Are the current costs too high to sell real estate? What can you do to save a packet when you want to sell your home?

The Australian average for the period of time for residing in the same house is somewhere between 7 – 9 years. So about every 7-9 years, and for a hundred different reasons, we put our home out to the market to sell.

For the average Aussie family, who might have an adult working life of around 40 years, plus a healthy 20 years enjoying retirement, that means you may sell up, buy and move about 6 or 7 times. Each time the costs are as real as they are weighty.

Costs to sell your home

There are no taxes payable when you sell a residential home that you have lived in as your Principal Place of Residence. Phew! But when you buy your next property to live-in, there is an inescapable impost (tax) that you have to pay for the privilege of putting a roof over your head – Stamp Duty.

It is applicable to almost every property purchase in every State and Territory in Australia. For this article, we are going to stick to residential/buy to live in purchases, because purchases to invest attract a different and higher rate of Stamp Duty.

Before we talk about the immovable, non-negotiable cost of Stamp Duty, what about the optional, negotiable cost of sales commission.

To sell a home or property, around 97% of sellers will hire an agent to market the property and help negotiate a sale.

The average commission charged by Agents across Australia is 2.6% of the sale price, plus whatever advertising costs the Agent recommends and you agree to.

We’ll use the RP Data-Rismark Daily Home Value Index, 5 City Aggregate; which is an average of the current prices being obtained in Australia’s five largest capital cities (as at 3 March 2014). That price is $625,000.

You have just sold your house for $625,000.

Commission payable @ 2.6% is – $16,250
Marketing Costs (these vary) – $3,000
Total marketing and sale costs $19,250

There are still a few fixed cost, low fee Agents inhabiting the sales space, and they are usually charging around 1%-1.5% of the sale price plus advertising costs, whereas at the other end of the scale some ‘upmarket’ agents will charge in excess of 3% of the sale price.

Hence, the 2.6% average, which the vast majority of Agents observe and charge.

Then there are solicitor and moving costs. Of course you could go through the backbreaking effort of shifting the furniture yourself and save a few bucks. And it is possible to avoid the solicitors fess, though as discussed in my previous post, DIY conveyancing should be avoided.

So after all this, the $625,000 sale price will have cost you well in excess of $20,000.

Costs to purchase a property

Now for your purchase. Yahoo! Let’s say you found the dream home, in the area you always wanted to be in for $650,000. Going in (the purchase) the Stamp Duty must be paid. Calculated on the averages of all the State and Territory Stamp Duties throughout Australia, your $650,000 purchase will have you coughing up $28,600.

Throw in solicitors fees for the purchase, and you have a total ‘change over’ cost of $50,000 +, in this scenario.

How can you save on real estate transaction costs?

As you can see those 6 or 7 moves over your adult lifetime could really start to add up.

So how do you put a big hole in those selling and moving costs when you HAVE to pay stamp duty and pay an agent?

One of them is actually an ‘optional’ cost and I can already hear you saying it – “hiring the Agent is the big variable, can I sell my own home without an agent?”

In the scenario we described earlier, considering and undertaking a private sale, i.e. to sell your own home, would save you at least $19,000, almost halving the overall ‘change over’ costs.

Although, only 3% of Australian Home Owners are taking the calculated plunge into a Private Sale, this number is expected to increase as online marketing, sales, knowledge and support services such as Agent in a Box grow in popularity and strength.

These minimal fee, no commission, owner assisted models are becoming a viable, proven and cost saving alternative.

Everyone is looking to save money wherever they can in an economy that is showing signs of confidence, yet being tempered by job cuts brought about by large corporations looking to minimise labour costs.

The costs of selling a home or property are definitely going to come under the spotlight and alternatives to the long held traditional methods are emerging to bring relief to home owners.

In every industry, business sector or organised body of people, a language tends to form specific to those groups that individuals within the group can identify with and readily understand, allowing clear and concise communication within the group.

Many of us may know this as jargon.

