that have been seen. They have a lot in their favor, as well. It’s just that as the demand for property has exceeded the supply, properties are a lot higher than ever before, relatively speaking.
Kevin: Making another comparison – I’ll be keen to get your thoughts on this, Mark – expectations. I know when we purchased our first property, we didn’t have enough money to even outfit it with furniture. We didn’t have enough money for curtains. We only just scraped through getting in. I sometimes wonder if the expectations today to get absolutely everything up front might be just a little bit too high.
Mark: I think that’s a fair call. We were writing a report on this recently, and we said that many in this generation – these Gen Y’s – expect to start their economic life in the manner in which they’ve seen their parents finish their economic life, in the nice part of town, the nice units. As you said, Kevin, that wasn’t how the boomers began. It was the little flat. It was the outskirts of town. Forget the latest Ikea furniture. It was the milk crate as the coffee table, or whatever it was to get by.
Kevin: Actually, it was. That’s what it was, and beanbags.
Mark: Beanbags, yes – that’s right – and borrowed furniture. Now, everyone wants to start new. “Forget the hand-me-downs. I’m going to get my new stuff. Thanks for the offer, but I want to have a bit of lifestyle.”
Definitely, those expectations – we call it expectation inflation – has risen much faster than price inflation, and so there is a reality check needed there. It is a difference in attitude. The Baby Boomers were not comfortable with a lot of debt or credit. They wanted to save and buy and own, whereas we have more of a lifestyle attitude coming through now where you have to live in a place that’s going to work for you and close to work and it has to have that lifestyle – not as much prepared to start in those outer ring suburbs.
Kevin: Mark, what about the great Aussie Dream? “I have to own my own home.” Has that changed? Is there a social shift?
Mark: It is changing a little bit. Partly, the affordability challenge is driving that. You have a generation now that is saying, “Life’s a long time, and we are going to earn later. Let’s just focus a little bit on work-life balance and on the lifestyle aspect.” It’s a generation that has more mobility around career, and that’s not just in terms of the types of work they take on but the places they work. It’s a global generation. They’re going to move in and out of study. Sometimes, having a property can lock you down into the one area and obviously financially.
It’s not as much of a single driving factor for them. If you are global and mobile and digital and entrepreneurial, then there are other things that you can invest in – perhaps, starting one’s own business or perhaps investing in things that are a bit more liquid. That might be some shares and the like that you can move around a bit more.
It’s a bit of a mindset of renting not owning. That’s not just around property, but even cars, with the car share options. Even with phones, you never actually own them. You have them for a couple of years; it’s all about the plans. It’s a generation a bit more focused on the intangibles – travel and experiences – compared to the tangibles of their parents.
Kevin: It’s a bit disposable, too. You talked there about phones. We’re quite used to turning our phones over every two or three years, and they just become disposable. I wonder if that’s the way we sometimes look at living, too.
I think we have to realize, as well, that there are parts around the world where people just never even think of owning a property. We have this expectation that our kids have to own their own home, but maybe that’s not necessarily the way forward.
Mark: That’s right. It is just so impressively hard for an individual to save up for a mortgage these days. With the moving in and out of study and the like, to actually get approval for that loan, it’s getting tougher, so parents and others have to help out. Some people are saying, “Maybe I will look at other ways of getting a loan and other financial approaches to life.”
The Aussie Dream is not mainstream for all. In fact, we found that there are even changes in renters. There used to be two categories of people, those who can afford to buy a home and then everyone else is a renter, as if they’re in that second tier of income, but that’s not the case. About 30% of Australian renters, particularly the younger ones, are what we call choice renters. They’re renting not because of affordability reasons but because of lifestyle reasons. They want the flexibility and the lifestyle that renting gives.
Kevin: Always good talking to you, Mark McCrindle. Of course, Mark is a social researcher and futurist.
Mark, thanks very much for your time.
Mark: Thanks a lot, Kevin.
Kevin: I guess one of the greatest fears that any investor in property would have is trying to time the cycle. That’s the question that I’m going to pose now of Michael Yardney today in the show. Michael, a lot of people are very concerned about the cycle and “Is it too late? How do I get in?” and making sure that they don’t buy at the wrong time.
How important do you see this in a strategy for an investor, Michael?
