Buyers Beware! Five common tricks real estate agents use
Today I want to talk about, from the buyers’ perspective where they should be beware of some of the sneaky tricks that real estate agents employ to get more money out of them to pay more because ultimately, what we need to understand is that the real estate agent’s job is to get a premium price for their client, who is the seller. So if we take a step back when someone is deciding to sell a property, quite often they might get two or three agents into their living room to decide whether or not which of them would actually sell the property on their behalf. So they are all doing a sales pitch and one of the parts of the pitch is the agent saying, “Well, I would get you the best price because I can negotiate really well, I can market really well and I can attract the most amount of buyers to your property so that I can achieve that end game.” So it is important that the buyer understands this because quite often they don’t see that. So then when it comes to market, they are trying to get the property for the cheapest price possible but their opposing side is the real estate agent. So it makes sense that the real estate agent is going to employ some tactics to do that but the buyer should really beware of those.
And the number one, without doubt a sneaky trick that real estate agents employ is underquoting. Now, if you think about Adelaide for example, they would give you a price range, call it $650,000 to $690,000, chances are you are going to buy it between $650,000 to $690,000. But in Melbourne or Sydney for example that’s not the case. Quite often it can be 10% – 25% below where the actual property would go.
Now the real estate agents has a saying, “Quote it low, watch it go. Quote it high, watch it die.“
So they actually have an incentive to create competition because if two people are fighting for a property, they can get that premium price that they have promise the vendor in the listing presentation. So if they quote it nice and low, they can attract more people, ideally from a lower price bracket and bring it to auction or even a private sale and get them fighting it in a battle of the fittest and who has the deepest pockets and who is actually going to win on the day. But why is it a sneaky tricks for the buyer? Because they can easily led to believe if it was $650,000 plus, they may reasonably be able to buy it between $650,000 and $670,000 but ultimately, it’s probably always going to go for $670,000, for example. The poor old buyer gets a building inspector, get the solicitor to check the contract for them, they invest a lot of emotional capital into the purchase but from Day One they were never in the hunt.They’ve spent money on all of these services and they have also spent some of their precious time. So the Number One sneaky trick that a real estate agent does is underquoting.
A kind of a lead on from that is the second sneaky trick that they do is when you ask them, “What’s the price is?” they stay very very vague on the price. They may say something like, “It is the first week of the campaign, we haven’t had many buyers through so we are just gauging what the market is willing to pay.” But they know very well where that price band is because they told the vendor in the lounge room during listing presentation so they do know the answer to that but they stay vague for a reason. Again, because they want to create maximum competition so don’t be surprised if you ask a real estate agent a direct question and you don’t get a direct answer because it’s their job to try and stay vague to create some more competition.
The third sneaky trick that often comes up is they use the tactical fear of loss. As soon as they know that you are slightly interested in the property, it’s amazing how quickly there’s another buyer. In fact, there’s actually another buyer who has just shown some interest or it might be as simple as, “Hey you know what, I know you like this but I’ve got another buyer coming through this afternoon for their second look.” And it creates this feeling of missing out. So it taps into the emotion, it taps into your fear of loss and therefore you may be prepared to pay an emotional price for the asset. So my advice on that one is don’t necessarily fall for that tactic because chances are there might be another buyer but equally, it might just be a tool that the agent is using. So a way to arm yourself from that is make sure you are rock solid on knowing what the value should be because if you do find the property that you like, you can act quite quickly so that you can make sure that you get it but don’t necessary fall for it each time because they real estate agent is using that for a sneaky trick to get you to pay more.
The sneaky trick number four is when you ask a real estate agent as a property investor, “How much do you think this property will achieve in rental?” and often they have this blank look, “Ooh.. about $500 a week.” And maybe it’s the first time that they even thought about that question because they may be thinking that it’s going to be an owner occupier that will buy it and you might be relying on $500 a week but the reality is the market is only paying for $430. So the sales agent is incentivised to make the property look really great. So you need to do some independent research to make sure you know exactly what does rental estimates should be and another part of that is if they offer a rental guarantee which says that, “When you settle on this property, we will guarantee that you would get your $500 a week.” That should be a big alarm bell. If you are buying a property that is in demand by the locals and at fair market value, there should be no need for a rental guarantee. So you got to ask yourself, if they are offering one, why is that? Straight away you should be unpacking that and try to find out behind the veil what’s really going on and what is incentivising them to offer a rental guarantee when the market should just be working for you in it’s normal operation.
And the last one, number five, is be careful of the pre-auction offer. If the real estate agent thinks that the buyers are liars and most buyers keep their card close to their chest and don’t tell them how much they are willing to pay, what the agent is incentivised to do is get you to make a pre-auction offer so they would at least know where your interests are at but they may have no intention or whatsoever on selling prior to auction. So if you going to make a pre-auction offer, you need to understand a lot more information about the vendor’s motivation. Because even if the vendor is motivated to sell prior to auction, the agent may not be because you think about it. It’s free advertising for them, it’s street theater to actually go through the auction process and quite often the neighbours would come and watch the auction in place. So therefore if the agent performs well as an auctioneer and they get a great result, they may get their next listing from the neighbour, the guy down the road or two streets away. So they are highly incentivised to actually go to auction. If you are going to make a pre-auction offer, you need to understand the vendor motivation very well and understand that it might just be what the real estate agent is using to tease out how much you are prepared to pay because they might come back to say, “Actually, the vendor just wants to take this to auction now but they do know how much you are prepared to pay.”
So there is a few little sneaky tricks that the real estate agents would employ to get more money out of you and if understand what’s going on, you can be in a better position to make sure you don’t fall for those tactics. Now the way you can guard yourself against those tactics, as I say it all the time, it know your value. If you know your value is, you are not going to be seduced by what the real estate agents is telling you and you if you don’t know your value, then employ a professional. Go get a valuer who can value the property for you and tell you what it’s worth. Go find a real estate agent who you know who doesn’t have the listing and you can talk to. They may have actually missed out on the listing and they are quite prepared to tell you how much you should prepare to pay. Or of course, talk to a buyers agent who does this everyday and they know the tactics that the real estate agents is going to employ and they don’t fall for it. So hopefully, there are a few tips there for you to, “Buyer Beware” and understand what the sneaky tricks are that the real estate agents employ to get more of your money.