Getting the advantage in a highly active market (Frankston)

[Smilla]

An financial advisor we respect has recommended a buyer’s advocate to us to buy an IP in a highly active market (Frankston).

The advocate (apparently one of Melbourne’s leading advocates) claims to have close relationships with the local agents and access to properties before they are made to available to the public, hence getting the house for a better price.

We are trying to ascertain whether the fee (3% of the purch price) is worth it.

Do you believe his claims regarding access to the houses would be true? Can any advocates shed some light on this claim?

Why would the agents offer the houses to the advocates instead of letting the market decide the price? The advocate claims it’s because of the certainty of a trouble free and fast sale.

What do you think?

 

[kissfan]

Hi Smilla.

Provided Frankston is where you want to purchase (nothing wrong with that), I notice you are in Melbourne, why can't you go there and buy something yourself? Do you really need to pay a buyers agent?

If you intend on buying further I/P's, there is nothing like doing the groundwork yourself.

Regards
Marty

 

[steveadl]

I guess it also depends how much of a better price he can get you?

Would have to be at least 3% cheaper than a similar one you could have bought yourself, otherwise you're treading water anyway

 

[buzzlightyear]

In a pretty heated market down there (have bought in July and another one in the wings..), I am not sure how a buyer's advocate would actually be able to source a 'cheaper' property.

Surely agents would realise that they would achieve best price by marketing their property amongst keen bidders. Where's the advantage or value-add of these advocates in such a market? Where's the advantage for the real estate agent to sell via a buyer's advocate?

However, I like to be in control of my investments, so would be very sceptical of outsourcing this actvity to someone else. My natural inclination in the current market down in Frankston would be to think the 3% would not be well spent. Other's may have had a different experience though....

 

[Smilla]

the advocate claims the agents come to them first as they are assured of a fast hassle free sale

 

[Harris]

Well.. depending on the BA.. it could be correct.

I have picked almost all of my prop in Frankston before they hit the market which either gave me immediate equity on purchase or rental yields in excess of 7%.. sometimes both.

The most active BA in the market is an ex GM of MPRE (largest agency in Frankston) and 90% of the times the agents I deal with very regularly (MPRE, Hocking Stuart, eView, Andrew Milne & Stockdale & Leggo) will run the details of an interesting property before a group of ready buyers (inc me) who will immediately put unconditional offers based on the deal, far before it hits the general market.

Do your home work and ask for either excellent rental returns or a prop with relatively below market asking price tag.. 3% sounds steep.. so make sure you get good value out of it.

Harris

 

[Harris]

Surely agents would realise that they would achieve best price by marketing their property amongst keen bidders. Where's the advantage or value-add of these advocates in such a market? Where's the advantage for the real estate agent to sell via a buyer's advocate?

I had similar thought pattern before I got too involved in Frankston market !

The agents in Frankston based on the current state of hyper activity for the last 6 months or more are driven to get the quickest sale... not the best price for the vendor.

The challenge for them is to turnover the max number of prop in the quickest time frame and hence they opt for clean, unconditional contracts with minimum fuss.

Harris

 

[chrispy]

Harris

If that is the case then as a Vendor I would be furious!!! surely an Agent's responsibility is to the Vendor not the buyer.

I have been both vendor and buyer and in every situation the agent has made it clear their responsibility has been to the vendor. An agent's commission is based on the selling price, so to base sales on turnover at a lower price would mean obtaining lower commissions.

If the market is as hot as you describe then why would an agent accept lower prices???

Chris

 

[bailz66]

The agents cut on a $350,000 is not much different to the cut they would get on a $300,000 property from what i understand

 

[chrispy]

Big difference to a vendor though - why would a vendor accept $50k less?

Chris

 

[Aulyna]

How is the rental market in Frankston

Sorry of hijack the thread.

Just did a search on properties for rent. Is it easy to rent out, NOW a days?

Regards,

Aulyna

 

[ozi]

Sorry of hijack the thread.

Just did a search on properties for rent. Is it easy to rent out, NOW a days?

Regards,

Aulyna

I read an article in the mX paper the other day... something about Frankston being the most sought after place to rent in all of Victoria. I can't remember the exact details, but I would say from that the rental market would be quite strong.

Ozi

 

[buzzlightyear]

I had similar thought pattern before I got too involved in Frankston market !

The agents in Frankston based on the current state of hyper activity for the last 6 months or more are driven to get the quickest sale... not the best price for the vendor.

The challenge for them is to turnover the max number of prop in the quickest time frame and hence they opt for clean, unconditional contracts with minimum fuss.

Harris

How do you know you the price are getting is 'below' market rate? Could you ever really confirm that?

It sounds like it worked for you and if they can locate motivated sellers, then they might add value. I still find it difficult to see how they could, given the strong market, provide value-add

On another note, I would also wonder what relationships exist between the agent and the buyers advocates, given many are ex-agents

 

[Harris]

Harris

If that is the case then as a Vendor I would be furious!!! surely an Agent's responsibility is to the Vendor not the buyer.

In theory the agent is supposed to get the best price for the vendor... however the motivation to get most number of prop turned over gives way to getting the best price for the vendor... sometimes the vendor is happy getting a quick sale as well !

I have been both vendor and buyer and in every situation the agent has made it clear their responsibility has been to the vendor. An agent's commission is based on the selling price, so to base sales on turnover at a lower price would mean obtaining lower commissions.