Michael: You’re right, Kevin. I’m seeing a lot of investors who are wondering have they missed the boat this property cycle? I understand why they’re thinking this way. It’s often because it’s said that timing is everything in investment, but Kevin, I’ll let you in on a little secret; that’s not really the case. In my mind, timing is one of the most misunderstood concepts with regard to investing.
Kevin: Why do you say that?
Michael: Kevin, successful investors seem to know how to create wealth at any point in the property cycle. Timing doesn’t seem to matter to them. Of course you don’t want to buy right near the peak, Kevin. You don’t want to wait for a long time until the values start rising again. But I’ve found that successful investors find timing isn’t really that important. Kevin, I’m not sure if you’ve noticed, but some investors seem to do well in good times and even in bad times. Market timing doesn’t seem to matter to them.
Kevin: Michael, one of the things that I have noticed is that they continue to invest. In other words, I’ve seen people who get really tied up on this timing of the market. They’ll stall. They’ll think, “I don’t think the timing’s right. I think I should stall it right now.” But other people are just continually looking at their investments.
Michael: And they’re making success of it, aren’t they?
Kevin: Yes, they are.
Michael: On the other hand, Kevin, you’re also going to find a whole group of people who don’t do well in the really good times. We’ve had the biggest boom in some of the big capital cities in the last decade. They haven’t done well in the good times, and they’re going to do badly in these times. Timing doesn’t seem to matter to them either, does it?
Kevin: No. So what’s the difference?
Michael: Kevin, I would say it doesn’t have to do with the external world; it has to do with the internal world, what’s happening inside you. Some people say, “Look, it must be knowledge,” but Kevin, there’s always people who have more knowledge than you, people who have access to bigger databases or research, or people who do the research. In my mind, that’s not the case. I actually think it has to do with the way people view investment and view the world.
To some people, it really is just their mindset of looking for opportunities, while other people look for problems, for it to be just right – and the market’s never just right, is it, Kevin?
Kevin: No, it’s not, but it has to be more than just mindset, Michael. Surely, there has to be an understanding about the market.
Michael: Clearly. First of all, you have to the abundant mindset. You cut through the clutter of all the negative commentary, and then you look for opportunities. There’s no doubt that the property market does move in cycles.
At this stage of the cycle, you can’t count on double-digit capital growth like we had in Sydney and Melbourne to carry you through in 2016. But every capital city market has submarkets, and some are doing better than others. Those submarkets are related to price. Sometimes it’s related to geography. Sometimes it’s a type of property.
Others don’t worry too much about the cycle, because they make their own cycles. They manufacture their own profit by adding value to their properties.
Kevin: I mentioned a few moments ago, Michael, about people who always think, “The market’s not quite right.” Does the market ever get just right?
Michael: There’s always excuses why not to invest, Kevin, not only in the good times but particularly now in the bad times. That’s why I said the mindset has an element to do with it, looking for the opportunities rather than finding the obstacles.
Interestingly, Kevin, I think this cycle will be a little bit different moving forward, also. Timing won’t be as critical because I believe we’re now moving into at least a decade, if not more, of lower interest rates, lower capital growth – in fact, lower yields also, because interest rates and inflation are low.
I don’t think we’re going to have as much in the way of booms and busts over the next decade – in other words, there will be a cycle, but the ups and downs won’t be as much, much like we had in the 1990s. I’d put timing aside and buy your next property when you’re ready, when your finances are ready, when you have the ability to do the next deal without getting yourself into financial stress.
Kevin: That’s good advice: “Do it when you’re ready. Don’t worry too much about the market.”
Michael: That’s right, Kevin. That’s what successful investors do.
Kevin: That makes a lot of sense. Michael, it’s always great talking to you, mate. Thank you so much for your time.
Michael: My pleasure, Kevin.
Michael: My pleasure, Kevin.
Kevin: I want to read you an e-mail that I received from James. Thanks James.
“Hi Kevin, I wanted to warn your listeners about something that’s had a massive financial impact on my neighbor and friend. He and his wife own a rental property that they had hoped to use as their retirement fund. It was recently trashed by tenants during the process of methamphetamine production, and when the tenants left, they left all their drug-making equipment inside the property.
