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Bryce Holdaway Blog post by Bryce Holdaway

Buyers Beware! Five common tricks real estate agents use

Today I want to talk from the buyer’s perspective and, more specifically, what they need to beware of when dealing with real estate agents directly.

I’ll be focusing on some of the sneaky tricks that real estate agents employ to get more money out of the buyer 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.

If we take a step back… When someone is deciding to sell a property, quite often they might get two or three real estate agents into their living room to decide which one would actually sell the property on their behalf. So they are all doing a sales pitch, and one of the parts of this pitch is when the agent says, “Well, I would get you the best price because I can negotiate really well, I can market really well and I can attract the highest number of buyers to your property. I can achieve that end game.”

It’s important that the buyer understands this because, quite often, they just don’t see that this is actually what’s happening from the vendor’s perspective. So when the property comes on the market, the buyer is trying to get the property for the cheapest price possible, but their opposing side is the real estate agent and, of course, it’s their job to get the highest price. So it makes sense that the real estate agent is going to employ several tactics to achieve this higher result. But it’s the buyer’s job to be aware of what these tactics are.

 

And, without a doubt, the number one tactic — a sneaky trick that real estate agents employ —  is underquoting.

For example: if you think about Adelaide, they would give you a price range — call it $650,000 to $690,000 — and chances are, you are going to buy it for $650,000 to $690,000. But in Melbourne or Sydney, this is simply not the case. Quite often the quoted price can be 10% – 25% below what the actual property will sell for.

After all, real estate agents have a saying… “Quote it low, watch it go. Quote it high, watch it die.

Underquoting is an incentive to create competition. Ultimately, if two people are fighting for a property, agents are more likely to get a premium price, which is what they promised to 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 these people to fight it out in a battle of the fittest. Whoever has the deepest pockets is who will actually win on the day.

But why is it “a sneaky trick” for the buyer to be aware of?

Buyers can easily be led to believe that if a property was $650,000+, they might reasonably be able to buy it between $650,000 and $670,000. But ultimately, it’s probably always going to go for $670,000 or more. The poor old buyer pays for a building inspection, gets the solicitor to check the contract, and invests a lot of emotional capital into the purchase, but from Day One, they were never in the hunt.So they’ve wasted their hard-earned money on all of these services AND have also said goodbye to some of their precious time. So the Number One sneaky trick of a real estate agent is underquoting.

[Recommended podcast: How to Avoid the 7 Common and Costly Settlement Mistakes when Buying a Property]

 

This leads onto the second sneaky trick that real estate agents do. Just ask them…

“What’s the price?” — they stay very, very vague on the price.

They may say something like, “It’s the first week of the campaign, we haven’t had many buyers through yet 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 the listing presentation. So they do know the answer… but they stay vague for a reason. Again, 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. It’s their job to try and stay vague in order to create some more competition.

 

The third sneaky trick that often comes up is the tactical fear of loss.

As soon as they know that you’re 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 Fear of Missing Out (FOMO).

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 is… don’t necessarily fall for this tactic. Chances are, there might be another buyer; but equally, it could just be another tool the agent is using. So a way to arm yourself from this is to make sure you are rock solid on knowing what the value should be.  If you do find the property that you like, you can act quite quickly so that you can make sure you get it. But don’t necessarily fall for it each time because the real estate agent is using  this as a sneaky trick to get you to pay more.

[Recommended article: What is the ONE thing in a negotiation that can get you across the line?]

 

Sneaky trick number four is, as property investor,  you ask the real estate agent…

“How much do you think this property will achieve in rent?”. And, quite often, they’ll  have this blank look, “Ooh.. about $500 a week.”

And maybe it’s the first time they even thought about this question! bThey may have actually thought it’s going to be an owner-occupier who will buy the property. Sure, you might be relying on $500 a week, but the reality might be that the market is only paying $430. Again, the real estate 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 the rental estimates should be. Another part of this is if they offer a rental guarantee, which means that, “When you settle on this property, we will guarantee that you would get your $500 a week.” This should be a BIG alarm bell. If you are buying a property that’s in demand by the locals and is at fair market value, there should be NO need for a rental guarantee.

You’ve got to ask yourself, if they are offering one… why is that?

Straight away, you should unpack this and try to find out what’s really going on behind the veil. What’s 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 won’t tell them how much they are willing to pay, what they are incentivised to do is get you to make a pre-auction offer. They do this so they can, at very least, know where your interests are, even though they may have no intention whatsoever on selling prior to auction.

So if you’re 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. Think about it. It’s free advertising for them, it’s street theater to go through the auction process, and quite often the neighbours would come and watch the auction in place. Therefore, if the agent and the auctioneer performs well and they get a great result, they may get their next listing from the neighbour. Yep, the guy down the road or two streets away! So they are highly incentivised to go to auction.

If you are going to make a pre-auction offer, you need to understand the vendor motivation very well. Understand that it might just be what the real estate agent is using to tease out how much you are prepared to pay. For example, 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 are a few little and sneaky tricks that real estate agents would employ to get more money out of you. If understand what’s going on, you can be in a better position to make sure you don’t fall for those tactics.

The best way you can guard yourself against those tactics, as I say it all the time, is know your value. If you know what your value is, you are not going to be seduced by what the real estate agents are telling 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 doesn’t have the listing and talk to them about fair market value. They may have actually missed out on the listing and so they are quite willing to tell you how much you should be prepared to pay. Or, of course, talk to a buyers agent who does this every day. They know the tactics the real estate agents are going to employ and they don’t fall for it.

Hopefully, there are a few tips here for you to “Buyer Beware” and understand the sneaky tricks that real estate agents employ to get more of your money.

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