This new category of posts (First Home Buyer Tips) is meant to help noobs mutilate their mortgage in one of the most powerful ways know, by not starting with a high mortgage in the first place! By investigating, explaining and revealing different tactics and principles to do with searching for and purchasing properties it is my hope to make your first purchase of a home an extremely efficient, enjoyable and cheap one.
When buying a property it’s not too long before you come up against a Real Estate Agent. Many long standing opinions exist about RE Agents like that their “scum” or “slimy” but they’re just normal people like you or I, trying to make a living in their profession. There are slimy, dodgy ass ones… and there’s also nice, polite and honest ones too (believe me, I’ve met one!). Regardless of their personal nature though they are there to show and sell you a house and it vastly helps to know their motivations before you start any discussions or negotiations with them.
Real Estate Agents Don’t Work For The Property Owners!
Another common assumption is that when you’re arguing with an Agent over the price of a property is that they’re working for the Property Owners (or sellers) and that they’ll try any dirty tactic they can to get them as high a price as they can, screwing you over in the process. When you really stop and think about it though, the agent may have been assigned to this Property Owner to sell their home… but they don’t work for the Property Owner, they work for the Real Estate Company. Their goals are not the same as the Property Owners goals!
Property Owners Goal: To get as high a price as possible for their house.
RE Agents Goal: To get as much money as possible as quickly as possible.
Now these two goals above are a very broad generalization as I know firsthand that there are many good RE Agents out there who do have different goals such as simply selling homes because they just love doing it, but I think it’s quite fair to assume the majority do the job to gain money, and they aspire to gain as much money as they can, in the quickest amount of time that they can.
So you have Owners who want a high price for their house… and Agents who want money quickly. Now the Agents get paid on a commission’s basis which is dependent on how much they sell the house for, however the end result is not as you would assume. Let’s look at two use cases to better understand how an Agent gets paid and how it affects their motivation. (Please note I’m just making these numbers up for illustrative purposes here, I’m sure commissions vary wildly.)
House 1: Estimated Price: $500,000
RE Agent is slack and sells it for $500,000.
Commission: 2% = $10,000
House 2: Estimated Price: $500,000
RE Agent tries his heart out and sells it for $550,000!
Commission: 2% = $11,000
The same house, at the same commission rate gets the Agent two different commission amounts, depending on the sale price. But you’ll note, due to how the commission is calculated, even if our Agent is fantastic, dedicated and spends 6 months searching high and low for a buyer that loves the house and thus pays an extra $50,000!… he’s only rewarded with an extra $1,000 in commission.
Now $1,000 is anything to sneeze at… I’ll happily take $1,000… but what happens is that instead of spending 6 months searching high and low for that perfect buyer, our Agent instead simply settles for the lower $500,000 price (and hence slightly lower commission) and gets the house sold in maybe only 1-2 months. Then he goes on and sells another house… and another… and after the same 6 month period has made the RE Company 3 x $10,000 = $30,000 instead of the original $11,000.
The Quicker The Agent Can Sell, The Better
Due to the way these commissions are paid out you end up with most Agents simply wanting to flog off as many properties as possible in as short a time as possible. This is why you’ll no doubt find that the bulk of Agents are extremely efficient, quick and often pushy to make you decide right then and there and to sign on the dotted line. They normally don’t care in the slightest if you pay an extra $10,000 or shave off $10,000… all they want is to close the sale, get their commission and move on to the next one. What this boils down to is shown below with a very brief summary of each of the three parties’ main motivations:
Property Owners Motivation: To get as high a price as possible for their house.
RE Agents Motivation: To sell the house as quickly as possible.
Property Buyers Motivation: To get as low a price as possible for the house.
Seeing Agents In A Different Light
When you meet and talk with Agents with this knowledge in mind, that they are heavily motivated by getting the quick sale, it drastically changes how you view them. Aside from the fact that you have now considered the issues from their point of view, and thus likely sympathise with them a little more, you’ll notice that their behaviour doesn’t seem as slimy as before as you know why they’re doing what they’re doing. I find it’s often comical to watch them use their very obvious tactics to try and close off the sale ASAP however I now hope that aside from this, you’ll also be able to better negotiate and understand the different dynamics that are at play when a property is being sold. The competition isn’t between you and the Property Owner… the competition is between you and the Agent and you are much more likely to get what you want (a low price) if you give the Agent what he wants (a quick sale).
There are many other things you should be well aware of before you even attempt to purchase any property and this is but one of many First Home Buyer Tips to come with which I hope to put you in good stead for that very happy day when you are told “They accepted your offer! The house is yours!”