“To make matters worse, they were told by their insurer that they are not covered for the damage, as it was not willful damage and it occurred as a result of an illegal activity. They tell me the stench inside the home is unbelievable, and it’s their understanding that they will have to hire professional cleaners to deal with the mess. Anyway, I just thought I’d warn your viewers just to make sure your insurance covers this sort of thing.”
I’m going to find out what you need to do. We’re going to talk to two people in the next little while. Firstly, I’m going to be talking to an agent who’s been doing a little bit of research on this for us and can give us some details about what you need to be watching out for, how you can protect yourself, and then I’m going to talk to the executive director of Terri Scheer Insurance, Carolyn Parrella, and we’ll get a bit more detail on this.
Shannon Davis joins us from Image Property Management.
Good morning, Shannon.
Shannon: Good morning, Kevin.
Kevin: Shannon, thank you for your time. Have you noticed this? Have you seen this or has it occurred anywhere that you’re aware of?
Shannon: Yes, I’ve definitely dealt with a landlord who was at the end point of dealing with this. He was self-managing. There were lots of smells, there were lots of paraphernalia left behind, but the biggest thing is it’s stigmatized. There are people coming and going at all times of the night. It’s a hard place to re-rent after that, so you’re really caught between a rock and a hard place there.
Kevin: Is it possible to clean it up, and is it something that you can do yourself? What are the health risks here?
Shannon: It gets into everything – the floorboards and the ceiling. The chemicals just leech out, so it really needs to be done with professional help. Sometimes just upon inspection, when people go in, you can feel nauseous or without your sense of thought, so you need full protective gear and it needs a full treatment, because these chemicals don’t occur naturally in our environment and can have a really devastating effect on our health.
Kevin: I guess when you’re managing a property and you’re a professional property manager, so you have to give the tenant notice that you’re coming to do an inspection, it’s quite reasonable that they could be able to clean this stuff up and get rid of it. But is there any way that a property manager can do a quick test to see if there’s any illegal activity going on in the house during those inspections?
Shannon: You’re able to get swabs. I think with some of this stuff, with the 24-hour notice period, it would be hard to hide everything. There’s usually lots of pool-chemical-type containers, the smell is very odorous, as well. It’s not just a “pop up and put away” type of activity, so there are going to be some telltale signs.
Kevin: I imagine the tenants who are looking to do this kind of activity are going to be looking for renting a place that’s not going to be managed all that well or the inspections aren’t going to be all that regular. Here I’m hinting at the fact that it might just be self-managed.
Shannon: Yes, the self-managed landlords, because they don’t have a database of people who are showing themselves to be rogue tenants in the past to work off, they’re really running a risk. They’re targeted by these type of tenants who just want to set up a shop.
I would be careful of the high rent. I know it sounds really funny, but there have been times when I’ve given appraisals on properties and then for some reason or another, someone is willing to pay over market rent.
Sometimes I’m a bit wary of those types of situations. It could be a person who needs accommodation in a hurry or who wants to carry out some type of illegal activity and use your address as the base for it. Rarely in the world do people want to pay more than they need to. An over-market rent might be one of your telltale signs.
Kevin: What sort of restrictions can you put on a tenant to stop them from doing things – we’ll get onto other areas now – like smoking, having pets? What kind of restrictions can you put on them?
Shannon: There are clauses that can be agreed to in any lease, but mostly now it’s best practice to only agree to smoking outdoors – on a patio area and not inside the house.
Kevin: And that can be done, can it? You can put that restriction on?
Kevin: What about stopping people from having pets?
Shannon: Most people have a right to have a pet. They can take every application on an individual basis, but again, there are clauses that help protect the landlord, that if there are any damages from a pet, it will be rectified at the owner’s expense, and you can also get pet references these days, too.
Kevin: How often should inspections be done to pick up this type of activity?
Shannon: You can’t get more than four times, Kevin, but some agencies will do as little as two and as many as four. What we find is that the property really does need those regular inspections to make sure that maintenance has been kept up in a timely manner, and that the bills aren’t getting more excessive due to neglect.
Kevin: Shannon, of course, is from Image Property Management and also heads up the operation for Metropole Properties in Brisbane.
Shannon, thanks very much for your time.
Shannon: No worries. Anytime, Kevin.
Kevin: Just before that break, we were talking about the production of methamphetamine in the rental property, and as you can hear, there are instances of it occurring now. I’m going to talk to Carolyn Parrella, who is the executive manager for Terri Scheer Insurance, who joins me, just to find out a little bit more about how you can protect yourself.