The Real Estate Industry is certainly one of the groups that has its share of ‘terms’ or ‘Jargon’ to describe people, events and situations that is unique to itself.

You may know all or some of the terms I am about to share, however if you are selling your own home hearing, understanding or using these terms may not be so foreign to you during the marketing and sale process.

The Market:

This term describes all of the parts that go into the ‘space’ that is so often called the ‘Real Estate’ or ‘Property’ Market – Houses, land, units, buyers, sellers, agents, prices, yields…

However, the term, ‘The Market’, is predominantly referring to buyers.

The sentiment of buyers; their greed, fear, indifference, beliefs… is what really drives ‘The Market’. They are ‘it’! Without buyers there is basically nothing.

So, when you hear anyone say, “The market is hot.” “The market is active.” The market is sluggish.” They are actually referring to the sentiment, behaviour and actions of buyers.

Listing:

This describes a piece of real estate actually being offered to the open market, for sale. ‘Listed’ for sale.

Value:

“Beauty is in the eye of the beholder – and so is value!”

Value: The regard that something is held to deserve: the importance, worth or usefulness of something.

I have always said that sellers set the price, buyers determine the value.

The value of a property is what another party is willing to pay so you can transfer the ownership.

Price:

There are three types of price: The vendors expectational price; the list price and the sale price.

The price that matters most is the ‘sale price’. The best number that ‘The Market’ is willing to pay for your property.

Auction:

This is where a property is offered for sale with an ‘end date’, whereby a ceremony will take place publicly, at the property or in an auction room, conducted by a licenced auctioneer calling for ‘bids’ from interested buyers – and the highest bid, acceptable to the seller, deems that buyer as the new owner.

Private Treaty:

Listing a property for sale with a price, price guide or price range and calling for interested buyers to inspect and make direct offers, usually resulting in a negotiation process.

Objection:

When it comes to dealing with buyer objections it can be a tough experience to hear someone ‘knock’ your property – bring up things they don’t like about it.

Very early on I learned that an ‘objection’ was an indication the other party wanted more information or a solution to their doubt.

Most objections are around value, yet buyers express them in other ways, “The 3rd bedroom is too small.” “The back fence is not high enough.” “The driveway is a bit steep.”

An objection is a great indicator to ask a question and engage the buyer further.

Offer:

The action of a buyer interested in a property for sale, whereby they put forward a price (written or verbal) to the owner in a hope of immediate acceptance to purchase the property.

Counter Offer:

The price response from a home seller to the initial offer from the prospective buyer.

Negotiation:

The process of ongoing offer/counter offer between a buyer and seller to determine a price acceptable to both parties that will commence the transaction of completing the sale.

Terms/Conditions:

Terms refer to the ‘rules of law’ that are required to be observed by both buyer and seller to complete a property transaction. Each State in Australia has differing terms and when buying or selling a property it is HIGHLY advisable to engage a lawyer, conveyancer or settlement agent to assist in this regard.

Conditions refer to the satisfaction of the requirements of the buyer that will ensure the transaction can be completed.

The most common conditions are: Finance approval from the buyer’s lending institution and the buyer employing the services of a qualified building inspection to check for possible faults within or around the property. These conditions must be met/completed by a certain date for the transaction to proceed.

Contract:

The legally binding document(s) that encompasses, indicates and stipulates the agree price, amount of deposit held, all the terms and conditions and dates for conditions and settlement.

All parties (Buyers and Sellers) must sign and initial where necessary, and the contractual process and time frames are monitored by legal representatives for both parties.

*Always be in communication with legal representatives during this time to make sure conditions are being met and dates adhered to.

I hope this sheds some light on not only the terms used in Real Estate, but also the processes that make up the marketing/sale/transaction process.

What to look out for when selling your own home (Part II)

In my previous post I talked about the risks and what to look out for when Wrappers show an interest in your house or property. No I don’t mean Jay Z or Snoop Lion (aka Dogg) have seen your home online and have come calling to make an offer. I mean the Wrappers who want to own your home with almost no money down and promise to pay you over time from the money they receive from tenant/buyer they install in your home. This is not a highly recommended method to sell your property. This post is about another ‘buying’ practice that is sometimes offered to home sellers, and by, at times, well-intentioned buyers. This purchase method is called ‘Vendor Finance.’

