Auctions, wasting time and money to only benefit Agents.

[lizzie]

Just got my bill for my last auction - marketing and auction costs - $850.

Included a large signboard and 1/4 page ads over the 3 week campaign - and, as said previous, sold for commission over our top "hoped for" price.

But it was a desirable, unusual property which makes for good auction material.

I'm happy.

 

[thepeoplesagent]

@Online auction,

From the very start I knew your system was flawed. I wasn’t going to say anything but since you go around bashing agents you can have some of your own medicine.

I will put it simply as possible. The online agent system only encourages a vendor to use the agent who quotes the highest price. If the agent doesn’t achieve that huge price for the vendor, and they end up selling for market value, the vendor gets a discounted commission. So tell me again what the vendor has to lose?

The system would actually encourage over pricing, the opposite of its intentions. If this system was to become wide spread (and thankfully it never will) it would ruin the market. We would be stuck with suburbs full of overpriced homes.

So basically, by choosing the agent who quotes the highest price, the lower the commission will be. Yeah, great way to sell… And many agents won’t care about discounting sale fee providing they get the stock.

Two likely outcomes:

1.Time on the market is greatly increased. Home goes stagnate, seen as a “dud”
2.Only dishonest agents get the listings.

 

[TheOnlineAgent]

@Online auction,

From the very start I knew your system was flawed. I wasn’t going to say anything but since you go around bashing agents you can have some of your own medicine.

I will put it simply as possible. The online agent system only encourages a vendor to use the agent who quotes the highest price. If the agent doesn’t achieve that huge price for the vendor, and they end up selling for market value, the vendor gets a discounted commission. So tell me again what the vendor has to lose?

The system would actually encourage over pricing, the opposite of its intentions. If this system was to become wide spread (and thankfully it never will) it would ruin the market. We would be stuck with suburbs full of overpriced homes.

So basically, by choosing the agent who quotes the highest price, the lower the commission will be. Yeah, great way to sell… And many agents won’t care about discounting sale fee providing they get the stock.

Two likely outcomes:

1.Time on the market is greatly increased. Home goes stagnate, seen as a “dud”
2.Only dishonest agents get the listings.

Unfortunately for you I have tested the method and you have not. You could try the following test, you won't have much to lose.

My test included using my own property.

3 bed 2 bed 1 car - house
Nothing special but in good condition.

January 2011

I invited over 3 different local agents from different agencies to look at my property. 2 said to take to auction and 1 said to sell by negotiation. The appraisals came in as below. (I specifically stated that I want a price not a range)

Agent 1) $800,000
Agent 2) $820,000
Agent 3) $850,000

After that I said I was going to hold off for 6 months and not sell.

June 2011

I called up the same agents and said would you like to come through again. When they visited I showed them how I would be paying the commission. After they visited they gave the following appraisals.

Agent 1) $780,000
Agent 2) $780,000
Agent 3) $800,000

Do you see the results?

Knowing that their commission would get penalised heavily all the agents brought their prices down. You could argue the market moved but agents always tell me now is a good time to buy and prices always go up.

When agents know before they appraise how the commission will be structured they will stop over quoting. If you don't believe me, try it!

many agents won’t care about discounting sale fee providing they get the stock.

The commission isn't discounted its penalised. If the property sells for 20% lower than their appraised price they will only get 20% of the commission. If you don't think that's heavy enough I could change it to if the property sells for 10% less the agent gets 20% of the commission payable. Agents do care.

 

[sanj]

Ummmm, a lot can change in 6 months in the market

i would LOVE to be buying in the current market at prices quoted 6 months ago

 

[thepeoplesagent]

I called up the same agents and said would you like to come through again. When they visited I showed them how I would be paying the commission. After they visited they gave the following appraisals.

Agent 1) $780,000
Agent 2) $780,000
Agent 3) $800,000

Do you see the results? .

Yes I see now! Agent 3 still gets the business. And in the real world, you will not usually get a 2.5% variance between 3 agents. Even if the punishment was death. Your example, if it’s even true, does not represent the outcomes for everyone.

The agent may drop their original price, and I emphasize may. But it still encourages the seller to use the agent who quotes the most.

The commission isn't discounted its penalised.

And the difference is what exactly? Mr & Mrs vendor still get a DISCOUNTED sale fee. Or do they have to give the balance to charity? They still are in a better position by choosing the agent who quotes the most.

If the property sells for 20% lower than their appraised price they will only get 20% of the commission. If you don't think that's heavy enough I could change it to if the property sells for 10% less the agent gets 20% of the commission payable.