Good morning, Carolyn. Thank you for your time.
Carolyn: Thanks, Kevin. How are you?
Kevin: Good. You’d be right across this issue, I guess. Is it an emerging problem with rental properties?
Carolyn: It is, but look, I just want to set the listeners’ minds at ease that it’s not a very regular problem, but it certainly does occur, and when it does occur, it can create a lot of damage at a huge cost to the landlord.
Kevin: We heard an instance from James who actually sent an e-mail in saying his neighbors had fallen foul of this and they had been advised by their insurer that they weren’t covered because it wasn’t willful damage and it occurred as a result of an illegal activity. I don’t know which insurance company they’re with – I’m not suggesting for a moment that it’s yours – but is that the case? Is that how it works?
Carolyn: I think the most important thing when people are insuring their property is to ask the question of the insurer as to what’s covered. Certainly with our policy, it would be covered under the malicious damage cover, so it really is that matter of knowing what your policy covers.
Kevin: Does it have to be named? Would it tell me in the policy that I’m covered for this?
Carolyn: I haven’t seen a policy that specifically calls it out, and that’s why I think it’s a good idea to ask the question around malicious damage.
Kevin: Yes. The unfortunate thing, Carolyn, is sometimes we don’t know what to ask because we don’t know what may occur. I remember, I think I spoke to you some time ago about what happens if there’s a murder in a property. Am I covered for that? I understand that is the case, is that right?
Carolyn: Yes, it is.
Kevin: Because that can lead to an enormous amount of vacancy and lost income, because the property could be tied up for quite some time.
Carolyn: It can, and that specific example would usually come under the definition of death of a tenant. There would be a clause in the insurance policy around the death of a tenant.
Kevin: Even if it was a criminal act?
Kevin: What’s the difference between landlord insurance and standard home insurance?
Carolyn: I think the biggest difference is the fact that in a standard home insurance policy, you’re very often excluded for damage that’s caused by a tenant, but that’s obviously the cover that you need when you’re renting a property, so that’s a very big difference.
Kevin: Have you had any coverage of properties that have been damaged through the production of methamphetamine or any drugs like that?
Carolyn: We certainly have; we’ve had a lot. And to your point before, one of the biggest ones that I’m aware of was in Queensland, and to Shannon’s point earlier of targeting of self-managed landlords, that’s what we have discovered, too. That’s generally because these people tend to know that a property manager would do the regular inspections, and not all self-managed landlords will do that, which just makes it an easier target, I guess.
Kevin: Is Terri Scheer Insurance available to private landlords?
Carolyn: It is, yes.
Kevin: What sorts of things do James’s neighbors who sent in the e-mail need to do to clean the property up? Are there companies who will do that?
Carolyn: There are, and as Shannon was saying earlier, too, the chemicals that are used are very toxic, so they do get into everything – the paintwork, the floors, the carpets, curtains, all of those types of things. So it’s important to have generally it’s referred to as a forensic type clean, I guess, and the insurance assessor will be able to assist with that, because it is quite toxic and you can get sick from the fumes and the chemicals that caused those. Yes.
Kevin: Yes, because there would be an ongoing problem with re-renting the property, and I think Shannon made the point, too, that there could be a stigma attached to the property once this does occur, as well.
Carolyn: There could, and the best thing to do is to get it cleaned up as quickly as you possibly can. It’s difficult when you’re screening tenants, because obviously when they present, they’re going to present well, but just doing those regular inspections is going to help.
Kevin: I imagine, too, they would move around a fair bit. If these toxic smells build up quickly, they’re probably going to be moving fairly quickly, as well.
Carolyn: They do, and what we’ve learned through talking with property managers, too, is that often the whole production can take place between the quarterly inspections. They might do an inspection in June, come back to do one in September and they might have gone in-between times but there’s that telltale smell left behind.
One of the other things that we’ve become aware of in this type of incident, as well, is that the tenants will always pay their rent on time. They’re doing everything to keep the suspicion away, I guess, so the rent is always paid on time. There are no real dramas until perhaps you do an inspection, or perhaps they’ve left the property and left their gear behind.
Kevin: What does it cost to clean the property up after this type of incident?
