S2E29 - Buyers Agents Explained: What Do They Actually Do (And Cost?)

[00:00:00] Imti: Buyer's agents explained. We've got 15 minutes to make it make sense. If you're buying your first investment property, you've probably heard people say, A buyer's agent can save you time, find you better properties, and negotiate harder and get you a better deal. But what are you actually paying them to do and how is that different from the agent selling the property? Where does their job start? What makes that capability useful? Do you even need one? And how do you tell the difference between a good and a bad one? We're gonna tackle all of that today in less than 15 minutes, so let's kick it off and throw it straight to Pete, who's the expert in this space. Pete, what is a buyer's agent?

[00:00:42] Pete: So the buyer's agent works directly for the buyer, unlike the selling agent who works for the seller, and it's our responsibility to help the buyer work out exactly what they're looking for, navigate the market, source the property, and negotiate as well.

[00:00:57] Imti: Can you break that down a little bit more for me? What's the difference between a buyer's agent and a selling agent?

[00:01:02] Pete: So the selling agent will help the seller sell the property. So they'll list the property online, open it up, negotiate with the buyers, and sell it.

While the buyer's agent will actually sit with the buyer, work out exactly what they're looking for, look at their budget, give them recommendations in terms of where they can afford, what they can afford. Then they'll go out and help them source the property. Looking at properties that are listed. Also finding properties that are off market, going through the open homes with the buyers as well. Picking out any issues that there may be, and then going into negotiating on their behalf, trying to secure the property and then also guiding them through to settlement.

[00:01:39] Imti: Skye, you look like you have a question.

[00:01:39] Skye: I do. From my perspective as a selling agent, the sales agent's job is to get the most amount of money for the client. Whereas your job is more of an advocacy, it may not be about getting the cheapest possible price, but about finding the right price.

[00:01:53] Pete: Yeah.

[00:01:53] Skye: Like the right home. Sorry, is that

[00:01:54] Pete: Yeah.

[00:01:55] Skye: What you mean?

[00:01:55] Pete: Yeah, yeah, definitely. Yep. That's exactly it.

[00:01:57] Imti: And buyer's agents will work in the investment space predominantly, or will they do investment and owner occupier?

[00:02:04] Pete: Look, it depends. Some buyer agents will do both and then some buyer agents will specialise in owner-occ or investment. And then with the investment side of things, you'll then have buyer agents who will just be specialist in one specific location. They might just be buying in Adelaide.

[00:02:18] Imti: Mm-hmm.

[00:02:18] Pete: While other buyer's agents will have a national outlook and buy properties right across Australia.

[00:02:23] Imti: And if you were to break down, what the buyer's agent should do with a client in, let's say, four steps, what would that look like?

[00:02:31] Pete: So the first step would be sitting down with them. Looking at their budget and looking at exactly what they want, and then building a brief around that. Once we've built the brief, that's when we go out and we start to look at properties. So that'll be step two is looking at on markets, off markets, assessing them, seeing whether or not they actually make sense for them. Step three would then be negotiating the property and then if you're successful, step four would be guiding them right through settlement.

[00:02:57] Imti: Yeah. Awesome. I think that's a really great breakdown of what a buyer's agent does and really plain English. Let's jump straight into it with the dollars and cents. How much does a buyer's agent cost?

[00:03:10] Pete: Look, these days it sits probably around 18,000, including GST.

[00:03:13] Imti: And that could be ranging anywhere from 15 to 25. And you've went 18 as a middle point?

[00:03:19] Pete: Pretty much. Yeah. Look, it seems to be up to even 30,000 and it might come down to the purchase price, but generally we are looking between, yeah, you're right, 15 to 25, which is why I think 18 seems to be the sweet spot.

[00:03:30] Imti: Is that all at once? Is it broken into multiple payments? Also, is there buyer agents who might charge a percentage based fee instead?

[00:03:39] Pete: Yeah. Yes. To all. So there are some buyer agents out there that will charge the full fee upfront, and that's something that I definitely wanna warn buyers about.

[00:03:48] Imti: Well, we've definitely seen it in the news recently, right?

[00:03:50] Pete: Yeah. Some pretty large scale buyer's agencies have gone under and they seem to be the ones that are charging the upfront fees. So just be very wary of that. Some buyer's agents are still doing that. Others will charge, like myself, an engagement fee upfront. So it's a small portion of the total fee. And then the final success fee is once the property's actually been secured. So once it goes unconditional. And then you've got other buyer's agents out there who are generally the owner occupier space. They'll charge a percentage.

So if you're buying something for a million bucks, 2% of that, it's $20,000.

[00:04:21] Imti: And what would be the reason that they would charge a percentage fee?

[00:04:25] Pete: Well, when it comes down to owner occupier briefs, it is quite difficult.

[00:04:29] Imti: Mm-hmm.

[00:04:29] Pete: You do have to really understand your client, what they're looking for, what their future plans are.

[00:04:34] Imti: Yeah.