Change it to whatever you want. I won’t be using it and will clearly point out the faults in this system to whoever flashes it in my face. One in fifty mentions this type of structure and they never end up using it.

At the end of the day many agents would prefer to get the listing and make a dollar. They prefer 1% of something then 5% of nothing. Your system just creates more business for a dishonest agent at a lower rate.

 

[wylie]

Unfortunately for you I have tested the method and you have not. You could try the following test, you won't have much to lose.

My test included using my own property.

3 bed 2 bed 1 car - house
Nothing special but in good condition.

January 2011

I invited over 3 different local agents from different agencies to look at my property. 2 said to take to auction and 1 said to sell by negotiation. The appraisals came in as below. (I specifically stated that I want a price not a range)

Agent 1) $800,000
Agent 2) $820,000
Agent 3) $850,000

After that I said I was going to hold off for 6 months and not sell.

June 2011

I called up the same agents and said would you like to come through again. When they visited I showed them how I would be paying the commission. After they visited they gave the following appraisals.

Agent 1) $780,000
Agent 2) $780,000
Agent 3) $800,000

Do you see the results?

Knowing that their commission would get penalised heavily all the agents brought their prices down. You could argue the market moved but agents always tell me now is a good time to buy and prices always go up.

When agents know before they appraise how the commission will be structured they will stop over quoting. If you don't believe me, try it!

How do you know the agents still thought it "might" sell for their original figure, but they know they have to make it lower in order to "buy" your business?

This exercise by you doesn't prove anything unless you went on and actually sold the house.

And if there was a buyer who loved your house, and may have paid $830K you would never know about it, unless you have two buyers interested at the same time.

If there was just that one buyer who would go to $830K but the agent is asking $800K then the buyer makes a killing, you lose $30K and the agent still is happy as they get a nice commission.

I don't really think your exercise proves anything (except maybe to show how your system might stiff the vendor out of a substantial amount of money).

 

[TheOnlineAgent]

@Wylie

&

@thevendorsagent

If you even bothered to visit my site or look at my form it actually rewards agents who get a higher price than they quoted.

I input the below results into the attached calculator and it shows what the agent would earn (input figures yourself and see how things work out):

Commission = 2.2%
Agents Appraised Price = $600,000
Final Sale price = $560,000

Under a normal scenario you would pay the agent:

2.2% x $560,000 = $12,320 commission

But as the agent got less you would refer to the scenario (box 4) when the property sells for less than the appraised price. (maths is too long refer to excel document)

BOX 4 results = $9,035

Agent was paid $3,285 less or 1.61% commission rate.

Commission = 2.2%
Agents Appraised Price = $600,000
Final Sale price = $640,000

As the agent got more than the appraised price your would refer to box 3.

BOX 3 results = $16,720

Agent was paid $2,640 more or 2.61% commission rate.

I know its hard for agents like you to comprehend but I understand your objection to a system that destroys your very unethical lively hood. Only the honest and good agents will remain the rest will disappear to the cash registers at fast food outlets.

TLDR - Because the agent gets rewarded and this is a business transaction it is prudent to pick the agent who quotes the highest price. If agents know they are over quoting then they know that their commission will be penalised so will do everything they can to secure that appraised price and then some.


EDIT: excel document is 40kb too big, if you want to see either download from my site or pm me

 

[wylie]

@Wylie & @thevendorsagent

If you even bothered to visit my site or look at my form it actually rewards agents who get a higher price than they quoted.

The point I was trying to make is that if my house is worth $730K but the agents (using your system and not wanting to be penalised in any way) may quote me $700K to be sure they aren't penalised. Buyer comes along, and with no other buyer to push the price higher, they buy it for $700K. That buyer may have been happy to pay $730K, but heck, it is listed at $700K by some agent who doesn't know his prices? Buyer gets a bargain for $30K less than he would have paid, agent gets full commission. Agent may try to push buyer up to pay more, but why bother? It means extra $2K to the agent but he risks losing the buyer altogether, and there goes his commission altogether until the next buyer comes along.

I input the below results into the attached calculator and it shows what the agent would earn (input figures yourself and see how things work out):

Commission = 2.2%
Agents Appraised Price = $600,000
Final Sale price = $560,000

Under a normal scenario you would pay the agent:

2.2% x $560,000 = $12,320 commission

But as the agent got less you would refer to the scenario (box 4) when the property sells for less than the appraised price. (maths is too long refer to excel document)

BOX 4 results = $9,035

Agent was paid $3,285 less or 1.61% commission rate.