Carolyn: It can certainly run into the thousands to do that, and it takes longer than a typical clean, because you do need this additional cleaning to get rid of the toxicity. The landlord insurance policy should cover you during that time, as well, so while the cleanup is being done, you should be covered for lost revenue during that.
Kevin: What’s the cost of landlord insurance nowadays?
Carolyn: It really depends on where your property is located. If you’re looking at purely the landlord insurance that covers your rent default and the damage caused by a tenant, it’s generally around the cost of a week’s rent for a year, but if you’re looking to insure your whole building so it’s not a unit, whatever the sum insured of the property is will dictate the prices.
Kevin: Carolyn, great talking to you. Thank you so much for your time and your insight there as to what we can do. Carolyn Parrella who is the executive manager for Terri Scheer Insurance.
Thank you for your time.
Carolyn: Thanks, Kevin.
Kevin: I’m joined now by young investor Katie King, who started investing in property at the tender age of 21.
Hi, Katie. Thanks for your time.
Katie Hi, Kevin. Thank you for having me.
Kevin: Tell me about your journey. You started buying at age 21. What sort of an example did you have from your parents? Is that what helped you along?
Katie Growing up, my mom had always been very much into real estate but my dad not so much. Dad’s actually a financial planner, so when I started talking about purchasing a property he wasn’t too happy for me. He was quite concerned I guess about taking on so much debt at a young age. But now that I’ve bought two properties, he’s more than happy for me.
Kevin: I was going to ask about your portfolio. You have two. Are you on your way to the third?
Katie Yes. This year, I’ve already started speaking to my mortgage broker about purchasing another one using the equity from the first one because that one has done quite well for me.
Kevin: Are these properties established ones that you’ve bought, or did you buy off the plan, or are you building?
Katie No. These were established units that I bought.
Kevin: A lot of investors, after getting into the first property, find getting to the second one is a bit of a hurdle. Did you find that?
Katie A little bit, to be honest, because I used the equity from the first one to purchase the second one. I actually found that in purchasing the second one it was a bit more difficult, especially because the financial regulations around investment properties had tightened up a bit, so I was finding it a bit difficult to borrow at a high LVR.
Kevin: What advice would you give to a young person listening to this now about getting into property investment?
Katie I would say that if you’re in a position to do it, definitely go ahead and do it. I think the tough thing about buying at a young age is that you have a lot of people around you who don’t necessarily think that it’s the right thing to do, and that can turn you off. I definitely say that if you’re in a position and you’re confident in what you’re doing, then go ahead.
Kevin: It’s great advice because your friends and family… You said that your dad was a little bit hesitant and probably he’s conservative because he is in finance, but that can be a bit daunting, can’t it?
Katie Definitely yes. If you’re doing it on your own, as well, it is quite a daunting thing.
Kevin: Katie, great talking to you. Thank you so much for your time. We’re out of time, but I really appreciate you talking to us this morning. Thank you.
Katie Thank you, Kevin.
Kevin: I mentioned before the break that I’d be joined by Kylie Davis from CoreLogic RP Data, who’s written a blog entitled “Do You Really Need a Real Estate Agent?”
Dangerous territory, this one, Kylie?
Kylie: Yes, it’s a bit controversial, isn’t it?
Kevin: Very, Very controversial. What prompted you to write this? Was it to do with the disintermediation? It’s a big word, but what it basically means is to take out the middle person from the transactions so that the buyer and seller can work together.
Kylie: It is. We did some research about looking at how satisfied people were with their real estate agent, and we found that while 66% of them had had a good experience, and of that about 30-something had had an excellent experience, another 34% in that whole equation had had a poor experience. So we wanted to explore what would happen if those guys didn’t use an agent again next time.
Kevin: How do you define “poor experience”? What creates that? Did you find that out?
Kylie: What we found was that it was really around customer service and the human behavior of communication and following up and listening and being on the side of the vendor that made a really good experience. Getting the amount that you expected to get was par for the course, but it was really around the professionalism and the care that the agent gave to their vendor that determined if their service was excellent or not.
Kevin: Yes. Amazing, this. This comes up time and time again in research. While it is about price – and everyone expects to get more for their house than what it’s probably worth, and every buyer wants to buy it for less than what it’s worth, so therefore you’re going to have some conflict in that area straight away – but it does really come down to service, doesn’t it, and the follow-up and the communication from the agent? You’d think that agents would be more on board with this.
