Buyers Advocates - Are they worth it?

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Buyers Advocates – Are they worth it? Before we talk about what they do and are they worth it, I would like to put some relevance to why they have a job in the first place. Property buying is a very stressful, extremely time consuming with no guarantee of success and highly risky decision. The purchase itself is something most of us will only do 1-5 times in our lifetime. Each purchase we are at different stages of our lives and we buy for different reasons. Secondly, the property market cycle and the market itself would be different, so we are never really experienced in the market we are buying.

It’s a decision that you are unable to go back on easily and without significant cost. This one decision will potentially be a very good one and your wealth will increase significantly or it may be a very poor one where the asset doesn’t grow.

Generally speaking because we place a lot of our wealth down to purchase; our borrowing capacity is dramatically reduced after and we are limited in how many we buy. We generally get one shot at it and it better be a good one.

The opportunity cost can be huge for making a poor decision. I have seen this decision cost clients $100,000s due to getting sold the wrong property, not thinking through their long term situation or generally speaking buying or selling in the wrong markets.

What annoys me the most is the property industry is un regulated, it more like buying a car rather than an asset that will have huge consequences. It’s Buyers Beware. This is a huge decision, a car is not and investors are not protected whatsoever.

Due to not being regulated, the market is absolutely flooded with selling developers, property sharks and many other professionals selling property. If you ask them, is this property the best property for me? I bet you can bet your house on knowing what they would say. Excuse the pun.

 

What is a buyers advocates?

A buyers advocate is a professional who works for you and legally should be completely independent from the property they are purchasing. They only work for you.

Their role should solely be to understand what you are looking to achieve, consider the options your have available and come back to you with a strategy paper on the types of property you should consider to purchase.

This report should show historical evidence, a list of the reasons why and why not, recent sales, what you expect to pay, what rent you will receive and down to even very specific things. Like the roads you will not buy on, it must have a balcony, must be able to walk to train station in under 10 minutes. Generally a very clear specification on what you are looking for is what you should be looking for from a buyers advocate.

Please note: this strategy paper is from someone who is out there everyday and working the market you want to buy in to right now. A good one will know all the properties on that list and be able to easily explain why each place has sold for the prices they have and how they differ to each other.

Buyers Advocates should not be confused with Buyers Agents who sometimes work for large real estate businesses selling the real estates property- Can any one hear the word “conflict” getting screamed out loud here? If not CONFLICT!!!

Now that the strategy is agreed to and set; things can happen very quickly. A good buyers advocate will begin their work fast and the property may come up straight away or it may take many months. Buyers advocate need to know many real estate agents and know them well. Once they have your strategy, they will put the feelers out with all their contacts to let them know they have a buyer if they have a seller of the type of property you are looking for. After this you not only have the advocate working for you but now all their agents.

This alone is very valuable and can be very rewarding. The top buyers advocates around Australia, usually depending on market cycles buy at least 50% of their properties what you call “Off-Market”. No one even knew it was for sale; no magazine add, no sign out the front and no open homes, a silky smooth sale that gets the job done for both parties.

An “off-market” purchase removes a lot of unnecessary risks and ensures the deal gets done at a fair price. In a hot market, this can work very well but sellers can be reluctant to sell before as they may get more at an auction.

Moving on from this, a good buyers advocate will be searching for your specification daily– touching base with agents and spreading their search. They have their ears to the ground on any opportunities where if you were buying yourself you may not have the time, contacts or ability to do so.

I’ve seen huge value for my clients, where a buyers advocate has saved them from an awful decision – buying on main roads, buying with the view to renovate but it not being smart to do so and generally removing the emotion out of the purchase to get the job done for fair price.

A big part of what a buyers advocate does is also due diligence. Is there anything else they need to consider that may affect the value of the property long term? May the area change, the strata levies too large. I had a client who was looking to purchase a property and the property backed on to a warehouse which was not ideal but ok. Little did they know that was changing to units the following year, Their quiet pretty backyard would be full of eyes one day looking over it.

Experience, patience and skill is needed in negotiation for a property. It’s a game of tug and war and you never want to be giving up ground unless necessary. Emotions run wild at this time and a good buyers advocate has already won the agent over due to the agent knowing they have a genuine buyer if they can agree on price.  As an individual you do not get this level of service and without upsetting my real estate friends, you really are just another number. This alone could save you $10,000s if done right. Both from not overpaying and secondly getting a reduction with the offer for faster turnaround the agents help and smelling that there may not be many other interested parties.

 Once purchased, many buyers advocates have their own property management arm to the business. Sometimes this is a good idea, as they know the market and take time to find the right tenant for you. Other times it is a distraction from them doing what they are good. Either way, they will help you put a great tenant in via an agent or themselves.

Secondly, it might be wise to add value to the property immediately. Some buyers advocates focus on finding property that can do with up to 10% on the value of the property in cosmetic renovation work. They know that will instantly increase the value by 15-20% and get you a better tenant who pays more.

 Why do I use buyers advocates for my clients?

I’m a big believer in Buyers Advocates, I’ve seen it first hand and my clients have had some great successes. I have formed relationships with a select number of advocates all over Australia and in most cities– Sydney, Melbourne, Brisbane, Adelaide, Perth, Newcastle.

The biggest thing I save my clients immediately is time, stress and worry. By using a professional, they do all the leg-work and a hour of a professionals time could be days of my clients time that they cannot afford.

If you put a price on that you can easily be in the $1,000s of dollars.

The other reason is that established property generally has land in more desirable places and sometimes more land than new property. Land is what goes up in value and I would not want my clients going in to an investment that may go down in value. I stay far away from developers or buyers advocates who buy only new property, even though they offer commissions of 3-5% of the purchase price for a referral. Where does that money come from I ask you?

So what do they charge?

It does vary in the industry. I prefer when they happily state a fixed fee for the transaction and you know what they are getting paid regardless. There is an argument however in hot difficult markets, their fee should sometimes rise and certain property are harder to buy than others IE Homebuyers compared to Investors. There is no right or wrong but generally I would budget around $15-20k or 1-2%. I would also recommend you meet with 2-3 advocates before making your decision. Time well spent.

It’s important you have a great connection with the advocate as you will be spending a lot of time talking together. A good suited capable professional is most important but I believe you should also enjoy working with anyone you work with.

To learn more about Buyers Advocates – have a look here http://rebaa.com.au/

If you want to know which ones we recommend or if you have any questions, I’d love to hear from you.