A real estate agent's primary focus is winning the contract to sell your property. In comparison to getting your business, selling your home can be easy.
So, bearing this in mind, who should you believe when you ask agents to assess your property's value? You can expect the agents to give a range of opinions about the market value of your property, particularly for unusual properties or those in rising markets, but how much of this is genuine disagreement and how much is part of the sales tactics?
Choosing an agent
Going with the agent who gives the highest estimate (in some states only licensed valuers can give a 'valuation') could be a mistake. Although the national industry body says it's deceptive conduct for agents to mislead prospective vendors about their property's estimated selling price, agents we spoke to told us the practice of exaggerating property values to sellers is still ingrained in the industry.
Do your research first
Before you meet agents, do your own market research to help determine the value of your property and the state of the market. Keep a close watch on property ads and websites for recent auction and sale results. Agents will also provide lists of their recent sales. Another option is to pay for a report.
The Real Estate Institute of Australia says agents should also provide this kind of information to prospective vendors.
The next step is to get out in the field. Act like a buyer and visit properties for sale in your area to get an idea of your property's value, how your property compares, and the current state of the market. This helps you to assess the market value agents suggest, and to have a sense of whether they're overestimating or underestimating your property's value.
Another reason to visit other properties for sale is to assess agents' answers to questions such as "why is the owner selling?", "how negotiable are they on price?" and "how long has the property been on the market?" This gives an indication of how agents field these tricky questions.
Selling without an agent is an option if you have the knowledge, confidence and ability to negotiate prices and contracts - and the time required. It will also save you thousands of dollars on agents' fees.
But if you don't want to go it alone, the following steps will help you find the best real estate agent to sell your property:
- The first step is to make sure any agent you consider is licensed in your state. Each state and territory has education and eligibility criteria for licensed or registered estate agents. Most states require continuing professional development programs too. But in general, the hurdles for entry to the industry (such as qualifications) are a lot lower than for a profession like, say, accountancy.
- Contact your relevant state government department. It seems like an obvious thing to do, but a recent NSW Fair Trading survey found that fewer than 10% of sellers first checked if their agent was licensed.
- Make appointments to see at least three agents. Compare their market appraisals to get a better sense of what your property's worth.
- Also take this time to evaluate agents' personalities, sales experience, achievements and professionalism.
- Check the credentials and qualifications of the person you meet. They could be a salesperson under the agent's authority with less training and qualifications.
- Don't rush into making a decision about which agent to go with. Many people engage the first agent they visit, and some are then stuck with a sole or exclusive agency for a set period, even if they're not happy with it.
When choosing an agent, make sure they provide you with the following:
- Evidence of success in your area.
- A market value assessment that appears accurate, when compared to your research, and perhaps an independent valuation as well.
- A signed market value estimate or even a price guarantee.
- A marketing plan.
- Advice about steps you can take to make your property more attractive to buyers.
- A commitment to provide you with regular reports and updates.
Avoid the quote trap
Warren McCarthy, Managing Director of LJ Hooker, says his company opposes the practice of agents overpricing to get a vendor's listing, but agrees that some agents quote high prices to try to get sellers to sign up.
"This still exists but is not ethical conduct," he says. "Sellers should be wary of the agent who overprices. If the agent is trying to woo business by giving an inflated price, you know they're out for themselves and not the client."
Michael Ramsay Property, a buyer's agent which also provides services to sellers, agrees. "Agents are still inflating prices to get the seller's business."
Neil Jenman, former owner of a real estate agency, turned author, industry educator and the owner of a property referrals business, says avoiding the 'quote trap', where agents inflate their valuations to get your business, is a top priority for sellers.
"There's an old saying in this industry that the biggest liar gets the job," he says. "The number one reason that agents give high valuations is to avoid losing business. The best way to protect yourself from the quote trap is to have the agent sign a quotation guarantee. This means getting the quote in writing, and signing an agreement stating that the agent won't be paid unless that price is achieved."
One way to try to find the real worth of your home is by hiring an independent valuer. A valuation is different from an agent's assessment, which is sometimes little more than an off-the-cuff estimate. An independent valuation is a professional estimation of the value of a property by a registered valuer.
How much commission?
Agents generally charge between two and three per cent of the sale price in fees. That's $10,000 to $15,000 for the sale of a $500,000 home. This rate usually doesn't include advertising costs, which can range from several hundred dollars to thousands, depending on the type of ad, advertising rates in your local or chosen media, and where the ads are placed.
However, agents' fees can be structured in different ways:
- Some agents charge a higher commission – up to five per cent – which includes some advertising.
- You might be charged on a 'no sale, no fee' basis or, at the other extreme, be up for signage and advertising costs regardless of whether your property sells.
- Some agents have low flat fees. Make sure you're satisfied you can achieve a good price through such agents, and that their focus isn't just a cheap, quick sale.
- A scale of commissions may be charged, particularly for more expensive properties. For example, you might be quoted 2.5% on the first $850,000, and 10% after that. This provides a further incentive for the agent to achieve a higher price, and not a quick sale for a lower amount.
- You may be able to pay a lower commission by sharing some marketing and promotion costs.
Don't pay an upfront fee. Only pay your agent after the sale is completed.
Some states require that all fees, including advertising, are set out in the agency agreement.
It's important to remember that all commissions and fees are negotiable. This might not always be obvious from the agent.
