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Can an agent achieve a higher price than a private sale?

This is an age-old question and one that will generate opposing responses based on the perspective of the responder. A few moments spent on the Trade Me forum category of real estate would have you believing that private sales were a viable option and, given the projected saving of many tens of thousands of dollars in commission thereby seeing the seller better off than by using an agent; although they would be hard pushed to say that they achieved a higher selling price than an agent.

Conversely, a conversation with an agent would generate a response reflective of the competitive tension that an agent can generate between competing buyers such that the agent will secure the best price, which would be the highest price attainable in the market (the latter caveat being very important).

For like it or not, the fact is that there is no evidential way to prove that an agent can secure a higher price than a private seller. The fact is that the price attained for a property is governed by a unique set of circumstances that can never be replicated. There is no such thing as a ‘control’ in real estate.

What I mean by this is that in the scientific faculty everything is evinced by a Control by which any experiment is measured. Testing of drugs, improvements in battery technology, new microchip technology all of which are assessed by a control that allows scientists to say that this version B is x% better than version A.

In real estate this is not possible. No two houses are identical; for whilet they may be two identical apartments or two townhouses or even two three-bedroom family homes in the same street, each will be different as a function of their orientation, conditions or layout. Mix into this the very unique circumstance of the buyer pool that is so small for any property and you begin to realise that every transaction is a unique set of circumstances that occur at a point in time and can never be replicated.

Think for a moment about the sale of a particular property. Could it achieve the same sale price a week later? In theory, yes, but the probability is that it would not, as the price that was achieved was a function of the buyer pool at that moment in time, a day later, a week later and one or more of those buyers might have exited the market having bought another another house and equally a new buyer or set of buyers might have appeared as they suddenly became ready to make a purchase decision.

So, unlike the ability to set up an experiment to test price sensitivity for a consumer product in two supermarkets in different areas of the country to test demand, the property market does not afford such controls. It is therefore impossible for anyone to say that they could achieve a higher price than anyone else. The price achieved for the sale of a property is a function entirely of two aspects of the property selling process.

Maximum exposure

The ability to achieve maximum exposure of the property for sale within the buyer pool is critical to engage and motivate prospective buyers to review the property. Any lost opportunity in this area is potentially the most damaging to the sale process and impacts the sale and the sale price. Exposure is not simply being on the web, it also goes to the presentation of content, with particular focus on the images of the property and how they are laid out.

Competitive tension

The ability to motivate the prospective buyer pool to actively compete to challenge one another to buy the property is key to a successful sale price. This does not assume that the only method of creating competitive tension is an auction although this can be an effective public tool to create emotional tension. A standard well-facilitated negotiation between active buyers is just as likely to achieve a favourable result as would a tender. The key to creating competitive tension is the facilitation process. which is in someways the greatest skill and attribute of a professional real estate sales person – the ability to maintain buyer interest and bring buyers literally to the table to make an offer and to be motivated to stretch to challenge competing offers, so that the final offer meets or exceeds the expectation of the seller.

There is no doubt that the component of the property selling process comprising creating maximum exposure has in many ways been taken out of the hands of the real estate agent as the online medium is the aggregation of this exposure through sites like Trade Me Property and Realesatate. However, to fully optimise the potential to achieve the best result for the seller, the role of the agent is hard to ignore or dismiss as it would take a unique set of skills for a private seller to replicate this capability.

Former Realestate.co.nz CEO Alistair Helm is founder of Properazzi.

Comments and questions
12

Some time ago I sold a property in Lower Hutt. I had 2 offers from friends for the property at $400,000, based on valuations they had.

Some agents heard that the property was on the market and called In I challenged them to get a better price on the basis of no commison for the first $400,000, one dollar in three for the residue if any. they took up my challenge and obtained $445,000 fron an fresh bidder.

I was very happy and they added value becuse they really new the market. Never been able to emulate such a commison structure since though

I think the real issue is the disproportionate commission (in real-world dollars, not convenient percentages), that vendors have to pay, on top of having to fund the marketing.

