Do Property Agents Really Work For Their Clients, The Sellers?

If you’ve ever bought or sold a property, you would have dealt with a property agent. From personal experiences over numerous transactions in several countries, I notice something curious. Do property agents really work for their clients, the sellers?

This observation was revived when my S.O. and I, after contemplating various investment options, decided to invest proceeds from downsizing of our Dutch property portfolio in real estate. We have had positive experience with the Marbella market . And Spain is projected to grow more economically  compared to the rest of Europe, so we stake our confidence here.

Property Agents

This meant dealing with property agents appointed by Sellers to market their properties. While a small handful of owners sell the property themselves, the overwhelming majority will appoint an agent to tap into:

Market network – property agents have marketing tools, a ready network of buyers, access to database or overseas buyers to maximise exposure of the property.. 

Knowledge and experience – understanding of the market, pricing and marketing strategies and and the ability to position and present the property in best light to potential buyers.

Convenience – for point of contact and to attend to viewings, fielding questions from potential buyers to handling paperwork.

Negotiation – experienced property agents are trained and have access to data to negotiate the best deal.

It’s a fact that property agents earn more than the notary or conveyancing lawyers handling such transactions. This is despite that the latter studied for years to earn their professional qualifications. 

In Marbella, the agents’ commission is 5%-6% of transacted price. Compare this to the largely fixed fees charged by notary and lawyers, which rarely exceeds 1.5% of the transacted price. The agent’s commission is fully borne by the Sellers. And if Buyers appoint agents, then the commission is split equally between the agents, at Sellers’ expense.

Reality

In reality, most agents meet their clients – the Sellers – once or perhaps twice when setting up the property for sale. On the other hand, agents are in constant contact with Buyers, especially when negotiations are drawn-out. This was exactly the case with our recent purchase in Old Town Marbella.

My encounter with the seller’s agent lasted over 2 months, with no less than 7 face-to-face meetings plus several exchanges over the phone and email. This contact was driven by a common goal to conclude the sale. 

Each negotiation progressively brought down the asking price until it was finalised, at almost 10% below listed price. Keeping in mind that Marbella is still pretty much a seller’s market, this was a feat. Pat on our backs.

“Marbella…has seen a 39% surge compared with before the pandemic. Homes are selling for an average of $1.3million (€1.2million), making it more expensive than even Madrid or Barcelona…”~ Bloomberg

Or is it?

Money Rules

As with most cases, money rules. The eventual source of the money (i.e. buyers) rather than the point of disbursement (i.e. sellers) have the upper hand. And the higher the commission rate, the more motivation to seal the deal rather than haggle over a small differential in commission. Let me explain. 

Take for instance a property listed for €500,000 and pays a commission of 5%. If a Buyer offers $450,000, the commission works out to €22,500. Compare this to the time and effort in trying to convince the Buyer to meet the asking price. The difference in commission of €2,500, the possibility of losing the deal altogether and having to do more work, make the €22,500 that is almost in hand, attractive.

Self Interest

Let’s take another scenario. Let’s say the property agent receives 2 simultaneous bids: 1 matching the asking price of €500,000 but involving a Buyer’s agent vs a lower bid at €450,000 where the Buyer is not represented. Guess which deal the property agent would be more motivated to present to the Seller? Yes, the lower deal at €450,000 because he gets to earn full commission €22,500 vs €12,500 for the higher offer.

No where else is this ‘mis-representation’ so apparent where a party appoints and pays for a representative who is incentivised to work against him. I’m not saying this is always the case as there are upright and honest agents who truly serve the interest of their clients.

Right Agent

In the end, it boils down to appointing the right agent. Whatever your reasons for selling your property, here are some criteria to appoint a property agent:

Track record – a clear indication of expertise. Request for recently concluded sales to see the gap between asking vs transacted price. Suss out by asking how he would treat a difficult sale eg selling during Buyers’ market or handling a property that is next to a noisy highway.

Expertise – it’s not enough to just appoint any agent with a real estate licence. You want to work with a professional who knows his craft, familiar the market, knows the rules and has contacts for valuators, contractors, electricians, plumbers, photographers. These can come in handy for yourself or for the potential buyers.

Resourcefulness – this is a big differentiator to stand out among competition. It runs the gamut from ‘staging’ the property for professional photography, marketing to parents of a top school nearby to recommending relocation services to a potential overseas buyer.

Recommendations – word-of-mouth referrals means tried and tested. Just because it is the biggest agency in the neighbourhood does not necessarily mean it’s the best. And it often boils down to the individual agent rather than the agency. Strive to work with someone who has been recommended or with whom you have good synergy.

Sales strategy – a well crafted sales strategy is the foundation of a successful sale. Discuss various scenarios: open house to encourage competitive bids, different pricing strategies, silent bids etc.

Commission structure – this is by far the most effective tool to ensure the agent works to serve your interest. I favour a commission structure where the agent is remunerated to achieve higher sale. For eg: standard commission up to the listed price, then 10% for the difference above the listed price. A win-win situation where both Seller and property agent benefit.

Choose Wisely

In a trade where so much money is involved, sometimes it make sense to pay more to protect your position. Take time to select the right property agent, 1 who works trully work to serve your interest. 

So of the top 10 things to do when selling your home, #1 is to appoint the right agent…and he will take care of the rest 🙂 

Smart selling,

Savvy Maverick

(Main image: R Architecture, Unsplash)

 

Disclaimer: The views expressed are drawn from personal experiences and do not constitute financial advice in any way whatsoever. Nothing published here constitutes an investment recommendation, nor should any data or content be relied upon for investment activities. Please seek independent and thorough research before making any financial decisions, including consulting a qualified professional. Data and information cited from sources will not be updated after publication.