According to Graham Joyce, President of the Real Estate Institute of Australia (REIA), you should pay a fee commensurate with the service you receive. If you'll be paying top dollar, expect to receive a full marketing plan.
Signing an agreement
There are three main types of agency agreement:
- Open listing or general authority. Sellers can list with more than one agency, only paying commission to the agent that sells the property. While you may get more market coverage than with a sole agency, the sale of your property may not be as high a priority for the agents. There's also a risk that you won't achieve the best price if various agents are competing for a quick sale.
- Exclusive authority/agency. The agent gets paid upon sale, even if the sale ends up being by a different agent or by the vendor themselves. One trap is to sign up for a lengthy contract. For example, one CHOICE reader told us how he signed up for six months with an agent and regretted it later. Why not try one month first, and extend the agreement if you're satisfied?
- Sole agency. Similar to exclusive agency, except the agent may not be entitled to commission if you sell the property yourself. Don't feel pressured to sign up after your first meeting.
Some states have a cooling-off period for agency agreements. Some also have a limitation on the time for which an exclusive or sole agency can run.
You don't have to accept the contract agreement an agent presents - you're strongly advised to have it checked by a lawyer and changed if necessary.
Private sale or auction?
Some agents think the best price is achieved at auction, where high emotion, pressure and competition among buyers can lead to higher prices. Others take a totally opposite view and say that private sales are the way to go.
Ask different agents to explain their views and the pros and cons of each approach for your situation. There are no hard and fast rules about which types of property are more suited to an auction or private sale, but some of the advantages of each for sellers include the following (thanks to the REIA for some of these tips):
Auction advantages for sellers
- Competitive bidding, which means there's no price limit. This can be good for unusual or particularly desirable properties that are hard to price.
- A definite sale, assuming the reserve price is reached.
- A set date for sale encourages potential buyers to act quickly.
- Auctions can identify the most suitable buyers to negotiate with if a sale isn't completed at auction.
Private sale advantages for sellers
- More time to consider buyers' offers.
- Potential buyers make offers 'blind', without knowing what others are prepared to pay.
- Advertising expenses can be cheaper than for auctions.
- No auctioneering fees.
Underpriced to attract buyers
Ian (not his real name) from Melbourne received the following estimated selling prices from three different agents:
- High $300s, low $400s
- $410,000 to $450,000
- $430,000 to $460,000
His apartment was put on the market for '$390,000+', eventually selling for $50,000 (12.8%) more.
"I had a minimum of $430,000 to $440,000 in mind, but the agent felt that the $390,000 listing would attract buyers," Ian says. "But I never would have sold for $390,000."
Ian says the agent later contacted him to say the ad had to be altered to give a range instead, so it was changed to '$390,000 to $440,000'. Around the same time, stories were in the media about the widespread underquoting of prices in Melbourne, and the Real Estate Institute of Victoria issued guidelines to members about advertising.
Ian's advertising was changed again and the property sold two weeks before the auction for $440,000.
The Real Estate Institute of Australia (REIA) advises that sellers should instruct agents about the price that a property should be advertised at, and should give clear instructions on the minimum they'll accept. Referring to Ian's case, REIA said: "If the seller wasn't prepared to sell at $390,000, he shouldn't have agreed to the property being advertised at that price."
Daniel from Tasmania received a wide range of estimates for his property. The difference between the lowest and highest figures in the range was $170,000.
Daniel felt one agent grossly underestimated his property. "Initially, a value of $420,000 was suggested. The agent watched our reaction carefully, and when I suggested he return to the office and prepare a written appraisal, he immediately suggested he had underestimated and the value would be closer to $450,000. When we continued to insist on this in writing, he became embarrassed and apologised for making such a foolish mistake. His later appraisal was very vague and not in writing."
Several representatives from another agency came to value the same home a week later and all differed significantly on their appraisals. "This time, the range was $550,000 to $650,000," Daniel says. "None of the appraisals were based on factual research, such as rates, relevant comparisons and land values. They were all based on the agents' 'considered opinions'."
A third agent provided an estimate range of $635,000 to $645,000, after more thorough and diligent research, according to Daniel. At the time of writing, the property was on the market for $640,000.
Fourth time lucky
Lisa from WA received a wide range of estimated selling prices and was finding it hard to choose between agents, but persistence paid off in the end. "After interviewing four agents in total, we realised we needed something that would definitively differentiate them, as the prices suggested were so varied," she says.
"We went back to all the agents and requested additional information to help us make our decision. We collected data on a combination of recent sales in the area, length of time on the market, initial listing price versus actual sales price, marketing campaigns (with special attention paid to internet advertising), whether or not they would work with other agents, and their fees, to finally determine who we'd use."
Lisa ended up choosing the fourth agent she interviewed. "His knowledge of the local area was very good and he'd had a number of recent sales in the area. He explained his costs and let us know straightaway that negotiation was possible, as we were in a price bracket that allowed it."
Although her house hadn't yet sold when she spoke to us, Lisa says her experience so far has been good. "The agent has worked hard and shown a lot of interest. He's approachable, personable, has a good sales history, knows the area and also has the backing of an experienced sales team."
Each state government's fair trading authority provides free advice to home sellers and buyers, or links to this information.
Agents' professional associations are worth a look too. For example, the Real Estate Institute of Australia has tips for sellers and links to state and territory associations.