Kylie: I think it comes down to is that people’s focus on price and what the cost of the agent is going to be, too, because they actually don’t understand the value that an agent brings to the table. They’ll often try and negotiate right down on the commissions that they’ll pay their agent and not ask the agent to justify or explain why they’re worth the commissions that they’re worth and what the service is that they’re going to get.
That’s what the whole disintermediation thing is, that you’d rather go with a machine or a piece of technology to do the work if you think that’s easier, but the service is where the agent and their ability to concierge and really look after you is where their value is.
Kevin: The appointment of the agent is the most critical decision you can make, because the agent is the person who will either make you or break you in the sale in terms of getting top dollar for you. Because a lot of people only ever sell a property maybe once or twice in their life, they don’t know what to expect.
Kylie: No. Exactly. I think that’s why it’s really important that you spend some time and do some homework on who you’re going to use and what you want to get out of that experience. Is it that you want to sell it really quickly? Is it that you want to be looked after and have someone who’s got really good skills? Or are you looking for someone who is really hands off and is going to get it sold? Do you want it sold for the absolute best price, and how much are you prepared to invest in the marketing and work with your agent versus how much do you just want to give it to them and not think about it and have someone to blame if it doesn’t go well?
Kevin: That dissatisfaction factor that you talked about, that figure I think was about 30% of people who were totally dissatisfied with their experience with an agent. Was that the figure, about 31%?
Kylie: Yes, of that about 10% were very, very, unhappy and 20% were a bit “meh” about the whole thing – it was what it was – they weren’t delighted, they weren’t great about the whole thing.
Kevin: So, acutely 10% of people are really concerned or dissatisfied with the service they get from their agent. These sorts of things actually give oxygen to sites like Open Agent, as an example, which is one we’ve mentioned, where they maintain they’ll actually help you get the best agent through their references, and I think, quite incorrectly, talk about how they judge the best agent. But these sorts of things actually give oxygen to sites like this, don’t they?
Kylie: Yes. I think they also give oxygen to sites like Sell My Castle or ones where they’re encouraging vendors to do all the work themselves.
I think what everyone forgets in a transaction is that, especially in a market like at the moment, anyone can sell a house, anyone can put an ad up online and get a house sold if you’re reasonably sensible with your expectations around the price. That’s not the value that a good agent brings.
A really good agent will both guide you through the process – so that if you haven’t done it for a long time, you know what to expect before it happens – and they’ll have a really good process for how they sell it and how they market and promote it to make sure that they don’t find one buyer to turn up and give you some money, but they find multiple people who are interested in your property to compete against each other to get the best price possible.
Kevin: There was a situation we had a couple of years ago where we talked to a company that was setting itself up as sellers’ advocates – and this is the first version of sites that then became Open Agent and Sell My Castle, where they looked at an Australia-wide situation. But I think for sellers, if you really want to get some good help with selecting an agent, you can do it through people like sellers’ advocates. It’s a great service where they will actually find the best agent for you, and not necessarily just all the ones who are on the Internet or all the ones who will pay a 20% referral fee.
Kylie: Yes. In Victoria, they have sellers’ advocates, and their job is to actually deal with the agent for you, and they’re becoming more common. You actually deal with someone who will deal with the agent.
Kevin: That’s actually what happens in the United States, where the industry is really divided between the buyers’ agents and sellers’ advocates. Maybe that’s the direction that the industry has to go here, because there is a bit of a conflict when an agent in Australia has to deal with both the buyer and the seller.
Kylie: Our original research was looking at what the experience was like for vendors and the people who pay for agents, and we’re now doing a piece of research that looks at what buyers’ experiences are like with a real estate agent.
You have to remember as part of that, that buyers don’t actually pay anything for an agent in Australia. In the United States, you can’t really buy a property unless you’ve got a buyer’s agent and you’ll pay him or her 3%, and the vendor also pays their agent 3% or 4%.
Kevin: Yes. Commissions are much higher than they are in Australia. We talk about the expense of selling a property in Australia, but if you sell one in the United States it can be as high as 3%, where the average in Australia is 2.5 % to 2.7%.
Kylie Davis, from CoreLogic RP Data, thank you so much for your time. Great talking to you.
Kylie: Now Worries. Thanks, Kevin. See you.