Vendor Finance

Vendor finance is favoured by buyers who may have been rejected by traditional finance means – banks, are a short time away from qualifying for finance, or their financial capabilities fall short of the price required to obtain the property they are very keen to buy. The latter being the most common example of a vendor finance arrangement.

Whilst vendor finance carries less risk than wrapping, it still comes with a fairly serious warning label. If you are approached by a buyer who is offering to purchase your property under the terms of a vendor finance arrangement, before even considering it, seek detailed advice from a trusted legal adviser and or an accountant.

In effect, the buyer is asking you to loan them the difference in the purchase price. You are in effect becoming a secondary bank or lending institution, with the buyer as your client.

For example, your home is on the market for $500,000 and you meet a buyer who goes head over heels for your home and wants to buy it. The buyer informs you that they can immediately finance the purchase up to $450,000 and would you be open to receiving the balance, $50,000 over, say, two years. They may offer payments monthly, or every six months – this all comes down to what you are comfortable with and what the buyer is capable of.

Initial discussions with the buyer could be quite open and friendly, and you might think the buyer is a great person and seems very genuine, but that is where you must stop and start thinking in ‘worst case scenario’ terms:

“What if we go ahead and the buyer stops making payments on the balance after a couple of months?”

“What happens if they don’t make any payments after they take possession of my home and have moved in?”

This is where your lawyer or solicitor becomes an integral part of any such deal. They will explore worst case scenarios, potential penalties should the buyer be late with any payment or fail to make payments – basically inform you of where you stand legally and the risks you may encounter if you proceed with a buyer under a vendor finance agreement.

If faced with this type of offer from a buyer when selling a house by owner, take a breath, ask yourself whether the whole scenario feels right, seek sound legal advice and proceed with caution – make no agreements unless you are 100{5be8b5650852dcf96a34828ba5a88d9285f6c7439f02c8133f6b05e7d943eaff} sure and feel legally secure. And remember, don’t put all your eggs into the one basket, continue to entertain other buyers who show interest in your home.

What to look out for when selling your own home (Part 1)

In any market, property or otherwise, there are those participants you can trust and those who I like to call ‘Buzzards’, or if they are really of questionable integrity – ‘Bottom feeders’ – like the fish you might see skimming along the bottom of a body of water for easy food pickings.

Picking the good guys from the bad guys can be tricky, but I will give you some tips to weed out the ‘Quick Buck Merchants’ from the ‘Straight Shooters’. The particular un-conventional property transaction method I would like to bring to your attention in this blog is called ‘Wrapping’.

In over a decade of front-line marketing, negotiation and sales of hundreds of residential properties, I have spoken to at least 20,000 enquirers, lookers and buyers. A small proportion of these have been individuals or groups looking to acquire property well outside of the conventional and trusted transaction methods we all know.

The Property Wrap

Several Property ‘Gurus’ are espousing the ‘virtues’ and money making capabilities of property wrapping as an acquirement method with headlines such as “Buying Property for Just a Dollar Down” and the like.

As a Home Seller, whether privately or through an Agent, be on the lookout. Some of these wrappers are also preying on the less switched on Agents, trying to source ‘desperate’ or unsuspecting home sellers.

