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Agent reveals: How to save ‘tens of thousands’ when selling

Choosing a real estate agent could dictate how an investment property is sold, but according to this former agent and author, choosing the wrong agent can cost you dearly.

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According to Neil Jenman, a former real estate agent and currently an author, by saddling up with the wrong kind of agent, an investor can incur three different kinds of costs when selling a property – an agent’s commission, advertising expenses, and the under-selling of your property.

“Together, these three costs can easily exceed a hundred thousand dollars. That’s the real cost to so many sellers who choose a typical agent, one who doesn’t know how to negotiate,” Mr Jenman said.

Commission

Finding an agent with a low commission may seem like a good idea to end up with more money at the end of a sale, but Mr Jenman said agents with lower commissions were more likely to sell a property at a lower price.

However, the opposite is not true: a higher commission paid does not equate with a higher price for the sale of a property.

“The major point that sellers need to remember is this: you must never pay any fees, high or low, until your home is sold,” he said.

In order to assess whether an agent who charges higher commission results in a higher end price, Mr Jenman suggested to clearly state that the agent’s fee is “subject to future negotiation” in the selling agreement.

“If not, then simply write such a statement on the document the agent asks you to sign. And then, watch what the agent does to get you a buyer,” he said.

“If the agent clearly works hard and gets you the great price you were promised, fair enough, the agent may well deserve a higher fee. If not, you do not have to pay a higher fee.

“One of the most obvious points that sellers overlook is this: if agents ask you to accept a lower price than they originally quoted you, then you can ask them to accept a lower fee than they originally quoted you. If you take a cut, so can they.”

The important thing to consider, Mr Jenman stressed, was that investors should pay nothing until they are satisfied with the end selling price.

Advertising

This is also relevant to marketing costs, as he said no advertising should be paid for upfront, as well as any contracts should not contain any clauses that allow for a bill if the property does not sell.

“You hire an agent to get you a result – the sale of your home. No result, then no cost. And that must be non-negotiable,” he said.

“If the agents bleat and say, ‘But look at all the advertising we did on your home’, then you simply reply, ‘And yes, you would have got plenty of leads which means you probably met many other sellers and buyers thanks to that advertising. Plus, of course, you got to promote your own real estate office. I am not going to pay hundreds or thousands of dollars to see my home get unsold and you get lots of free promotion for your agency at my expense. It’s not going to happen’.”

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Under-selling

For under-selling, Mr Jenman said that this should not be a concern if the agent handling a property is a highly skilled negotiator, but he implied this is rare, as he stated, “most agents are hopeless negotiators”, citing author Jim Grigoriou who claimed that over 80 per cent of homes sold by agents are sold for less than the amount buyers are willing to pay for them.

To determine if an agent will under-sell a property, investors should ask them how they intend to get the highest price.

“Now, of course, most agents – especially the more than 80 per cent who consistently under-sell homes – are going to trot out their standard lines to try and convince you that they will get you the highest price.”

Past that question, investors should then ask how the agent knows that they have persuaded the buyer to offer the highest amount they are willing to pay, which Mr Jenman said will reveal the agent’s true negotiation abilities.

“Now, be careful. If the agent gives you an answer that you do not understand or that doesn’t make much sense to you, that’s probably because the agent does not know how to negotiate,” he said.

“So, if you don’t like their answer, simply keep saying: ‘Yes, but how can you be sure that the buyers truly are offering the highest price they are willing to pay?’”

“Please be absolutely clear on this point: A good negotiator, an agent who will get you the highest price for your home and will not cost you tens of thousands of dollars by short-selling your home, will give you an impressive answer to the question, ‘How do you know you have got the best price from the buyers?’”

Investors that are not impressed should move on and find another one to sell their property, he said.

Example

To put his advice to an example, Mr Jenman posed a hypothetical between two agents trying to sell a property that could sell for over $1 million dollars; one agent has a commission of 1.5 per cent and the other has 3 per cent.

If the property sells for $1 million with the first agent, this would mean that the commission in this scenario would be $15,000, coupled with the likely cost of advertising, which is estimated at $5,000. But then the investor finds out from the new owners that had the potential to pay more, and the property was under-sold by a potential $50,000.

“If your home has ‘only’ been short-sold by $50,000, that is still $50,000 you did not get that you should have got,” he said.

“So, instead of paying one fee – being the commission – you have done what most sellers do: paid three costs to sell your home.

“First, the commission of $15,000; second, the advertising costs of $5,000; and third, the cost of under-selling your home by a massive $50,000. Total cost of selling your home: $70,000.”

With the second agent of 3 per cent commission, Mr Jenman hypothesised that this skilled agent would only charge the one fee, which totals only $31,500.

“So, the agent who first appeared to be the cheapest (at 1.5 per cent) ended up being the most costly because the total cost of using this supposedly ‘cheap agent’ came to $70,000,” he said.

“But the agent who appeared to be the expensive agent because this agent had a commission rate of 3 per cent ended up being the cheapest agent because the total cost of using this second agent, the good negotiator, came to $31,500.

“This means that the agent with the higher commission rate was a massive $38,500 cheaper than the agent with the lower commission rate. The agent with the more expensive fee was half the ‘cost’ of the agent with the cheaper fee.”

These hidden fees, he said, prove what property sellers are not always savvy to – that considering agents should not be what paid, but what they can cost a vendor.

“And there is nothing more costly than a cheap agent who gets you a cheap price because they under-sold your property,” Mr Jenman concluded.

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