Using a Buyer’s Agent
Should you consider using a Buyer’s Agent when purchasing a home?
A client of ours took our advice and engaged a Buyer’s Agent to help her with the purchase of her first property we came back to her recently to check in on her experience and see whether it’s something she would recommend to others.
Australians and Residential Property
As you travel around the world you notice that Australians have a unique relationship with property. For many of us, home ownership represents a significant part of what it means to feel safe and secure.
For most of us the purchase of a home is the biggest one-off financial transactions you will make in your lifetime. Not only are you investing a large amount of money, but it will have implications on your day-to-day lifestyle, possibly the education of your kids, your long-term financial outcomes due to capital appreciation and your ability to access to critical services. You will become responsible not only for the mortgage repayments, but the insurance, the rates and property maintenance.
It has always puzzled me as to why a person who will acknowledge the need to get advice on making a purchase of $10,000 worth of shares, doesn’t feel the need to get any advice on the purchase of a $700,000 property.
The reluctance to get advice on this probably stems from a few factors. It’s an asset that we feel we understand at a fundamental level, because we experience residential property every night when we turn into our driveways. We talk about homes, their renovations and their purchase at BBQs and we watch endless reality TVs shows about it. These experiences provide us with a familiarity and comfort not found in other investments. They also appear to tell us that because we all know what a home is, we should be able to pick a good one. You may have memories of going around helping your parents choose a house, or watched your siblings or friends buy a home. If they could buy a home without help, shouldn’t you be able to do this too?
Well of course you can, but before you do, it’s worth considering whether a Buyer’s Agent might help you get a much better result from a security, a lifestyle and a financial perspective. Read on to find out more.
What does a Buyer’s Agent do?
Buyers agents come in many shapes and sizes and they offer a range of services.
When you first engage them, they will find out about what you are looking for and what is most important to you. The services you need will be quite different if you are looking for an investment property vs a home.
Defining, clarifying and prioritising your needs: They will take time to work with you to clearly define the type of property you are looking for. The quite easy to define issues such as minimum number of bathrooms to the harder to define ambience and feel you are looking for. They will work with you to help clarify the areas you think you would like to live. They will work with you on the budget you are hoping to spend and then help you determine if what you are looking for is realistically in your budget, and often work with you to prioritise those initial wants to help you get the bang for your buck. Because they are out looking at properties every day of the week, they know what’s out there and what it costs.
Assisting with property search and selection: When you are both clear on what it is you are looking for in a property the service might involve the Buyer’s Agent creating short-lists of properties for you to go and look at. They will have done some pre-vetting on these properties, having talked to the agents and often gone and looked at the properties in person. They will have done some preliminary research on the properties including title searches and found out important information such as the value of the rates and the cost of the strata titles. You can then go around the open for inspections on their list to get a feel for the properties you like and want to investigate further. Your Buyer’s Agent will take your feedback on the properties that you looked at and how you felt about them. This is critical because it helps them to better understand your needs and preferences particularly as they may develop over the property purchase process as you learn more about what you like and don’t like.
Property checking and valuation: When you have selected a property you are particularly interested in purchasing they will be able to coordinate all the technical checks to make sure you are fully informed about any particular issues that may arise upon purchasing the property. Are neighbours in the process of building, is the property in a flood zone, is there any problems with the electrics or the stumps. Not only will you know the possible pitfalls, but their ability to provide you with a formal valuation of the property lets you know what a fair price is before you set your heart on this as your forever home. This information is so valuable because you can much more easily compare property 1 which is more expensive but requires no work against property 2 which is cheaper but needs a new kitchen. It also helps because they will be able to provide you with a guide as to how the property might appreciate in value over the long term, so you will have a better idea as to whether the value will keep up with general property movements or tend to fall behind.
Negotiation: Having made your decision to purchase they are able to provide you with the power of a professional, experienced negotiator. They know the property purchase process back to front and all the tricks in the book agents try to use. They can guide you as to the best price to offer and whether you should try to put in an early offer or go along to the auction. And yes, they will often do your bidding at auction.
Settlement management: Having successfully negotiated your purchase they can project manage the move. They know how to make sure the agent, the conveyancer, the mortgage broker and the bank coordinate to make sure you get the keys on the right day. Help you get the services connected and if you need minor work before you move in often, they know the best people in the biz to get your floors polished or the lick of paint you desperately need in the mustard coloured bathroom.
What does a Buyer’s Agent cost? And is it worth it?
Price varies from one Buyer’s Agent to another and it will depend upon the services you have requested from them. As a guide it may cost you around $15,000.
While that may seem a lot money, however when you consider how easy it is to make a mistake on the purchase of a property, if you have a good Buyer’s Agent it is worth it.
