If you're looking to buy a home, the idea of having someone who'll look after your interests 100% is an attractive one. Enter what's known as a buyer's agent or buyer's advocate.
Buyer's agents are common in the US and are gaining popularity in Australia. They work on behalf of the buyer to search for properties, evaluate them and then negotiate with the seller (or their agent) and seal the deal at the best possible price.
Tempting as that may sound, such a service is by no means free. Prices and fee structure will vary somewhat from agent to agent but as a rough guide, the service will generally cost around two percent of the property price plus GST (for example, around $14,000 for a $700,000 home). It's not cheap. So the question is, can a buyer's agent offer you anything you can't do yourself? Or are they just another player seeking to make money from a booming property market?
The benefits of a buyer's agent
While a buyer's agent has the potential to save you money, there's no guarantee they will – or even can – save you money. A buyer's agent securing a better deal on the purchase price ultimately comes down to how flexible the price is, and the agent's ability to negotiate. The price is generally malleable, says Cate Bakos, a Melbourne-based buyer's agent, although it depends on the vendor's situation, such as whether they're exposed to a time or condition restraint (for example, they're buying and selling at the same time and don't have time to run a long sales campaign to ramp up interest).
That said, property sales are not immune to the simple economic theory of supply and demand. Vince Mangioni is an associate professor in property economics and development at the University of Technology, Sydney. "Sometimes, in a seller's market you've just got to go out and buy it," he says. Mangioni believes a large part of the value offered by a buyer's agent is helping you understand what the property is worth so that you don't miss out.
A buyer's agent has the potential to save you money, but there's no guarantee they will – or even can save you money.
For private sales where negotiation is involved, an agent's ability to ask the right questions coupled with their knowledge of the property's market value is what's likely to help the agent secure a better deal than you might yourself. Every vendor will have an idea of price, but they're willing to be challenged if there's a good argument for it, says Bakos. A buyer's agent experienced in negotiations and armed with the right valuation data should be able to challenge the vendor's price expectations.
A number of buyers we spoke with believed that using a buyer's agent did save them money on the purchase price. One couple, despite being skeptical at the outset, used an agent to purchase their first home for just under $1.4 million. Perhaps a little desperate from having searched for 10 months, they were planning to offer $20,000 more than what they ending up paying. It was the agent who advised them to offer less, and then managed to secure the property for that price.
It's a useful anecdote for buyers who may find it hard to work out the true value of a property or how to negotiate a property purchase at the right price. Such a tale doesn't necessarily mean a buyer's advocate can always knock tens of thousands of dollars off the asking price, though. "The important thing is getting the right property at the right price, not necessarily getting a 'bargain'," says Rich Harvey, president of the Real Estate Buyers Agents Association of Australia (REBAA), the national industry body for buyer's agents.
Off-market properties – those that aren't going to be advertised online – can be an attractive option for a buyer. That's because a buyer will usually get a better outcome than in a competitive auction setting, says Bakos. "A vendor wouldn't usually choose to sell off-market unless they didn't have time and needed a swift sale," she says.
Access to these off-market properties is often a selling point used by buyer's agents, but it's probably not worth signing up on this basis. A first home buyer we spoke to (who funnily enough did end up buying an off-market property) said there were very few off-market properties offered up by his agent – the properties were generally the same as those found in online searches. "Off-market doesn't really exist," he said.
It's difficult to provide clear figures on off-market opportunities, according to Harvey from REBAA, because the way agents measure such metrics varies. However, he does say that at higher price points a higher percentage of properties will be sold off-market, while for properties in the $500,000 to $1.5m range the majority will be on-market. It's certainly worth asking what percentage of an agent's purchases are off-market, as well as what their relationships with local selling agents are like.
A buyer's agent can offer you significant value in terms of time saved in house hunting – particularly if you're relocating interstate or you're an investor. However, for those on lower budgets, or who don't mind spending the time looking for houses, this may be less of a drawcard.
A buyer's agent is removed from the emotion of buying a house so they should be able to look at the situation more realistically. Such detachment is beneficial according to Chris Eves, a professor in property economics at Queensland University of Technology, who says "your average buyer might be over anxious and be more likely to pay over market".
Securing a property at auction can be tough and some people engage a buyer's agent just to bid for them. Fees vary, but start at around $500 for each auction (often with an additional fee payable should they be successful). While an agent can help make a novice feel more comfortable and prevent overbidding, says Mangioni, at the end of the day it's a competitive environment and you'll still need the highest bid to win. That said, Eves argues there are strategies an agent employs to get a better price at auction. While some of their strategies may help to scare off the competition, it doesn't necessarily mean a buyer's agent will be able to secure a bargain if the price runs away, or if you've undervalued it.
There's no question that professional help with negotiations or bidding at an auction can be helpful. "Most people would not buy property more than three times in their life and don't have the skills to do it," says Mangioni. With fewer properties on the market and more buyers looking, an agent can offer real value when it comes to valuing the property and securing the deal, he adds.
An agent can offer real value when it comes to valuing the property and securing the deal.
But as for how much an agent will save you on the final purchase price, and whether it's worth the money you spend, it's less clear. "The money-saving isn't the biggest ticket item in the current market," says Harvey. However, a buyer's agent may be able to save you time and help you secure a property at the right price, which may be a money saver for those who don't know what a property is worth and are susceptible to overpaying. Whether you did (or are likely to) overpay – you may never know.
If you do decide to use a buyer's agent, here's an idea of what to look out for:
As with any industry, there are some bad eggs who may not act in the buyer's best interests. The first and most important question is whether or not the agent is receiving money from other sources. Some people posing as buyer's agents receive kickbacks or commissions from developers who want to sell off stock.
Check the agent is licensed in the state or territory in which you're purchasing and examine the agency agreement – it will need to declare if any rebates or commissions are being received. Agents accredited through industry body REBAA are also scrutinised to ensure they don't receive any other commissions.
Experience and credentials
Buyer's agents are required to hold a real estate licence to practise (a certificate of registration is sufficient if working under a licensed estate agent) but it doesn't necessarily take long to obtain this (as little as five days in some states). So while it's important to check a prospective agent is licensed, you'll likely want to ask some additional questions around their level of experience. It's worth asking how long they've been in the industry and asking to speak with some of their previous clients.
Cost and fee structure
Prices will vary across agents, so it's worth shopping around to get a sense of value. Buyer's agents will usually offer a few options – the full search and purchase service, an evaluation and negotiation service or just someone to bid for you at auction – and prices differ accordingly. Fee structures may be a fixed fee (some may segment this into different price brackets) or a percentage of the sale price. While a buyer's agent is generally required by law to represent your best interests, be aware that a percentage fee structure provides a potential disincentive for the agent to seek the lowest sale price, as their commission may increase.
Tips to find a good buyer's agent
- Only deal with a licensed buyer's agency. You can check online through the relevant state or territory's consumer affairs office (if you're purchasing interstate, make sure they're licensed for the state you're buying property in).
- Ask prospective buyer's agents about their networks and their relationships with seller's agents in the area and what percentage of their properties are off-market opportunities.
- What's the fee structure – fixed or a percentage of the property purchase?
- How much experience, and what qualifications, do they have? Are they experienced in the specific area where you're looking?
- Make sure they don't have any other income sources – ask them directly, check agency agreements, and ask whether they're a member of REBAA.
- Make sure you trust them and feel comfortable with them – buying a home is a big decision.
Stock images: Getty, unless otherwise stated.