I have never sold any prop as yet, however wont be using the same agents to sell my prop, if and when I do that... Selling a prop at 10% below the market value wont affect the commissions too much when the agent is looking at not having to market the prop, list it, deal with 50 inquiries, have conditional offers that might fall through for finance/ building inspection and organise multiple inspections..when one firm unconditonal offer does the trick.

If the market is as hot as you describe then why would an agent accept lower prices???

for the very reasons described above.


Harris

 

[JIT]

Buyer's Agents Exposed

the advocate claims the agents come to them first as they are assured of a fast hassle free sale

Don't get sucked in by this CRAP!

Real estate agents may come to some BA's first, but your BA will really only be more likely to let you in on the deal if (aside from the fact that it meets your 'criteria') YOU are in a position to make an unconditional offer. This is the crux of it, as Harris has already pointed out.

This is how you get a 'fast hassle free sale'.

If the BA has another client who they know IS in a position to make an unconditional offer (and who also has similar criteria to yours), wouldn't they be more inclined to show the deal to THEM rather than you?? - even though you may have been waiting for 6 months to find a property and they may have been waiting for just 1 month???

Makes more financial sense to me. If I was a BA, I'd be tempted to do that!

Most of them are ex-real estate agents anyway, so why wouldn't they think and operate in the same way!

If you've been waiting 6 months (with you 'subject to finance', 'subject to building and pest inspection' clauses in your back pocket) there's still a myriad of reasons a BA could use to justify why it's taking so long for them to find you the 'right' property.

I really should think about being a BA one day, could make a killing!

One day someone is going to write a book called 'Confessions of a Real Buyer's Agent', and the rosy image these guys may have now is going to go in the bin, along with real estate agents!

For me personally, I don't use BA's, but I do make unconditional offers, and I've found that this has made an enormous difference in my investing.

PS: I wonder what MY would say if he read this ...

 

[gerd.]

Seems to me some people are loosing sight of the ball.

Regardless as to where the purchase for an investment property is to be made
The fundamentals applied are basically the same ( research , structure to purchase. Now the current market and selers expectation ).

Beyond that creating a personal relation ship with agents.
Being able to do unconditional contracts ( helps to have experience in assessing the underlying condition of a property).

Is leverage to the above.

Its called experience.

 

[Bricks & Mortar]

Its called experience.

But the experience has to start somewhere.
I can concur with Harris that agents do have a short list in Frankston before it hits the market, but as Gerd says you will need the experience to sense what makes it a good deal! (or good for your circumstances.)

Due Dillengence.
Hey if you don't want to do the hard yards and your willing to pay a premium for someone else to find a place, go ahead.

For most of us it would seem strange, as you live near the research area,
but there may be other reasons, lack of time, other commitments, whatever.

However a BA is usually invoked with a set of parameters in mind.
i.e. you may be looking for a development site,
you may be looking solely for capital growth
maybe looking for a place to add value.
just to name a few

I certainly hope it not just a case, that you believe that he/she will purchase it cheaper than you can.

 

[BayView]

The agents cut on a $350,000 is not much different to the cut they would get on a $300,000 property from what i understand

typically, the listing agent gets half the commission, the agency gets half.
If the another agent other than the listing agent sells it, the two agents split the half.

So here's the breakdown on the commission for the listing agent:

$350k = $8,750 - $4375 for listing agent
$300k = $7,500 - $3750 for listing agent.

It's a decent difference if you are only selling one property a month or so, and they get an "advance on commission" every week which acts as a retainer, but this has to be paid back to the agency out of the commissions.

 

[Smilla]

But the experience has to start somewhere.
I can concur with Harris that agents do have a short list in Frankston before it hits the market, but as Gerd says you will need the experience to sense what makes it a good deal! (or good for your circumstances.)

For most of us it would seem strange, as you live near the research area,
but there may be other reasons, lack of time, other commitments, whatever.

.

If Im honest, Im scared of missing out on all the good deals if we dont use the advocate. I think it would be very difficult to build a relationship with the agents in such a heated area. I expect hundreds of people would be doing the same thing.

We were previously looking in Sunshine and had done a lot of DD for that area but have decided to buy in Frankston instead, so we'll basically be back at the drawing board with regards to knowledge of the area.

We are building a holiday ourselves most weekends up in the Grampians so it makes it hard to find the time to head down to Frankston (about 40 min?) for inspections and getting a feel of the areas.

 

[Bricks & Mortar]

If Im honest, Im scared of missing out on all the good deals if we dont use the advocate. I think it would be very difficult to build a relationship with the agents in such a heated area. I expect hundreds of people would be doing the same thing.

We were previously looking in Sunshine and had done a lot of DD for that area but have decided to buy in Frankston instead, so we'll basically be back at the drawing board with regards to knowledge of the area.

We are building a holiday ourselves most weekends up in the Grampians so it makes it hard to find the time to head down to Frankston (about 40 min?) for inspections and getting a feel of the areas.

Hi Smilla,

Know all about building a holiday home, ours took 2-3 years to complete from lock up......goodluck, Hope all goes well!!!


Nothing wrong with using a BA,
your aware your paying them a commission for their services so
just make sure you give him/her a list/parameters of what your looking for.

I'm sure you'll have enough on your plate at the Grampians