[00:04:35] Pete: I feel like a lot more work goes into it rather than just a, a pure investment brief. And that's why Yeah. The percentage base, I think is, warranted for owner occupier briefs.

[00:04:43] Imti: Yeah. Would it be fair in saying that for investment, it's more, it's data, right?

[00:04:48] Pete: Yeah.

[00:04:48] Imti: it's very much like

[00:04:48] Skye: there's no emotion.

[00:04:49] Imti: What area? What's the cash flow? Exactly. There's no emotion. And so the percentage based fee for owner occupier is because the buyers' agent's almost managing their emotions, and the search could be nine or 12 months long instead of getting a property under contract in like eight weeks. Right?

[00:05:05] Pete: Yeah. As it should be. If you're doing an owner occupier client, you wanna make sure you get 'em the right property. 'cause that's the property they're gonna live in. They're gonna raise kids in and have all the birthdays and the events there, so you wanna get it right as opposed to an investor brief. You want to get them in as quickly as possible to the right markets.

But we've already got those markets identified.

Depending on budgets. Mm.

[00:05:22] Skye: Yeah, no, that makes sense. I hadn't thought about it that way. Like I'd heard all the different fees but hadn't realised that they might apply differently to owner occupiers.

[00:05:30] Imti: I mean, it's probably a little bit biased, but it's best to get it from you. How do you tell if a buyer's agent's actually good?

[00:05:35] Pete: They need to have a good track record. So making sure that they've done the thing multiple times, because there's a quite a low barrier of entry to becoming a buyer's agent, it's not very hard. And it's very easy to start the business and then start marketing and get clients

[00:05:48] Skye: Unregulated.

[00:05:49] Imti: Mm-hmm.

[00:05:49] Pete: Yeah. It's very unregulated. Like the whole property industry is in general, but buyer's agents is definitely, I think the lowest regulator.

[00:05:55] Skye: Well, they're not appearing in the media like real estate agents are.

[00:05:58] Pete: Yeah. Yeah. Not yet. I think there'll come a time where buyer's agents will be hot topic if not starting to be already.

So I think it's making sure they've done the thing, they've got actual track record, particularly in the areas you're buying. If you're looking for an owner occupied buyer's agent, making sure they've bought in the area. And if you're looking for an investor buyer's agent, making sure that they've built a portfolio, they're happy to put their own money into the markets that they're recommending as well. And again, track record.

[00:06:22] Imti: So for a first time property investor who's trying to find a buyer's agent, how would they identify good from bad? Considering what you just touched on around the marketing aspect what would be a couple questions that you would tell them to ask?

[00:06:38] Pete: Yeah. It'd be how many clients are you working with any one time. Some buyers agents work with a lot and it's kind of like a, what's the word?

[00:06:47] Imti: Production line. Yeah.

[00:06:47] Pete: Production line. That's the word I'm looking for. Yeah. So I definitely be asking 'em how many they're working with. How many are in the team as well. And get them to give you some recent examples of purchases that align with the brief that you are presenting to them. Like if you've got a $700,000 budget and you wanna buy in a specific area, or you wanna be an investor and buy anywhere, ask them for recent deals that they've done

And get them to talk you through the methodology and the reasons why those areas were selected. Now, some buyers agents won't do that because they don't want to disclose the areas, but I think when you're asking someone to pay $18,000 for your services, and they should be willing to just to share that.

[00:07:22] Skye: I just had a question though, what's to stop, say a dodgy buyer's agent creating something with AI, like how would the investor know that what that BA is telling them is real?

[00:07:31] Pete: Look,

[00:07:31] Skye: is that the element of trust?

[00:07:32] Pete: Yeah, I think it is. And that's where you just gotta trust your gut.

[00:07:35] Skye: Because when you said about the methodology

[00:07:37] Pete: Yeah,

[00:07:37] Skye: If they're able to explain why they purchased it and how it went down, that's probably the measure I would use. Whereas if they're like, oh, these are the numbers, this is the deal. Who's to say AI didn't put it together?

[00:07:48] Pete: Yeah, I agree. Yeah. And if you're switched on enough and you ask enough questions, you can tell when people are just making stuff up.

[00:07:53] Imti: Mm-hmm.

[00:07:54] Pete: It's like back at school or university or whatever, when you're watching someone present to you and if they're just reading off of the slides,

[00:08:00] Imti: you can tell,

[00:08:01] Pete: you know they've got no idea. So if they're just gonna repeat to you, oh yeah, we purchased it for $700,000, it was in Adelaide and,

[00:08:07] Skye: and we made 200 grand before it settled, that sort of stuff.

[00:08:10] Pete: Yeah. Oh, and that would be a huge red flag too, right? If they're quoting really high growth figures too. You just gotta exercise an element of common sense because yes, everyone is out there to just get business, so you have to be careful you're not getting sucked into those buyer agencies.