To simplify the modus operandi of a property wrapper…

They will present as an ordinary everyday, garden variety buyer. They may have indicated that their reason for buying a property is for investment purposes. If they are interested in your property and it meets their criteria, they will immediately offer full listing price or close to it. Great!!! Is it? No, then they will propose this:

1. A part payment to you, maybe 10 -20{5be8b5650852dcf96a34828ba5a88d9285f6c7439f02c8133f6b05e7d943eaff} or a bit more, up front.
2. The balance of the price of your property payable to you over three or so years paid either weekly, fortnightly or monthly until the full agreed price is paid out.
3. As soon as you leave your property on the agreed date, the buyer installs a tenant/buyer into the home who pays weekly rent/purchase instalments well above normal principle/interest rates.
4. If that tenant/buyer defaults by just one week, the buyer (new owner) has the legal right to evict the tenant/buyer, source a new one.
5. So, a portion of the money being paid by the tenant/buyer is forwarded to you (the previous owner) as the part payment for the balance of your agreed price. The buyer (new owner) is a ‘go between’ and has little financial ‘skin’ in the game.

The risks for sellers are fairly self explanatory. Signing a deal to receive full payment for your property sometime in the future has inherent risks no matter how a contract is worded and put together. Someone else had possession of your home without you having been paid full value up front.

For those who take up one of these deals as the tenant/buyer, be aware that you will pay well over market price for your rent/repayment and just one payment default could have you on the street, losing any payments you have made up until that point.

In a nutshell, avoid this type of purchase method like the plague and only do business with buyers who have money ready to go or are being financed by a reputable lending institution, and will pay you the FULL agreed amount on settlement day.

As the market segment increases for those Australian home owners selling their house privately, with it comes those who look to prey on the uninformed or the potentially desperate. More and more, the decision to sell your own home will be seen as a savvy business decision, especially with the new marketing, knowledge and support platforms offered to home owners. Saving $10,000, $15,000, $20,000 or more and getting the same result, a successful sale, is nothing to be sniffed at. However, it can also make you a target for the bottom feeders. Take care.

……and that’s a wrap.

First and foremost, what you are about to read is not an Agent bashing exercise.

Yes, unfortunately we (yes, I have been an Agent for the last 14 years) rate somewhere at the lower end of the list of the Nation’s most trusted professions, usually around or between used car sales people and lawyers.

However, I want to dispel some myths and share some truths that Agents don’t want you to know!

Our report, The Eight Biggest Myths of Real Estate, wasn’t written to send Agents further down that list of trusted professionals. It was written to clarify quite a few misconceptions around the aura and perceived monopoly Agents have developed over the last few decades, identifying them as the only choice when the time comes to sell a piece of real estate.

But! (and the ‘but’ is slowly growing) things are changing.

Sure, the ‘Sell your own home’ segment of the Australian property sales market is still a small portion – we estimate at approx. 5% of the total sales market.

However when you look at the USA & Canada, with over 20% or more each; and even New Zealand,  with over 10%, it seems this is a market that could grow quite quickly over the next 3-5 years.

The model of bypassing the ‘middle man’ by use of the of the internet and  powers of technology is now firmly entrenched in the wider vernacular – disruption!

Think Uber, Airbnb and Kogan.

They have all made massive inroads into (former) industry giants’ markets and consumers are getting on board in droves.

Will the traditional Real Estate industry be one of those ‘giants’ affected?

We will know pretty soon.

So, with these huge shifts in consumer sentiment and habits taking place before our eyes, what is it that Real Estate Agents, in general, want to keep under wraps so you will consider them before taking control and selling your home or property?

1. Buyers follow property not agents. 95% of buyers will find their next property online, not in an Agent’s office window.
2. No Agent owns a buyer.  Trying to control buyers is like trying to herd cats. Buyers are trawling the internet looking for their next property and will talk to the Agent, or entity who represents the property or properties that draw their attention.
3. No Agent has an exclusive database. The ‘database of buyers’ that an Agent tells you they have are on most of the other local Agent’s databases as well.
4. Agents focus on listings, not buyers. They spend most of their time prospecting for new listings. In between times they talk to buyers who have responded to the advertising on the Agent’s current listings.
5. Many agents are still ‘buying’ listings. Offering inflated appraisal prices to home sellers in order to win the listing.  This leads to one of the first and most destructive breakdowns in the Agent/Seller relationship and loss of trust.
6. Many Agents’ buyer qualification and negotiation skills are not up to scratch. This is a whole subject on its own.
7. Many Agents fail to extract and supply sellers with meaningful feedback. Sadly, many Agents lack the skills in drawing relevant feedback from potential buyers then passing it on ‘warts and all’, with empathy, to home sellers.

