Hi
I haven't posted here for a long, long time, but as I was lurking, and saw you discussing
my article so thought I would explain a little more...
Firstly thanks for reading my articles and your ongoing commentary about them.
I accept that there are many ways to make money out of property. I have found one that works for me and I’m happy to share it with those who are prepared to listen
By the way… I have
no vested interests as Metropole have no properties to sell. Yes we are property strategists and buyers agents.
Michael, I'm not sure how correct it is to assume that being a buyers agents necessarily guarantees neutrality.
Finding a good deal on a property that meets certain needs needs heaps of research, talking and running around, regardless of whether it's in a $300k or a $1m suburb.
Though houses may be 10 times dearer in Brighton than Melton, petrol and BA's $/hour fee aren't ten times cheaper in Melton. Indeed the street layouts of new suburbs may actually require more driving. BAs have fixed costs that are incurred no matter the area.
Then there's the value they might add. A customer with a $1m budget will regard a $5 or $10k BA fee as small change and good value, whereas one buying a $300k home won't. It's proportionately easier to save several times one's BA fees by getting a $1m house for $950k than a $200k unit for $190k.
And proportionately more houses in the posher suburbs sell at auction, whereas in outer suburbs private sales with asking prices predominate (a lot of people are not confident about auctions - and a BA could add value here). And by definition the dollar gain of good negotiating 5% off (another possible benefit of using a BA) is greater in a dearer suburb than it is in a cheap area.
I will put it to you then that a buyers agent can add more value for the customer buying in a dearer area than they can in a cheaper area (especially where many houses are similar with advertised prices). And working in a dear area is more rewarding for the agent since they can charge more in dollar terms and more easily cover their fixed costs, yet still deliver value such as terms or price favourable for the buyer.
So buyers agents will often specialise in higher-value areas, and as they know these markets well their focus will narrow until they know less and less about opportunities elsewhere.
There is nothing wrong with professional BAs choosing to deal in areas which obtains them most profit. But it is not necessarily true that the best areas for BAs to practice in necessarily coincide with those that provide the highest overall returns for their investor clients.
Being a BA can give one a good knowledge of a particular area but in my view it is wrong to pretend that they are unbiased.
But my comments are not based on whims or emotions, but strong fundamental research.
Even if research showed that in the past dear suburbs grew faster than cheap suburbs, and you have faith this pattern will continue, relative underperformance of cheaper suburbs in no way precludes the cheaper-suburb investor from obtaining above-average returns.
I would much rather 5% pa capital growth on a $1m portfolio of cheaper properties that costs almost nothing to hold than 7% pa on a $500k unit in a 'better' area that has significant holding costs. And due to better serviceabilty the owner of the former has higher chance of getting a loan to buy more, pushing their wealth even further ahead (total return being a complex interplay between capital growth, yield, costs and financing, balancing all this against risk).
I can see there'd be cases where cheaper properties/suburbs aren't very lucrative for BAs, but they'd be reasonable choices for some investors.
Which means that BAs and investors aren't necessarily going to be favouring the same areas, no matter how suitable they might be to the investor.
Again this underlies the previous point that BAs may be knowledgeable (and useful for clients who lack the time to do the work themselves) but they most certainly cannot claim to be objective.
And despite claims to the contrary BAs (and any profession for that matter) they also have vested interests (or, to put it more kindly, prejudices and biases).
Those who do not see this can get burnt, or at least risk making investment decisions that are not the best for their circumstances.
One does not need even to engage a BA to be susceptible to this; even ABC radio callers and listeners are regularly susceptible to bias dressed up as fact by high-profile BAs with an exaggerated sense of their objectivity.