[00:08:24] Imti: Yeah. And on that note, actually, I wanna talk to you about a bit of a bug bear of mine that I see a lot when I'm working with clients and helping 'em structure their finances. What doesn't a BA replace for a client? Because I'm seeing a lot of people put a lot of trust around their full financial future in a buyer's agent, but where's the line? What shouldn't they be talking about?

[00:08:48] Pete: Anything to do with finances, I think. So, it's very blurred at the moment.

[00:08:51] Imti: Mm-hmm.

[00:08:52] Pete: And I think a lot of buyer's agents are starting to cross that line of financial advice, even though property isn't a financial product under the legislation. So you technically can't call it financial advice, some buyer's agents will actually sit down with their clients and actually build out what they call a portfolio plan. They'll talk about structuring. So whether they buy in trusts, whether they buy in companies, they'll look at their incomes, they'll look at their future plans, they'll basically do everything that a financial advisor will do, except they'll advise 'em on property not shares.

And that's where I think the line is getting blurred and people need to be very careful.

[00:09:25] Imti: Yeah, I'm definitely seeing that. Encouraging irresponsible buying, portfolio planning, even down to tax and structuring advice. You've got an accountant who goes to uni for four years and they might do a CPA, which takes hundreds and hundreds of hours and decades of experience. Same thing with a financial planner. And then you've got, with all due respect, and I'm in the same industry where

[00:09:49] Pete: Yeah.

[00:09:49] Imti: the barrier to entry's relatively low. Someone who's done a course for a week is now telling you what to do in all of those separate areas of your life. To me, that's a massive red flag.

[00:09:57] Pete: Oh yeah. And I've got the background in accounting and law and I've got friends that are still in that industry and they gotta do like 20 hours plus obviously doing the work as well.

[00:10:04] Imti: They've gotta keep up to date.

[00:10:05] Pete: Yeah. We don't

[00:10:06] Imti: everything,

[00:10:07] Pete: we don't have to do any of that as a buyer's agent.

[00:10:08] Imti: Yeah.

[00:10:09] Pete: like, it's ridiculous. We have no, nothing. We pretty much just have to pay our registration fee to the government and then we're good for another year.

[00:10:15] Skye: Yeah.

[00:10:16] Pete: So, yeah. I, a hundred percent agree.

[00:10:17] Imti: Would it be fair to say in your opinion, if a client was speaking to someone who was promising all those things that they should probably just run?

[00:10:25] Pete: Yeah. Yeah, I think so. Yep. Definitely second guess it and just trust your gut.

[00:10:30] Imti: Cool. Definitely agree. ' cause it's a headache at the moment. Couple quick ones to bring us home: off market properties. Do buyer's agents really get access to off market properties?

[00:10:39] Pete: Oh, look, they definitely do, but I think it gets thrown around a lot.

Like it's the secret to everything. For example, right now at this point in time in the market, I think the best opportunities are on market. But from an off market point of view, there's two different types of off markets. You can just get onto agents' mailing list and you get email blasts. But buyer's agents don't just get that. People get that too. So general buyers who have gone through open homes, they'll get off market, exclusive access emails and text messages. And I don't count that as an off market, but there is an avenue where if you've got a really good relationship with a real estate agent

And times get tough for their client, like they just need to sell for personal reasons, you do get a phone call and you do get first preference. But that takes years to build that relationship and that's a genuine off market.

[00:11:22] Imti: Yep. So you would say that good buyers agents,

[00:11:24] Pete: Good buyers' agents.

[00:11:24] Imti: do get good access, but also it's not all it's hyped up to be, and an off market property isn't the magic solution.

[00:11:31] Pete: No. They're often overpriced as well, so you have to be very careful.

[00:11:35] Imti: I think Skye's laughing 'cause

[00:11:36] Skye: Yeah. But also,

[00:11:36] Pete: You've done it. I think I would do it if I was a selling agent

[00:11:39] Skye: off market is rubbish too.

[00:11:41] Pete: Yeah.

[00:11:41] Skye: If I can get a certain price off market, why wouldn't I take it to market? The only reason I would allow a client to sell off market is if there was a sensitive reason that we couldn't go to market, or they urgently needed funds.

[00:11:54] Imti: Yep. Completely agree. Again, the off market piece is really interesting at the moment. 'cause it's the marketing bait that's getting thrown around.

[00:12:01] Skye: Mm.

[00:12:01] Imti: Pete to bring us home. If you were to say one thing, someone listening to this episode, they need to take out one lesson from this conversation around the buyer's agency space. What would it be?

[00:12:12] Pete: It'd be a buyer's agent will help you take action. It's a bit simple and short, but I think everyone here on the table has been in a bit of a, a loop in the past where it's really hard to make decisions. There's a lot of information out there, a lot of uncertainty or whatever it may be, and you just don't make a decision. But a buyer's agent will help you make that one and get you into the market.

[00:12:29] Imti: Awesome. And I think I'll close this off there. That's BAs in 15 minutes. Thanks guys.