I’m going to share an experience with you. Because it clearly illustrates how sellers suffer massive losses while dealing with traditional real estate salespeople.
Although over years, I’ve seen this happen more times than I can remember. This particular case – is one of the worst I’ve personally witnessed. To protect the confidentially of those involved, I’ve changed the names and exact figures, however the percentage of value lost by the seller remains true.
Thousands of dollars of sellers equity are lost like this every single day in this country and probably right throughout the world.
The sad thing is, most of you don’t have a clue it’s happening. So these are ‘hidden’ losses. Equity you are loosing, without even knowing it.
My hope is that by sharing this story, you will stop and question how the traditional real estate industry works? …
We had just helped Sue successfully sell her property.
She had found another home that was perfect for her family and she was now in a strong position to try and buy it.
It had an asking price of $610,000, but had been on the market for quite some time.
Because it was listed with a different agent, she asked me to give her some advice and coaching on how to best approach the negotiations through that other agent.
The first thing we had to determine was her best price. What was the absolute most she was prepared to pay for the property, if she had too? After some discussion, she arrived at a figure of $595,000. If she couldn’t buy it it for that, she would have to start looking for a different home.
Knowing how most real estate agents work… How they tend to encourage an “Offer / Counter Offer” style of negotiating – I knew there was a good chance Sue would be able to buy it for less than $595,000. But even I was amazed at how much less.
I instructed her on exactly what to say to the other agent. Then to bite her tongue, carefully listen to his response… and call to tell me what he said.
The conversation went something like this…
“Hello it’s Sue here. My home is now unconditionally sold. I would like to buy 25 Smith St through you… so want to make them a written offer of $545,000.
“Oh thats great news Sue. But you won’t get it for $545,000 … you will have to go to at least $575,000 if you really want it.”
Can you see what just happened?
The property had an asking price of $610,000. Sue was prepared to pay $595,000 and in a split second, the agent effectively disclosed that his client (the seller) was prepared to accept $575,000 – which was what Sue ended up paying.
Sue was thrilled. She had just purchased the home for $20k less than she was happy to pay. Good for her. Right?
The disturbing fact is, the seller effectively just lost $20,000 – without knowing it.
Some of you may argue that the seller must have been happy with $575,000 therefore got what they wanted – so what’s the problem?
My problem, is that the agent was paid by the seller and therefore had a duty to get the seller as much as possible. Yet through his incompetence, he lost his client $20,000 (over 3% of their value)… and in my book that is simply not right.
How long would it take for you to earn, let alone save, that much?
As mentioned this is an extreme case. However, similar scenarios happen on a daily basis. Whether the buyer gets a property for $1,000 or $20,000 less than they would have paid – is irrelevant. What makes me mad is how often it happens. And even more frustrating, is how easy typical real estate salespeople make it for the buyer, to get your property for less.
Over the years I’ve asked hundreds of clients if they have ever bought a property through a typical real estate agent for less than would have happily pay. You’d be amazed at how often they answer yes.
Think about this yourself. When you have purchased properties in the past… Before you started negotiating, you would have had a top figure in mind. A price you would have paid if you had too? Now compare that to how much you actually ended up buying the property for. In my experience, many buyers had another $5 – $15k in their pocket. But don’t just take my word for it. Please do your own research. Ask around your friends and family about their experiences. You’ll find that this is common.
The real question here is… why does this happen?
It’s because the real estate industry ‘sales culture and business model’ is fundamentally flawed.
Your best interests and your agents best interests, are not aligned. There is a basic conflict of interest.
Many sellers misguidedly think that by paying their salesperson 100% commission – it incentivises the agent to negotiate harder and get a better price. However, the opposite it true.
In the acclaimed book called “Freakonomics” the authors discuss how incentives influence behaviour and ask the question:
Does your real estate agent really have your best interests in mind?
Here is a 3 minute video from them explaining how the traditional commission model actually works against you.
Because traditional agents are paid commission only, they tend to negotiate from the stance of securing themselves a commission. Instead of negotiating to ensure you (their client) are receiving the best price and terms possible.
As the authors show in the video… negotiating an extra $10,000 for you, only correlates to $150 for them – so it’s actually in the salespersons interests to secure the sale as soon as possible and move on to the next deal.
Also consider this… the fact that traditional real estate salespeople are commission driven, means that buyers can often gain leverage over the salesperson during the negotiation.
This is why, many of you have had the experience of feeling like the salesperson (who’s suppose to be working for you) is actually helping the buyer get your property cheaper, by trying to convince you to accept the buyers low offer. A sale (and therefore a commission) can only happen when you the seller say “Yes”.
Now contrast this with a fundamentally different business model.
One that is based on a consultative culture instead of a sales culture.
Think about how you would engage any real professional. One that you are relying on to advise and act in your best interests… your doctor, accountant or solicitor for example.
You are not engaging them to ‘talk you into something’ – that enables them to get paid.
You are paying them to use their specialised knowledge and skills in your best interests.
They don’t tell you ‘what you want to hear’, in order to win a commission.
They advise you what you need to know, so that you can make good decisions – because that is what you are paying them to do.
There is no conflict of interest. Your best interests and their best interests – are aligned.
“Restate’s new system of selling real estate has proven to be a fantastic new concept and a complete success for us. The consultancy method we chose made for simple easy to understand fee structures and a clear outline of what to expect.
Carl and his team were very professional at all times and did exactly what they said and kept us informed at every turn.
When you’re ready to sell your home there’s no doubt you should give Restate a call first, if you’re serious about keeping more of your hard earned money in your pocket.”
Dale & Tina