There is much more I could share with you in regards to the failings of some of the Agents I have competed against and worked with. Some of the stories home sellers from all over Australia have shared with me over the last three years regarding omission, poor service and general incompetence from Agents sometimes leaves me speechless.

I am glad to say that this is not the picture that depicts the entire industry.  There are a solid number of ethical, hard-working, smart and client-focused Agents Australia wide.

A high proportion of sellers are still drawn to the traditional Agent method of sale, but I can say hand on heart that the winds of change are beginning to blow and more and more sellers are understanding that the middle man can be bypassed, and direct access to genuine buyers is only the click of a mouse away.

In an earlier post, I discussed the problem of trust in real estate agents. More recently, Brendan Wong from Real Estate Business Online reported that in a recent survey of 1700 people, 53% indicated they did not trust what the real estate industry said about the market. 27% said they sat on the fence when trusting the same news and only 20% said they trusted agents. That is a tough audience by any stretch.

A big contributor to this distrust is the commission structure.

Each year in Australia, around 350,000 residential properties change hands – sell. About 97% of these sales are ‘facilitated’ by traditional Real Estate Agents. Based on the RP Data-Rismark Daily Home Index, the Five Australian Major City Aggregate Price sits at $592,000 (as at 6/9/13).

So, with the average commission being charged by agents, Australia wide, sitting around the 2.6% mark, a sale of $592,000 would see a commission of $15,392 being paid by the seller, and that does not include any advertising expenses. You would have to admit, that is a reasonable chunk of money that any home seller will never see again.

Mr Wong’s article goes on to mention that media, especially print, contribute to the non-trust conundrum because they need to sell advertising space, and the general public could be lead to believe that commentators associated with property advertising publications embellish the true position of the market to ensure pages are filled with properties for sale.

And, one of the Real Estate Industry’s greatest and ongoing ‘trust-killers’ continues to be practiced; the over quoting, by agents, of potential sale prices to get listings.

True, not all agents should be painted with the same brush, there are some very good operators out in property sales world, yet the stigma of distrust and pain felt by sellers when that chunk of a sale price heads off to an agent lingers, as it has done for decades.

Then why, with this atmosphere of distrust and perceived lack of value for services rendered compared to the amount of commission paid, do such a huge proportion of Australian home owners gravitate, somewhat reluctantly, toward agents when the time comes to sell?

In my latest eBook, The Eight Biggest Myths of Real Estate, I reveal why the vast majority of home owners gravitate toward agents when the decision is made to sell up and move on.

One of the myths is that many people still believe that agents have almost exclusive access to ALL the buyers who are searching for property in any given suburb, town or region. Sadly, for agents, and happily for home owners, this IS a myth. Why? Because buyers follow property, not agents.

It is a tough pill to swallow for an industry where it may be the case that only one in five people actually like them. As an agent, I understand the frustrations of home owners, and in some cases buyers, with the level of service and professionalism that is lacking in some quarters of the real estate industry.

But, whilst ever the income of agents is derived solely from the successful completion of a property sale, self-interest and perceived desperation to ‘earn a quid’, there will always be doubt in the minds of home sellers that will prevent a break out of trust that many agents crave and a large number of home sellers find hard to embrace.

So what is the solution? If you are going to use a traditional agent on commission, do your homework. And whilst important, don’t just base your decision on how many properties they have sold. As I have discussed in a previous post, there are different types of agents. Some agents with high turnover simply spend more on marketing themselves to get more listings and have teams working for them to handle your sale along with many others.

Talk to friends and family and learn from their experiences. And meet at least three face to face before making a decision. Don’t rush it.

Alternatively, engage a fixed fee agency online and sell it yourself for a fraction of the cost. Who better to trust than yourselves? There is plenty of support online these days to help you get a great result. If you think you can’t do it yourself – think again!