The argument for/against buyer's agents

Purchasing a property usually requires a fair amount of time for research, calculation, and consideration – which some buyers may not necessarily have. Buyer’s agents can represent a buyer in a real estate transaction, help negotiate for a better deal, and help you achieve your investment goals by looking for the right properties.

Property Observer spoke to Simon Buckingham from Results Mentoring, Wakelin Property Advisory's director Monique Wakelin and founder of Melbourne buyers agency Secret Agent Paul Osborne to gain different perspectives on buyers agents – whether or not you should hire them, and how to find the best one for you.

Buyers who have neither the time nor the inclination to conduct research and analysis on potential property deals should consider hiring a buyer’s agent to represent them, according to Buckingham.

In addition, an investor looking to invest somewhere away from home and does not want to spend time and money for travel could benefit from a buyer’s agent’s services.

However, Buckingham notes that “a buyer's agent and the results you get are going to be as good as how clear and specific you are about what you're looking for.”

Buyers who are unable to define the properties they are seeking may find themselves frustrated with the deals presented by the buyer’s agent.

“The critical success factor is to be crystal clear about what you're after. Whether it’s growth investment, or you want the property to deliver a certain rental return or cash flow, how much you want to spend, opportunities to renovate or develop… exactly what kind of property would fit those criteria?” he said.

Other factors to consider are the number of bedrooms, how much land is available, as well as zoning.

Conversely, buyers need to consider the cost of a buyer’s agent’s services. 

“Some buyer's agents charge a retainer to start looking for deals. Others might charge a less retainer or no retainer, but take a fee when you choose to buy a property. You need to understand exactly what the costs are and what you're getting for your money,” he said.

Often, buyers forget to factor the cost of a buyer’s agent’s services into the property deal – that needs to be included when doing your calculations.

“The tradeoff is what you might save if you simply went out and look for the same sort of deals yourselves and whether you're prepared to bear that cost,” Buckingham said.

He added that he is “not a fan” of buyer’s agents who require an upfront payment. He much prefers “paying people on a performance basis” so you can see how an agent has performed first, and decide whether or not that meets your expectations. Ultimately he recommends looking at a fee structure that you are willing to bear in addition to the cost of the property.

Most importantly, Buckingham stresses that you cannot delegate responsibility for doing due diligence on any deal. He emphasised that buyer’s agents are unable to guarantee the performance or profitability or any property, and the responsibility of ensuring that belongs to the buyer alone.

“You need to carry out the same due diligence as if it was your own deal that you found yourself. This includes crunching the numbers, and doing your own research to test any assumptions. Never rely on a buyer's agent or a real estate agent to say a deal is a good deal,” he said.

Buckingham says that good buyer’s agents will listen carefully to your criteria, take all the details, and look for the exact types of properties that would suit your needs.

“Not all buyer's agents are created equal. It is important to seek references from people who have used that buyer's agent, specifically for the kinds of properties you're looking for,” he said.

Wakelin Property Advisory’s director Monique Sasson Wakelin shares that view. After deciding on the reasons for purchasing a particular property, be it for a home or an investment, the next step is to interview “a number” of buyer’s agents and select one “very experienced in undertaking the kind of purchase you want to make.”

“For example, if you are buying a property for capital gain, or for investment rental return, you don’t engage a buyer’s agent that looks after homebuyers. Match the experience and expertise,” she said. 

Wakelin strongly encourages buyers to engage a buyer’s agent as it is in their interest to be “looked after”. 

“It’s a transaction upwards of $500,000 – to not have your own representation is completely silly,” she said. “It would be the equivalent of divorce. If we were getting a divorce, it would be like getting your lawyers to represent me. Why would your lawyers give me good advice if you're the one paying them?” 

She added that the benefits of having a buyer’s agent include avoiding conflicts of interest, independence, and having somebody to ensure you are purchasing the right property to suit your purpose, as well as making sure you are not overpaying for a particular property.

She notes that when she first started her property advisory career, her biggest hurdle was having clients ask, “Why would I pay you thousands of dollars when I can get all this information from the real estate agent?”

She explains that the agents are usually paid by the vendor to get the highest possible price, while buyer’s agents are paid to do the exact opposite.

“You’re dealing in a very complex area. The marketplace very dynamic – things can change from one week to the next. You need someone who's really got their fingers on the pulse, who can give you the inside running on what's the process of a sale. That’s information members of public have no access to,” she said.

She added that it is important for the purchaser to get along with their buyer’s agent.

“You’ve got to be on the same page, have the same values and level of commitment to what you're doing. You've got to interview them for personality and make sure you're going to get on together,” she said.

“You don't want friction in that relationship; you've already got friction with the estate agent – and you don't want to create more problems.”

Her other piece of advice is to never choose a buyer’s agent based on fees alone.

“Don't try to get the cheapest buyer's agent you can find. You would not appoint the estate agent that gives you the lowest quote. Their attention and commitment and willingness to spend time to negotiate is in direct proportion to how they're being paid,” she said. "Select from the point of view of  your purpose and pick a fee structure that is neither the highest nor lowest."

She noted that if a buyer’s agent is charging a low fee, there is a high likelihood that they depend on a high turnover rate. They will be more interested in closing the deal and moving onto the next one as opposed to their client’s interests.

While hiring a buyer’s agent may be a difficult decision, Secret Agent’s founder Paul Osborne suggests that you should not hire one if it will not add any value to the process.

“If a buyer's agent is acting as a salesman – just trying to get the particular person to buy something, that is a buyer's agent that is not adding value. A good buyer's agent will challenge their client to perhaps consider different options,” he said.

These different options can include lessening the price against their client’s wishes and making recommendations on why they shouldn’t pursue a particular property.

“It’s a big part of the (buyer’s agent’s) responsibility – they almost need to be a great discarder of dismissing options and telling a client why something isn't suitable rather than just trying to get them to buy something,” Osborne said.

He notes that a good buyer’s agent would keep abreast of market trends, and know their market back to front and conduct their own research. They will also have a solid understanding of the economic fundamentals of property so they will be able to negotiate really good outcomes for the particular buyer. 

He also added that buyer’s agents for homebuyers will understand that there is an emotional element to their purchase and do their best to position them in the right area for their needs.

“It’s where somebody wants to live. They don't want to make a mistake for overpaying, but they don't want to pass up an opportunity in an area where they've always wanted to live. But they don't want to buy something and have had to spend a lot more money on renovations either,” he said.

Conversely, buyer’s agents specialising in investment property will have a “bird’s eye view” of the property.

“It is easy for an investor to look at things and not look at the truth. There may be fees involved like stamp duty. You should discount your projected cash flow by 10%. A good buyer’s agent will look out for all these things that should be instilled to make it a non-emotional choice,” Osborne said. 

Additionally, Osborne warns against buyer’s agents who constantly agree with their clients.

“You don't want a ‘yes man’. You really want them to challenge somebody's own assumption on a rather big decision as to whether that's the right decision to make at that given time,” he said.

He added that a buyer’s agent’s job is made more challenging when they really explore their client’s needs. If their client is looking for a home to live in for the long term, design needs to be a large factor. If a client wants to renovate a property, the agent should look into projections for after the renovation, and ask questions about the budget, if that is realistic, and will it be overcapitalised by the time renovations have completed.

“We have to hold uncomfortable discussions sometimes because it is common when someone is buying property for the first second time, they can miscalculate a lot of things, or make errors in decision making. A professional helps them avoid these situations,” Osborne said.

Lastly, Osborne said that buyer’s agents also have access to off-market properties. They can also provide advice on picking one property over another and help their clients get their purchase right.