Not only did the agent pay half the market value of the property but he broke industry laws buy purchasing a property his agency was commissioned to sell. At the time the agent and his wife owned a Ray White Franchise in Doncaster Melbourne. Shortly after the allegations arose, Ray White cancelled his franchise. Since then the agent, his wife and daughter have run another major real estate agency franchise in Doncaster East.

Consumer advocate Neil Jenman said the incidence of real estate agents buying undervalued properties was rife in the residential market and more agents should be prosecuted by the justice system, rather than face industry fines.

It is great to see authorities catch up with these rogue agents, lets hope this sets a benchmark for what is unacceptable in the industry.

Source SMH 22/8

Reasons why real estate agents prefer Sale by Auction over Private Treaty.

1. No upper limit in property price
There is no upper limit on the price a property can sell for during an auction meaning greater return for the owner and agent.

2. Property sells quicker through Auctions
Auctions set a defined period in which buyers and sellers are forced to make decisions otherwise they will miss out on the sale. This often means properties are sold quicker then by Private Treaty.

3. Market value of the property is realised
The market value of a property is determined by what the market is going to pay and the best way to determine this is through an auction. Auctions are often used for unique properties where the value is hard to estimate. Agents often use them as a method to demonstrate that a vendors expectations are higher than the actual market value of their property.

Motivation behind each of points above;

1. Provides the agent with the opportunity to obtain a greater sales price for the vendor and greater commission for themselves.
2. Agents want properties to sell as quick as possible meaning they receive commission and can start selling other properties.
3. Vendors can’t be convinced their property is over valued so an auction proves the market value of their property.

All of the points outlined above and the motivation behind each of them make sense and are necessary for real estate agents to be profitable but whether they are in the interest of the vendor is another thing.

In a subdued property market the success of an Auction is going to be very limited. In most cases the property will pass in under the reserve price and post auction negotiations will need to take place. This isn’t ideal for the vendor because if a deal can’t be struck the property will go on the market by Private Treaty. Astute property buyers will know the Auction has failed and will use this against the agent/vendors when negotiating a price.

The majority of vendors are not in a hurry to sell their property and usually have a time frame between 2 to 6 months. This is at loggerheads with real estate agents who would like property to be sold as quickly as possible. In a subdued property market those vendors who are not in a rush to sell their property should not be convinced to use an Auction as the method of sale.

The marketing costs involved in preparing for an auction are usually quite large. In times when there is a lot of competition from other properties in the market even more money needs to be spent on attracting potential buyers to the auction. Agents and vendors need to come understanding for the value of the property so an auction does not need to be performed to determine the market value of a property. Agents need to stop over-quote the value of a property to vendors. Vendors need to put their emotions aside and look around at their neighbourhood to see what similar properties are selling for now, not 6 months ago when the property market was higher.

So next time you are discussion the method of sale of your property with an agent remember that holding an auction in a subdued market should only be considered if you are in a rush to sell or you have a unique property which is hard to value.

There are a number of different Agency Agreements a vendor can enter into with a real estate agent these include:

• Exclusive agency agreement – where you deal only with one real estate agent, whose fee is payable however the property is sold. This agent is given exclusive authority to sell the property for a specified period, usually 60-120 days.
• Sole agency agreement – the same as an exclusive agency agreement, except that the owner may sell his or her property privately without paying the agent’s fee.
• Open agency agreement – where you engage a number of real estate agents, and only the agent who sells your property receives the commission. If you sell the property privately then you do not need to pay the agent a fee.
• Auction agency agreement – where your agent organises the auction of your home and is structured similar to an exclusive agency agreement.
• Multiple listing agency agreement – where your personal agent works with a co-operative network of agents to sell your home. The exclusive period is for 90 days, plus a non-exclusive period of one year. You deal only with the listing agent, who is responsible for all negotiations with other agents and interested buyers.

In my opinion you should only enter into Sole and Open agency agreements with real estate agents. This allows you to find a buyer and save having to pay a real estate agent any commission. Even though most real estate agents are trying to resist signing these Agreements they will become more and more popular in the future.

The reason it is important to sign an open/sole agency agreement is that websites like Privatepoint allow you to list your property for FREE providing you with the opportunity to find a buyer for your property.

If you have ever seen a good real estate agent working you will notice they are always on the telephone. This is because there business is about creating and generating leads. Every new enquiry an agent receives could be a buyer for not only the property the person is enquiring about but perhaps another property the agent has listed.

We have a database of property owners (generated from the internet) we use to contact and inform about Privatepoint. We have attempted to contact some of these property owners up to 5 times with no success on their mobile or landline and often they have no facility for a message to be left. This is simply unacceptable as the property owner has displayed these contact numbers for people to contact them about a property. If potential buyers can’t get in contact with an agent or property owner what hope is there that the property will sell!

Before any property owner decides to sell privately they should ask themselves whether they want, will and are contactable 24 hours a day. If they are not then perhaps they should be looking at using a real estate agent who will be committed to answer enquiries.

If the property owner knows they won’t be contactable all the time then they need to make sure they have a message bank activated on all the telephone numbers they have displayed on the internet. If an owner decides they do not want to display a telephone number then they need to make sure they check their email account at least twice a day.

Last point to remember is that the more information you provide potential buyers about your property the more likely they will be interested in purchasing it. Make sure you answer enquiries or return calls the same day and provide all information the lead has requested.

There is a feature article in last weekend’s Sydney Morning Herald which highlights some of the real estate agents who were fined by the NSW OFT. All of these agents were up in arms about being fined and many other agents across NSW would be hoping they do not receive a phone call from the OFT. However, this was welcomed by many potential property buyers who are sick of being misled and having their time wasted at auctions they will never be successful at.

Some may ask why agents do this? The reason is that the more people an agent can get to a auction then the more chance the property will sell for a greater price. It has been suspected that agents deliberately underquote the estimated selling price of a property to encourage potential buyers to turn up to the auction and place bids.

Many of these hopeful property buyers who turn up to an auction are already at the top end of their budget. As soon as the auction starts their budget is blown and they are out of the auction. They have wasted their time and the property has come in over 20% more than what the agent estimated.

It’s great to see the OFT get more involved in regulating the practices of real estate agents and trying to improve the image of the industry.