Hired gun
Tip 1: Work out what service you need
Buyer’s agents can be as involved in the sale as you want them to be, from simply bidding on your behalf at auction to researching, identifying and purchasing a property for you. David McRae from McRae Property says buyer’s agents can adapt to meet the investor’s needs.
“A lot of people come to us because they don't have time to try and find a property or they're confused,” he says.
The service might involve formulating an investment strategy, identifying potential suburbs, visiting open houses, negotiating the deal and then overseeing settlement.
In other cases, buyers approach Mr McRae with a specific property in mind, asking him to either negotiate a sale or work out its market value. Rod Davidson from Hegney Property Group says around 10 to 20 per cent of his clients want this type of advice, but the rest are looking for direction on where to buy.
“Our work is generally finding out what the client needs,” he says.
He believes good buyer’s agents will analyse the client’s goals, including desired capital or rental returns, then devise a strategy to identify suitable properties. Ultimately, investors can choose how much or how little guidance they need.
In contrast, property educator Helen Collier-Kogtevs from Real Wealth Australia believes some investors may not need a buyer’s agent at all.
“As an educator, I would rather teach people how to research and find the right property for themselves without incurring the cost of a buyer's agent,” she says.
In her view, investors are better off taking advice from property mentors, brokers and financial advisers on how to find a property, rather than having someone find a property for them.
She believes investors with an understanding of property markets need to dedicate around 20 hours to finding a good investment.
“Being such a small amount of time to take care of your own financial future, I would prefer people invested the time to find their own property,” she says.
David Johnston from Property Planning Australia disagrees, arguing a good buyer’s agent can add value to any property investment decision.
“It is very hard to be an expert at something that you don't do for a living,” he says.
Tip 2: Consider each agent’s qualifications and experience
As buyer’s agents become increasingly common, the challenge is picking the best of the bunch.
Mr McRae suggests the key is to identify an agent with experience and credibility.
“They need to have a good track record, be able to offer testimonials and convince the client that they can do the job,” he says.
In addition, he believes buyer’s agents who are also qualified valuers can offer clients even more. In his view, valuers are in a better position to recognise a fair market price for real estate.
“Valuers have a habit of not overpaying for property and also knowing what it’s worth,” he says.
In Mr Johnston’s view, being a vauler is not a critical component of being a buyer’s agent. The two roles involve fundamentally different skill sets, he says.
“Valuation is looking at what the property is worth today, whereas a good buyer’s advocate is really looking at what the property can be worth in the future,” he says.
Another element is whether you feel comfortable and trust the person with your investment decisions, Mr Davidson suggests. He believes a face-to-face meeting can help establish a rapport between the client and the agent.
“They're going to be spending a lot of your money, so you've got to make sure that you feel comfortable and that you've got trust in that person,” he says.
While Mr McRae agrees that meeting in person is helpful where possible, he suggests investors who are interstate or overseas must “do the best they can” over email. Mr Johnston also warns many buyer’s agents are trained salespeople, skilled at building trust. As such, he believes a good relationship should play only a small role in choosing an agent.
If they are getting some sort of kickback or commission from a third party, then I'd question the independence of the advice they're providing.
Tip 3: Beware of dodgy operators
Unlike real estate agents, who require a licence to operate, buyer’s agents are largely unregulated. As a result, the sector attracts some players with questionable practices.
Mr Johnston warns some operators hold themselves out as buyer’s agents when they are actually representing a specific product.
“There are a lot of people who on the surface appear to be what I would call a buyer’s advocate but they're selling property,” he says.
In these cases, the agent will often receive a fee for convincing a client to buy a certain property. If the buyer’s agent stands to make a profit from another source, they may not be acting in your best interests, according to Mr Johnston.
“If they are getting some sort of kickback or commission from a third party, then I'd question the independence of the advice they're providing,” he says.
In particular, Mr Davidson finds new developments are often marketed at investors.
“Property spruikers will try to put you into a new development, where the value could already be maximised so it may take a while to get reasonable capital growth,” he says.
He encourages investors to do their due diligence and ask about commissions and payments up front. In some states, receiving two commissions may be illegal, while professional bodies like the Real Estate Buyers Agents Association of Australia (REBAA) prohibits kickbacks under its rules for membership.
Tip 4: Make sure they’re familiar with the area
Some buyer’s agents are experts on their local area while others take a broad view of different markets. Both models have their advantages.
Mr Johnston believes it is helpful for buyer’s agents to live in the same city in which they are buying.