Commission = 2.2%
Agents Appraised Price = $600,000
Final Sale price = $640,000

As the agent got more than the appraised price your would refer to box 3.

BOX 3 results = $16,720

Agent was paid $2,640 more or 2.61% commission rate.

I know its hard for agents like you to comprehend but I understand your objection to a system that destroys your very unethical lively hood. Only the honest and good agents will remain the rest will disappear to the cash registers at fast food outlets.

Excuse me, but I am not an agent. Please try to get your facts right before calling me an agent and then trying in suggest I am an "unethical" agent. That tells me more about you and your ability to "read a client" than anything else .

TLDR - Because the agent gets rewarded and this is a business transaction it is prudent to pick the agent who quotes the highest price. If agents know they are over quoting then they know that their commission will be penalised so will do everything they can to secure that appraised price and then some.


EDIT: excel document is 40kb too big, if you want to see either download from my site or pm me

I don't think your idea will work. There are plenty of ethical agents out there, and this week I have come across three who are NOT ethical. We are selling a house and I may post about the disgusting things that have happened this week when the dust settles.

Long live good agents.

 

[mrmonopoly]

Is it only me or are all these incentive schemes a little bit moot. These incentive schemes should only appeal to the agents who don't do their job properly in the first place. If they are a decent and ethical agent they will fully understand their legal obligations to represent you as a vendor and get the best price and conditions possible regardless. If you really want to test their accuracy and track record ask them to provide you with examples of recent sales they have made in relation to their initial quote and get the prior vendors contact numbers to vouch for them.

Having met and worked with many many agents over the years the one characteristic the very best have is their ability to simply deliver on their promises. Its not rocket science.

 

[Tim Ferris]

The sale usually doesn’t happen because the property is priced too high. It is your right as the home owner for you to market your property at whatever price you like but your agent well and truly knows that the price you are asking is unrealistic and won’t achieve a sale. Instead of telling you the honest truth, they agree that your asking price is reasonable and even over quote as to “buy” the listing as the agent knows that if they disagree, you the home owner, will pick the next agent from the other Mc Donald like franchise to sell your property.

Sellers dictate the price they want. As a real estate agent with 16 years experience, you're damned if you do and damned if you don't, because MOST SELLERS don't want to know the truth when it comes to appraising the value of their home. I recently had a referral from someone; who said to use me as I'm a honest agent who will give them an honest appraisal. Well, I did based on what most ethical agents use - recent sales of comparable properties. I told the seller - $360,000 - $370,000 is where their house would sell for & they could list it for sale at High $300,000's or around $385,000 allowing for some negotiation. The seller's response (which is what 95% of sellers always say): "Oh, that's too low, we couldn't sell it for that, we want at least $400,000".

Hang on, you wanted an honest opinion of value based on factual information just like valuers use.

You are half-right and half-wrong. Sellers set the prices for their own homes. Some agents agree with them & 90% of the time they win the business, and then have to educate the seller down in price. Other agents like me, tell the truth & lose the business.

So, MR & MRS SELLER, do you want an agent to tell you the truth, or tell you what you want to hear?

The seller in the above situation went with another agent, and after 6 months of trying at $400,000, they didn't sell and withdrew it from the market.

Same situation goes for "Does my butt look big in this?" Most women don't want to know the truth, they just want a man to tell them they look wonderful/sexy (add other compliment). That's not being sexist, that's being "smart" if you're a guy...LOL

 

[mattnz]

The seller in the above situation went with another agent, and after 6 months of trying at $400,000, they didn't sell and withdrew it from the market.

They obviously didn't need to sell, so would only accept a strong (potentially above market) offer. Its just the same as someone like Nathan Birch, he is never going to buy at market, only when the price is in his favour.

 

[thepeoplesagent]

Sellers set the prices for their own homes. Some agents agree with them & 90% of the time they win the business, and then have to educate the seller down in price. Other agents like me, tell the truth & lose the business.

You and me both brother! And the online auction system would only encourage sellers to use the highest agent.

 

[neK]

I have agree with Tim, the problem isnt just real estate agents, its vendors with stupid expectations.

Everyone thinks their house is worth more than a house that sold recently down the street, no matter how bad their own house is. Its just human nature. Everyone thinks their own poopoo don't stink.

 

[Big Will]

Unfortunately for you I have tested the method and you have not. You could try the following test, you won't have much to lose.

My test included using my own property.

3 bed 2 bed 1 car - house
Nothing special but in good condition.

