The True Fatal Real Estate Traps Exposed
Vendor Advocacy. What is it and how does it work?
Vendor Advocacy is a relatively new real estate service in Australia. When a home seller uses an ethical vendor advocate, it usually means the right real estate agent is appointed resulting in a higher selling price and a stress free process for the vendor.
Unfortunately, there are some high profile Vendor Advocate businesses out there that use scare tactics not unlike some of the selling agents they purport to protect the vendors from. These high profile Vendor Advocate businesses even claim that they do not cost any more than selling directly through a local real estate agent, yet some vendors have paid bonuses which were higher than the base commissions. Are these advocates really looking after the vendors’ best interest, or their own hip pockets? These high profile Vendor Advocate business are perpetrating one of the biggest real estate scams on home owners that we have ever seen.
So how do some of these high profile Vendor Advocates work and what is it that the unsuspecting home seller should be looking out for?
Firstly, the high profile Vendor Advocate businesses are spending a small fortune on promoting themselves on the radio and on the internet. They inform the home seller that most agents are unethical, that the agents overprice their homes and then the agents offer to charge a cheap commission – all just to get the listing.
The high profile Vendor Advocate businesses claim that most agents are happy to work with them – and the ones that aren’t, have something to hide because they do not want to be overseen by an Advocate. This would be quite amusing if it wasn’t so serious. The home seller is entrusting their most valuable asset with a real estate agent – who calls himself a ‘Vendor Advocate’ – to appoint and oversee another real estate agent to sell their home. Who gave the high profile Vendor Advocate businesses the ‘tick of approval’ to be the unofficial watch dogs over all other real estate agents. If you guessed no-one, then you guessed right. It is a marketing ploy that has unsuspecting vendors believing that the high profile Vendor Advocate business is somehow ‘more ethical’ than the real estate agent. This is why the high profile Vendor Advocate businesses spend so much money promoting themselves in the media.
Firstly, what needs to be pointed out is that there are countless agents who refuse to work with some high profile Vendor Advocate businesses; not because they don’t want to be overseen by a Vendor Advocate, but because they don’t believe the Vendor Advocate offers any real value to the home seller. Then, when the property is sold, the Vendor Advocate business takes half the commission for very little work. If there are 7 or 8 agents in your suburb and half refuse to work with a high profile Vendor Advocate business, then how does the home seller really know the Vendor Advocate is choosing the best local agent? The 2 or 3 best local agents might refuse to work with the Vendor Advocate business, and so you end up with the 4th or 5th best. To test this out, when you are ready to sell, don’t call the high profile Vendor Advocate businesses first (as they would like you to do), call the local agents and ask them if they would be happy to sell your home if you were to appoint a high profile Vendor Advocate business to oversee the whole process.
Secondly, it is extremely important to note that some high profile Vendor Advocate businesses claim that getting a valuation is either company policy or highly recommended – of course the home seller has to pay for the valuation. The high profile Vendor Advocate businesses claim that all agents overprice their homes ‘just to get the listing’. They claim that getting a valuation is the best indicator of the value of a home. So basically, the high profile Vendor Advocate businesses are telling the home sellers that a valuer’s price is the ‘true market value’ of that property and that the local agents who sell hundreds of homes in your suburb, who deal with buyers and sellers day in and day out, have no idea about the true market value of your home. Seriously??? Do we really believe that? What these some of these high profile Vendor Advocate businesses fail to tell you is that they have a policy that the valuer must call and speak to the advocate before they complete the valuation. To me, this leaves the door wide open for collusion to get the valuer to lower the value of your home – but I will leave it up to you to draw your own conclusions. Make sure you ask the high profile Vendor Advocate businesses to show you a copy of the document that is used to instruct the valuer. An example of the difference in pricing may be where an agent believes a home’s estimated selling price is between $730,000 and $800,000 and in all probability, the valuer will come up with a value of $680,000 to $720,000 with a ‘likely selling price’ of $700,000 – because as we all know, valuations are always conservative.
Thirdly, the high profile Vendor Advocate businesses claim using their service is free and therefore doesn’t cost any more than selling directly through a local agent. However, this is far from the truth. In most states of Australia, the fees payable to an estate agent are negotiable. An agent may state that they charge 2% plus GST, but let me assure you, that if they think they will miss out on the listing, they would be inclined to discount their commission to say 1.8%. The high profile Vendor Advocate businesses claim that agents who discount their commission are not good negotiators and are only doing it to get your listing. Lets look at a hypothetical. You have a $750,000 home and at 2% the commission would be $15,000 plus GST. If you went directly to the agent you might be able to negotiate that down to 1.8% i.e. to $13,500 plus GST. Now, along comes the high profile Vendor Advocate businesses, and they claim that 2% is the normal commission. If the commission stays at 2%, you are immediately $1,500 worse off – and if you appoint a high profile Vendor Advocate business, then in fact the agent has discounted his commission significantly, because the high profile Vendor Advocate businesses gets half. So the argument of agents discounting their commission just to get the listing is even more true when using a high profile Vendor Advocate businesses.
However, it gets worse still. The high profile Vendor Advocate businesses will convince you that you should offer the real estate agent a lower base commission but also add a 10%, 20% or even 30% bonus over the valuation – under the guise of making the agent work harder to get you a better price and by doing so, the agent gets a piece of that bonus. So now the home seller is convinced that they should set a 20% bonus over $700,000. Typically, this house sells in the mid to high $700,000 mark (e.g. $780,000) and the commission payable is $780,000 x 1.8% = $14,400 plus a bonus of $16,000 ($780,000 – $700,000 =$80,000 x 20%). So typically, not only is the commission not discounted, it ends up being more than double the base commission – in this typical example approximately, the commission ends up being 3.9%. So again we ask the question – are these high profile Vendor Advocate businesses really looking after the vendors’ best interest, or their own hip pockets? What did they do to get the extra $80,000 – not much – and they get 50% of the commission. Not bad for real estate agents who spend a lot of money marketing their business (calling themselves Advocates) and and not doing much of the work selling the home.
Most Vendor Advocate businesses do not operate this way. So we strongly advise that you to ask all the right questions before signing an authority with any high profile Vendor Advocate business. In fact, we highly recommend that you show a copy of the authority to your lawyer and see what he thinks about the whole process before you sign.