“I think if they're not in that market regularly, they are less able to have good relationships with selling agents,” he says.
However, he also emphasises agents should have an understanding of the broader market to underpin that local expertise.
In Mr Davidson’s experience, buyer’s agents will often have specific areas they like to recommend. This favouritism is not necessarily a bad thing, Mr Davidson suggests, provided the agent can back up their choice.
“If you want to use a buyer’s agent properly, you should really let them give you their reasons why they think you should buy in a particular area, rather than just using somebody who says ‘I want to buy in this area because I’m local,’” he advises.
In his view, the role of the buyer’s agent is to oversee the market as a whole in order to identify areas with the potential to perform. This involves a detailed understanding of different suburbs, as well as zoning changes, infrastructure spending and other price drivers.
“Because we're basically analysing the whole market, we can see trends where those areas can outperform other areas,” he says.
On the other hand, Mr McRae believes agents with the right research at their disposal can zero in on any new area, even without necessarily having personal experience there.
“Generally speaking, it's not a smart thing to get a buyer's advocate involved in Surry Hills if the buyer's advocate is from Yarraville. But we're trained to lock into an area within a couple of hours and we can do that because of the information we have access to,” he says.
They're going to be spending a lot of your money, so you've got to make sure that you feel comfortable and that you've got trust in that person.
Tip 5: Discuss your parameters and vision
Before meeting with a buyer’s agent for the first time it helps to do some groundwork.
Mr Davidson suggests investors’ first port of call should be their accountant or financial adviser. That way they have an idea of their financial position and how to structure their purchase.
“It's good to get a clear picture of exactly the entity you're going to purchase the property through. I would also speak to my financial adviser, my bank or broker and work out exactly what I can afford to spend,” he says.
Mr McRae stresses the importance of making these parameters clear to the agent.
“If someone comes to us with $600,000, then we know what we've got to do. If someone comes in with $1 million, then we also know. There's a vast difference in what you would buy for those two clients,” he says.
In addition, investors need to consider what they would like their investment to achieve. Mr Davidson says some people might be looking for cash flow while others would prioritise long-term capital growth. Having an end goal in mind helps the buyer’s agent tailor their advice to the individual’s circumstances.
In Mr Johnston’s view, it is vital the buyer’s agent takes the time to understand their client and their client’s vision. Choosing a property should be the last step, not the first.
“A good agent actually gets to know their client, their goals, their plans, their financial situation and what they can afford from a cash-flow perspective and doesn't just jump to the asset selection,” he says.
This includes considering the person’s future plans, such as upgrading their home or starting a family. In order for a buyer’s agent to do this, however, clients have to be upfront about their current position and future plans.
“It’s about being really clear on what your situation and personal circumstances are and being very open with a buyer’s advocate so they understand your goals,” he says.
That said, investors also need to be open to advice. In some cases, they may need to walk away from preconceived notions or emotional attachments to certain properties, Mr Johnston says. He believes owners should not judge an investment property on whether they would want to live there, but on its potential to make them money.
“I think it's very important to try and allow the buyer’s advocate to do their job to the best of their ability without overly skewing their approach to suit your personal tastes,” he says.
Similarly, Mr McRae says buyers need to be prepared to listen if the agent advises against a certain approach.
“A lot of people come to us and they're actually thinking about buying the wrong property in every respect,” he says.
“It's our job to explain to them why they may be going in the wrong direction and try to convince them to change course a little bit.”
Tip 6: Ask around
The easiest way to find a quality agent is to get a reference from a trusted friend, Mr McRae believes.
“You look on the internet and talk to all your mates who have used buyer's advocates and try to find a common thread,” he says.
Mr Johnston warns that buyer’s advocacy is a fairly new phenomenon, so professional bodies are not yet widespread. Nonetheless, membership of organisations like the Property Investment Professionals of Australia (PIPA) and REBAA may indicate a good standard of professional ethics.
Ultimately, Mr Davidson recommends picking a buyer’s agent based on their background, experience and competence. However, he warns that quality comes at a price.
“Don't just go on price alone, have a look at all the factors. The cheapest may not be the best,” he warns.
“At the end of the day, paying an extra thousand dollars or two to have the right agent is probably worth it in the long run.”
Vested interests
The property investment advice sector remains largely unregulated, so some businesses presenting themselves as advisory firms could in fact be marketing specific products or developments. Make sure the property being recommended to you fits with your investment strategy and it’s not just a chance for your ‘adviser’ to make a commission.