January 2011

I invited over 3 different local agents from different agencies to look at my property. 2 said to take to auction and 1 said to sell by negotiation. The appraisals came in as below. (I specifically stated that I want a price not a range)

Agent 1) $800,000
Agent 2) $820,000
Agent 3) $850,000

After that I said I was going to hold off for 6 months and not sell.

June 2011

I called up the same agents and said would you like to come through again. When they visited I showed them how I would be paying the commission. After they visited they gave the following appraisals.

Agent 1) $780,000
Agent 2) $780,000
Agent 3) $800,000

Do you see the results?

Yes I see the results, however did you take into account market changes?

Since I do not know where your house is, i just picked Kingsford (at random from google maps).

They came in Janruary 2011 just after the 2010 which was a boom year and property prices went up by 11% according to realestate.com (http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=nsw&u=kingsford).

You then asked them to come back 6 months later (differnet market) and in 2011 property prices went back by -11.8%.

Do you think this might have some relevance to your scenario?

Different market, different conditions and it never went to market/sold meaning it is only opinions and has no relevance to what is actuals.

Also how many houses sell within 30 days through private sale in Kingsford? According to http://www.homepriceguide.com.au/research/?locationtype=suburb&state=nsw&suburbid=23702 it is 106 days or more than 3x longer than an auction which according to yours 55% sell within 30 days at auction.

Stop looking through rose tinted glasses and look at more than just your own bias opnion. Auction isn't for every property or every circumstances, however if someone needs to be sold within 60 days their best method to achieve that is to auction with 30 day settlement.

 

[TheOnlineAgent]

Yes I see the results, however did you take into account market changes?

Since I do not know where your house is, i just picked Kingsford (at random from google maps).

They came in Janruary 2011 just after the 2010 which was a boom year and property prices went up by 11% according to realestate.com (http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=nsw&u=kingsford).

You then asked them to come back 6 months later (differnet market) and in 2011 property prices went back by -11.8%.

Do you think this might have some relevance to your scenario?

Different market, different conditions and it never went to market/sold meaning it is only opinions and has no relevance to what is actuals.

Also how many houses sell within 30 days through private sale in Kingsford? According to http://www.homepriceguide.com.au/research/?locationtype=suburb&state=nsw&suburbid=23702 it is 106 days or more than 3x longer than an auction which according to yours 55% sell within 30 days at auction.

Stop looking through rose tinted glasses and look at more than just your own bias opnion. Auction isn't for every property or every circumstances, however if someone needs to be sold within 60 days their best method to achieve that is to auction with 30 day settlement.

All I know is that the commission structure I have created encourages agents to give their honest opinion.

Your property is an investment and so putting everything aside you should pick the agent who says they can get the highest price. It doesn’t matter how much the agent has in common with you or how charming they are.
In the current market you can pick the highest quoting agent but waste time marketing, having open homes and auctions to see no sale unless you drop your price.

Using the commission structure can help you avoid all that frustration. If the agents don’t quote the figure you want then look for other agents, adjust your expectations or don’t take your property to market.
Agents are actually quite accurate when estimating the price of property in their area. The commission structure encourages them to actually reveal their true opinion of your properties value.

With regards to market changes in my example it is irrelevant, I have seen people download the form, contact me for advice, use it and sell their property.

Also, I receive no money, I don’t get advertisement from the website is it just a service that I feel can help people when selling their home to no fall into agent’s spin.

 

[Big Will]

With regards to market changes in my example it is irrelevant.

Please discuss how market changes I mentioned are irelevant on your example?

If you want me to blow it out of proportion, imagine being in the US before the housing crisis.

You ask an agent to come through and they say $500,000. Then two months after you had it appraised the housing market crashes and properties are now worth 10% of what they were.

You ask an agent to come back six months after the inital appraisal and you tell them about your structure and they say $50,000.

Was it the market conditions that changed the price or was it 'your commission structure' that changed the agents appraisal price?

Please enlighten me...

 

[TheOnlineAgent]

Please discuss how market changes I mentioned are irelevant on your example?

If you want me to blow it out of proportion, imagine being in the US before the housing crisis.

You ask an agent to come through and they say $500,000. Then two months after you had it appraised the housing market crashes and properties are now worth 10% of what they were.

You ask an agent to come back six months after the inital appraisal and you tell them about your structure and they say $50,000.

Was it the market conditions that changed the price or was it 'your commission structure' that changed the agents appraisal price?

Please enlighten me...

They are irrelevant because I know the market didn't sway that much but it doesn't matter what I say because you probably won't believe me.

Also, if you didn't take my quote out of context you would have seen that I said others have used the form with success.

