Buyer’s agents used by first-home buyers for entry-level properties with parents’ help
The Australian Business Network
But increasingly, gaining a competitive edge at auction in a red-hot entry-level market may be just as important.
Industry experts report a lift in the number of buyer’s agents accompanying first-home buyers to auctions, with the fees often paid for by parents.
“It definitely makes a difference at the entry-level end of the market as in most instances it’s a first purchase, so the bidders have probably never gone through buying or selling property before,” says Wakelin Property Advisory director and buyer’s agent Jarrod McCabe.
Parents may well be alarmed at the sheer competitiveness taking place in entry-level properties.
Industry figures show that since the federal government expanded its 5 per cent deposit scheme in October, first-home buyer homes are the fastest-growing part of the residential market.
Buyer’s agents act strictly for buyers, charging a flat fee for a service that promises a better outcome for the bidder, who may be ranged against experienced real estate professionals.
In simple terms, it’s a gamble. The bidder pays a fee on the basis that a buyer’s agent will offer skills that outwit all rivals. That might include auction tactics where bids are timed for maximum effect or negotiation abilities that effectively reduce the final price if a property is “passed in”.
“I have seen buyer’s agents used to great effect in assisting with securing the perfect property, in the location and price range that the family wants,” says Jacqui Clarke, adviser and author of Stop Worrying About Money.
“Usually, this is where parents are funding the purchase.
“If you have the cash as a parent, funding buyer’s agents’ fees is likely a very good investment in your child’s first home.
“Having an experienced buyer’s agent sourcing property can go a long way to weeding out the rubbish and giving you clear information on market comparatives and quality property that you may miss as a first-timer.”
But Clarke also suggests that the bank of mum and dad needs to consider all risks.
“There’s a fine line with respect to the cost versus benefit when it’s a first-time buyer,” she says.
The buyer’s agent must acquire the home at a discount to justify the fee charged. Fees vary widely but typically range from 1-3 per cent. On that basis, a parent may be looking at $15,000 on a $1m property.
In many ways, the arrival of buyer’s agents at the entry level is another example of the trickle-down effect happening across the residential market, where a trend that starts at the top end gradually extends through all levels as its benefits become apparent.
Buyer’s agents were a rarity two decades ago, mostly reserved for prestige property.
Industry statistics now indicate there may be more than 2000 in the market. That should be set against a total of more than 108,000 real estate agents.
But with a lift in the volume of buyer’s agents comes a dilution of quality.
McCabe says investors should select their buyer’s agent carefully.
“I think experience plays a huge part in this business,” he says. “Understanding the real estate process is huge. Understanding the market you are operating in. Not just geographically but also price point.
“I’ve seen plenty of advocates advertise or spruik how fast they purchase for their clients. That is an automatic red flag. If your key sales point is how quickly you can buy, then are you really focused on making sure you’ve purchased the right property?”
Veronica Morgan, a mentor to fellow buyer’s agents at the Home Buyer Academy, spoke to The Australian’s The Money Puzzle podcast about the issue of poor standards in the sector.
“We had an influx of new people joining the industry,” she says.
“The barrier to entry is very low. And a lot of new buyer’s agents are very interested in transactions because the more people they buy for, the more money they make.
“And so if you go to an auction where there are a lot of buyer’s agents, I’d be thinking, these buyer’s agents think this is an easy property to buy, which is actually problematic.”
For now, it seems, having a buyer’s agent on the case for your kids at an entry-level auction is a distinct advantage since the trend towards using these professionals for first-time buyers has yet to become commonplace.
Once everybody turns up to auctions with a buyer’s agent on their side, that competitive edge will evaporate.