It is so easy to pay $50,000 above the odds at a property auction because you fell in love with a property. Or buy a property that is going to have a major development nearby that reduces the value of your property by tens of thousands. Perhaps you would have missed the great value for money suburb with the village feel you were looking for that gave you everything you wanted for a much lower cost. Or you selected a property that met your immediate needs but failed to consider the long-term resale or rental value and cost you a small fortune in future returns.
It is hard to quantify exactly what a Buyer’s Agent is worth, but in the scheme of a purchase as big and life changing as this, for my money this type of investment brings significant peace of mind that you haven’t missed something you will later come to regret.
Rachel reviews her decision to use a Buyer’s Agent
Rachel (not her real name), is single, aged 40 and is a client of ours. She was looking to buy her first property and took our advice to use a Buyer’s Agent. Rachel is a smart woman, she on a good salary and is well respected in her profession. Rachel could quite easily have gone through this process by herself, she would have found a nice unit in a suburb she liked, and it would have been within her budget. It wasn’t that she couldn’t do it. But Rachel wanted to reduce the stress of the process and have confidence that the big decision she was making was a good one for her. So, Rachel took the step of engaging a Buyer’s Agent. The cost at $15,000 was not small, but she felt that it would help her make a better long-term decision. This is what she said at the end of the process…
“I’m not an expert in the property market. The Sydney market feels really intimidating. You need to go by yourself, sometimes I would walk into a property and just give up, I didn’t even ask the price, I just walked out.
My Buyer’s Agent knew the market. They introduced me to a small area I didn’t even know existed. I would never have thought of looking there. But the suburb gave me all the lifestyle benefits I wanted but for a fraction of the cost if I went looking in the areas I already knew about.
During the week the Buyer’s Agent would do all research for me talking to the agents and doing inspections. On a Friday I would get a timetable with the properties they had hand picked for me to go and have a look at. They even came with me!!!! All the work was taken out of trying to work out whether something would be worth going to see because it was a dump or a seriously unrealistic price.
They were also able to open my mind to the possibilities of the properties I looked at. Which properties I could do a few DIY things to that would spruce them up and the cash I might save. But they could also tell me which ones would take much more money and be quite expensive despite the seemingly lower price tag. They had experience in what these types of renovations cost and how much value they do or don’t add to the property.
They were great when it came to assess the value of the property and then in the negotiation process. They know all the tricks that the agents try to use and how to manage them. They see every day what mistakes people make with property and how to avoid them.
They were also great at the paperwork side. They knew how to read a strata title and understand which ones were going to cost me the most. We were also able to get a feel for the body corporate management and whether there were going to be lots of headaches with them due to internal politics.
I paid $15,000 for the Buyer’s Agent but they were worth every cent. They reduced my stress levels, they made me more confident in my purchase decision, they made my search so much more time efficient, they made the process run smoothly, and I made a much more informed decision so the chances of something unexpected going wrong are so much lower. In the end I got a much better value for money property out of the process giving me a better lifestyle for a lower mortgage.
If I was ever to buy another property, I would definitely use a Buyer’s Agent.”
Question to ask when selecting your Buyer’s Agent?
- What is the process?
- What is the cost?
- Are you independent? Do you get any kickbacks or commissions, or do you have contractual obligations to property developers, real estate agents etc?
- How long have you been doing this?
- Do you do much work in the areas I am looking at?
- What are the services that you offer? And can I choose which ones I select?
- Given that I think I want ABC type of home in a XYZ budget, do you think I am in the ballpark?
Having asked these questions, you should ask yourself how the Buyer’s Agent made you feel? You could have the most well-regarded Buyer’s Agent in the world, but if you feel uncomfortable or self-conscious talking to them, they are not the right one for you. You will need to be really honest with them about what you want and need, at times you are going to contradict yourself ‘I know I said I didn’t care about ABC, but I think what I really want is XYZ’.
If you don’t find the one that is right for you straight away, keep looking.
How does a financial adviser and a Buyer’s Agent work together?
Financial advisers and Buyer’s Agents can work together well to get a great outcome for you.
As a financial adviser we help you work out if now is a good time to purchase a property. We work with you to prioritise your goals, assess your financial security, what savings should be made, whether we need to work towards this savings purchase first. We can help you set an overall budget for a home purchase considering the impact on your cash reserves, other investments and day-to-day cashflow. We will talk to you about how your lifestyle and personal circumstances might change over the coming years including career trajectory and family growth and development.
All these are important inputs into the discussion to have with the Buyer’s Agent as they will influence the type of property you need now and into the future and the financial resources you have available to purchase the home.
While some of our clients are quite comfortable making their home purchase unassisted, we fully support the use of Buyer’s Agents and can help you find one that suits you and your needs.
If you are working towards purchasing your first home you might like to join us for our webinar ‘Saving for your first home’ .
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