 

[priscilla]

Your property is an investment and so putting everything aside you should pick the agent who says they can get the highest price. It doesn’t matter how much the agent has in common with you or how charming they are.
In the current market you can pick the highest quoting agent but waste time marketing, having open homes and auctions to see no sale unless you drop your price.

This seems like a contradictory statement -first you say pick the agent who says they can get the highest price - then you say you can pick the highest quoting agent but waste time marketing......

For a Vendor to pick the highest quoting agent if they can't back up their quote with evidence of comparable sales and market evidence is ridiculous - all your comission structure does is penalise the commission of the agent who quotes a high price it doesn't reward the agent who gave the honest appraisal in the first place! this method could well cost the vendor money as by the time they realise the property will not sell for the over inflated price they have lost their prime marketing period being the first few weeks on the market (depending on the property location).

A Vendor should never pick their agent based on the price they advise they should pick their agent based on track record, negotiation skills, marketing, how that agent deal with their buyers and who they feel can do the best job for them -the Vendor is always in control of their own asking price and marketing method (be it Auction, Private Treaty, Offers Over, EOI, Express Sale or whatever they choose) and their property will only sell at a price they are willing to accept.

An Agents job at the appraisal is to provide the Vendor with a potential sale price as accurate as possible taking into consideration current market conditions, comparable properties both sold and for sale - there are things which can affect this appraisal price such as an easements which are not disclosed etc. Most Vendors believe their property is worth more than it is - this is human nature but they should all ensure the best agent in their location takes the property to market as this is what will get them the best price - not the highest quote.

 

[TheOnlineAgent]

This seems like a contradictory statement -first you say pick the agent who says they can get the highest price - then you say you can pick the highest quoting agent but waste time marketing......

For a Vendor to pick the highest quoting agent if they can't back up their quote with evidence of comparable sales and market evidence is ridiculous - all your comission structure does is penalise the commission of the agent who quotes a high price it doesn't reward the agent who gave the honest appraisal in the first place! this method could well cost the vendor money as by the time they realise the property will not sell for the over inflated price they have lost their prime marketing period being the first few weeks on the market (depending on the property location).

A Vendor should never pick their agent based on the price they advise they should pick their agent based on track record, negotiation skills, marketing, how that agent deal with their buyers and who they feel can do the best job for them -the Vendor is always in control of their own asking price and marketing method (be it Auction, Private Treaty, Offers Over, EOI, Express Sale or whatever they choose) and their property will only sell at a price they are willing to accept.

An Agents job at the appraisal is to provide the Vendor with a potential sale price as accurate as possible taking into consideration current market conditions, comparable properties both sold and for sale - there are things which can affect this appraisal price such as an easements which are not disclosed etc. Most Vendors believe their property is worth more than it is - this is human nature but they should all ensure the best agent in their location takes the property to market as this is what will get them the best price - not the highest quote.

Why is it so hard for you to understand.


Pick the agent who quotes the highest under a standard commission structure and then you will most likely not sell your property as the quote is over inflated. I take you have never been in the industry, you can make any property look good depending on the comparables one uses.

Pick the agent who quotes the highest commission on a "scale based commission structure" then you can in confidence pick the agent who quotes the highest because you know that their commission will be heavily penalised if it doesnt sell for that price.

The highest price in the second scenario won't be the same as the highest price using a scale based commission structure.

My proof is in the failed auction's that tale place week after week.

The aim of changing the way the commission structure works is to encourage agents to give the truth and not an inflated price to win the listing.

 

[priscilla]

Why is it so hard for you to understand.


Pick the agent who quotes the highest under a standard commission structure and then you will most likely not sell your property as the quote is over inflated. I take you have never been in the industry, you can make any property look good depending on the comparables one uses.

Pick the agent who quotes the highest commission on a "scale based commission structure" then you can in confidence pick the agent who quotes the highest because you know that their commission will be heavily penalised if it doesnt sell for that price.

The highest price in the second scenario won't be the same as the highest price using a scale based commission structure.

My proof is in the failed auction's that tale place week after week.

The aim of changing the way the commission structure works is to encourage agents to give the truth and not an inflated price to win the listing.

Why is it so hard for YOU to understand that your hugely flawed system still gives the business to the agent who gives the highest price not the honest agent - and potentially loses the Vendor money as the property is on the market for an extended period at an inflated price therefore giving it a stigma to the market place as a 'dud'.

You have been asked this before...to you what constitutes a failed auction ??? There are many market places out there that do not use auction as the predominant sales method so what is your 'proof' for those market places???

Oh yes and for your information I have been in the industry for more than 30 years