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Real Estate Investar Blog

Private home sales too freaky for most

They are expensive, allegedly inefficient and may not deliver the outcome you want.

The stubborn popularity of real estate agents has puzzled economists for years.

Why, when the internet has hurt car dealers and travel agents, has it not taken more of a bite from the real estate industry?

Latest figures from Trade Me show private listings hit a high in January 2013, when 16 per cent of sellers decided to go it alone.

Since then they have hovered just above 10 per cent - hardly a mass revolution.

From many angles, it doesn't make sense. "You would have thought that with the way online advertising has levelled the playing field, private sales would be much higher," says real estate commentator Alistair Helm.

Then again, we are talking about people's houses - not only their biggest assets but the place in which they live.

SELLING THEMSELVES

So what do you get for the average commission of roughly $18,000, plus GST?

Helm's analysis suggests most of an agent's time is spent, not marketing and selling your property, but hunting and competing with other agents for listings.

It is massively unproductive and inefficient, he says. "Too many agents fighting over too few clients."

The eventual commission has to pay not just for your sale but for all those unsolicited doorknocks and fliers.

The Real Estate Institute's (REINZ's) Helen O'Sullivan questions Helm's figures but doesn't know what actual proportion is hustling time.

Regardless, you can avoid paying for agents' self-marketing by doing a DIY home sale.

WRONG INCENTIVE?

At least, since agents are working for commission, they will get the best price for your home, right?

There are no local figures, but United States studies suggest that's not the case.

While some sellers negotiate special deals, usually commissions drop to a lower percentage after a certain threshold.

An agent may earn just a few hundred dollars extra for an added week's work to bump up the price another $10,000.

From that perspective, it could be better to encourage you to sell and move onto the next listing.

A 2008 study of 30 years' worth of house sales on the Stanford University campus found people who used an agent sold for at least 5 per cent less than people who sold privately.

In 2005, Freakonomics author Steven Levitt and Chad Syverson of the Chicago School of Economics found agents selling their own houses got 3.7 per cent more and left the houses on the market for 9.5 days longer than if they were selling on behalf of a client.

They found even seemingly positive words agents use could be designed to subtly attract low offers.

Vague terms like "fantastic!" "spacious!" and "great neighbourhood!" seemed to encourage buyers to offer below the asking price, encouraging a quick sale.

When agents marketed their own homes, however, they used specific descriptions which boosted the selling price such as "granite", "state of the art" and "gourmet".

Helm says it is "bizarre" the way commissions are structured.

"In theory it should be a very low percentage up to a certain value and then the incremental money is for the added dollar."

In defence of agents, O'Sullivan says it is in their interests to get a good price so they can build a good reputation. Reputation matters for winning new clients, she says.

"There is still an incentive because a happy seller is a strong referral and a repeat buyer."

Also: "You don't have to sell. If a vendor is very clear on what they want to sell for you either get them the extra 10,000 or you don't make a sale."

ONLINE MARKET

The website terriblerealestateagentphotos.com is an excellent place to see what not to do when selling a house. Examples include posting photos of your couch in a swimming pool or yourself sitting on the toilet. A good agent could tell you why you shouldn't appear nude in your marketing photos, but so could any other normal person.

Helm says the dominance of Trade Me has eroded agents' edge when it comes to property marketing.

Anyone with a well-presented home and a good photographer can make a listing that looks equally good.

What's more, they will generate the same number of hits and the same number of open home visits as the professionals, he says.

The information gap between professionals and laypeople is shrinking as more valuation and sales data goes online.

Since owners are regardless stuck with the cleaning, how much is there left for an agent?

THE BUTS

With all he has to say about agents' inefficiency, you might think Helm would choose to sell privately. Nope. He's a firm believer in the traditional agency model, albeit in his own outspoken way.

Where the agent shines is after the guests have left the open home, he says.

To put it bluntly, the good agents are pests.

"They're just better than anyone else because that's all they do. Identify prospects, nurture interest, keep in touch. They have the time and motivational capability to call and effectively drag people back and bring them to the altar of a contract."

Owners, meanwhile, have an emotional link and may struggle to approach their pitch with detachment. "People come in and go 'I don't like that wall' and you get furious," says O'Sullivan, who unsuccessfully tried to rent her house out privately. "You take it personally because it's your home."

Calling twenty strangers and charmingly imparting information without sounding desperate has its challenges.

When Bloomberg Businessweek examined why 89 per cent of Americans still buy through an agent, even though many find homes online, it found people wanted things that property websites could not provide yet. Chiefly, help with paperwork, price negotiations and the terms of sale.

DIY TOOLS

Chris Caldwell, managing director of Homesell, says it a myth that ordinary people can't negotiate.

He has sold two family homes himself, and says his intimate knowledge of the properties was an advantage.

But going it completely alone takes gumption, which is why companies like Homesell offer sellers a middle option.

A listing with Homesell costs on average $1800, covering signage, brochures, styling advice, photography, print advertising and a Trade Me Listing.

Owners are left to manage the open homes and price negotiations but Homesell offers coaching and pre-prepared offer forms.

If you want to avoid negotiating completely, an extra $1,200 will buy the services of an auctioneer.

"That's particularly an option in hot markets like Auckland," says Caldwell.

Or you can ask the lawyer or conveyancer who does the title transfer to help handle offers and counter-offers, as well as making sure you meet your legal obligations.

(It's best to ensure you agree an all-inclusive fee so you don't end up sinking what you saved on agents on lawyers' fees.)

Caldwell says he "kind of" agrees with criticisms that not everyone has the skills to turn casual peruser into purchasers.

But in his view, an attractive listing price often overcomes that hurdle. Homesell encourages buyers to list their house within $5,000-10,000 of what they want for it - not add $40,000 as many people want to.

He denies that means taking a hit on the sale price.

"People think they are going to get bargained down but in my experience in a successful private sale there is very little difference between the asking price and the eventual sale price."

Naturally, he thinks most people can do it themselves with the right materials and cites Homesell's 70-80 per cent success rate.

Even Helm acknowledges DIY can work well - it must, because one in 10 sellers is managing it.

Not him, though.

"My wife said to me could I promise there was no risk in using a non-traditional method? And I said I can't. (So) we paid them an enormous amount of money."

Topics: Values / Prices

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