Very true, property values go up by around 6 to 7% year on year on year. How many people in employment find their salaries rising compounded at 6 or 7%, very few.

The same approach of ratcheting up fees based solely on GV increases and no improvement in service level is the Auckland Rating system. A license for Len Brown to print and squander $millions every year.

This analysis depends on the assumption that the agent's skills are deployed solely for the benefit of the vendor. That assumption doesn't hold in practice, primarily because of two conflicts facing agents that you seem to ignore:
1. The agent is remunerated by a commission structure that favours quick sales over sales at full value. Studies from the USA show that agents selling their own homes get better average prices than agents selling the homes of their clients.
2. Recent legislation forces agents to give primacy to the interests of their "customers" ie purchasers. No agents can satisfactorily serve two masters in that way

Can you tell us how a "quick sale" could not be a sale at "full value"?
And as a Licensed Real Estate Agent, I'd be interested to know which piece of "Legislation" forces agents to favour the buyer over the vendor?

The answer is simple . Standard commission structures reward an agent only about 3% for the last few dollars of price . Is an agent likely to want to spend much time negotiating for an extra $5,000 in price which pays his office only $150 , when he could have moved on to the next sale & earned $15,000 in the same time ?

Re-point 1. Its quite obvious isn't it? Agents will seek getting a deal across the line quickly so that they can bank the comms, take the kudos and marketing exposure a 'sold' sign will give them rather than risking another agent beating them to the chase. Spending time gaining potential extra dollars from the purchaser for a disproportionate difference in commission does not equal the risk. 1 in the hand being worth more than 2 in the bush and all that..

As an agent, I work for my vendors. I'm not concerned about the commission because I earn a good living. I give my absolute attention to the proper marketing of the property - the correct method of sale, the best advertising - and contacting anyone who may be interested in buying. When an offer is made the vendor gets the benefit of my negotiating skill - honed over 30 years. Again, I have no interest in the commission, only that the vendor understands the offer and the process and is certain this is the best offer I have for them.

Do agents always get a better price than a private sale? No.
Do agents save the vendor from the marketing and negotiating? Yes.
Would I use an agent to sell my house? Yes.
Are there some agents I wouldn't use? Yes.

I'm not an agent but I have bought and sold a number of properties in my lifetime and with one exception not of my choosing I believe all of the agents I have dealt with have been professional and effective.

I pretty much agree with all you write.

I totally agree here. It's not really about price at all. The experience that agents brought to a recent sale of mine was invaluable. But you have to choose your agent carefully and totally check out the target market for your property and choose the agency accordingly. The first firm I went through had three keen buyers, was on the market with them for 90days but they couldn't close a sale for their life. Within 1 week of putting it with an agent who could reach the appropriate target market, I had two offers on the table.

After reading #3 Ruby's response I was getting ready to rebuttal but #4 by Real Estate Agent pretty much summed it up.
I would only add that if someone is found to be acting the way Ruby quotes then any REAA licensed consultant/ agent / manager has an obligation to report it. If they dont it puts them in the same boat.
Would also add we are nothing like the states (In parts of USA a vendor can have an agent and then the buyer can have his own agent going to battle for him/her. this agent gets paid on a commission based on overall price + bonus for how much he/she can get off the listed price)
In NZ this cannot happen even in the rear occasion that a buyers agent is contracted (not just assisting) then he/she is still obligated to act on behalf of the vendor.
I hope Ruby you have a slightly higher opinion of us now:)

Answer to the question is Yes !!. an owner can achieve a better result than a commission agent. Did it last year, the cost was a Trade Me ad and 300 for a street sign. Appraisal were 480 to 510, went to auction agents buyer offered 550 conditional after the auction, sold it myself for 560k to a fresh buyer. Leaves me about 40k better off. Takes a long time to save 40k from tax paid earnings.