Bait Advertising
Bait advertising is the practice of advertising a property far less than what it is actually worth. In Victoria they refer to this process as underquoting and it is an illegal practice that is still widely used by real estate agents.
Recently reported in The Age newspaper was the suggestion that underquoting was so rife within the Victorian property market, they estimate 80% of all advertising in the residential market falls into this category.
The idea of bait advertising, particularly with auctions is a no win process for both the buyer and seller.
The seller may have decided to auction their property, and then they have an agent advertising a price range up to 30% less than what they will accept. This may attract many buyers to the auction, but it will not generate a good price for the owner on the day, as most people will struggle with paying 30% more than they expected for a property. No wonder clearance rates for auctions are so low.
Think of all the buyers, who have had their precious time and money wasted by these real estate agent practices.
A real estate agent was actually quoted in the AGE. Greg Hocking from Hocking Stuart actually stated they are not blameless either when asked to quote on this story. He clearly acknowledges that some of his employees have done this and they (being management) will now have to speak to the individuals involved.
This process was legislated against in Victoria 2 years ago, they have a Consumer Affairs department that deals with these very issues. Now we have a leading agent saying, yes look at what that agent does, it’s simply not right, and then acknowledges they do it themselves.
No wonder no body trusts real estate agents.
Bait advertising should be for fisherman, not for people buying and selling property.
Michael Eroz
Property Analyst
http://www.zeroagents.com.au
Sunday, October 29, 2006
Friday, September 01, 2006
Real Estate Agents - Evolution of The Shark
Or survival of the most dishonest
Real Estate agents are regarded poorly by the general public. To be fair, there are many conditions that impact on a real estate agent. These impacts can either spit them straight out of the industry or have them evolve into sharks. In many cases it becomes survival of the most dishonest.
Now before all the trustworthy hard working real estate agents groan and moan, about another person giving their industry a hard time, please read on. I believe it is the system in many cases that is broken, and it is that system which shapes many a real estate agent into that predatory shark.
Firstly, becoming a real estate agent isn’t difficult. Most states within Australia have a real estate institute where you can complete a course in under a week.
(I completed my course by distance learning in one night and I am no mental giant. The before mentioned groaning agents are really agreeing with me now!)
In the US you can complete a course online and be accredited. All it costs is $99 US.
We are talking a very easy entry point to become a real estate agent.
Now that you are a real estate agent – with your suitable qualifications, you expect people to trust you with their single most expensive asset, typically their home! Sounds a little bit out of whack right from the start doesn’t it?
Now from an external point of view, real estate looks like a pot of gold.
Commission rates of between 2.5% to 3.0% to sell a house. A property worth $500,000 represents a commission of approximately $12,500 to $15,000.
“WOW, I should be able to do one of them each week and earn $650,000 per year. Finally an industry that pays me what I am worth.”
And thus the evolutionary cycle begins. You have an easy entry and the prospect of a huge amount of money. Sounds damn perfect. In fact so perfect it attracts a huge amount of willing entrants with that simple view. Most may I say have the full intention of doing real estate far better than what they have experienced when dealing with real estate agents themselves. Ahhh the noblest of intentions.
The problem is, it attracts far too many people.
Now we have a vast amount of agents all vying for that property sale. The industry cannot support all the agents that are working within it. People rush to enter this industry and there simply is not enough property sales or money to go around.
Now we have the 2nd most critical issue in the evolutionary cycle from person with best intentions to shark real estate agent. COMMISSION ONLY.
Most agents are on commission only. This means they only get paid when they make a sale.
Any agent competing against a vast number of agents for any one property sale, if they don’t say the right things, they won’t get the job. Which means they don’t get paid. It means agents learn to say what ever it takes to get that property listed for sale and then whatever it takes to get it sold. It ‘s the only way they get paid. It’s survival of the most dishonest, because many times, potential buyers and sellers really don’t want to hear the truth.
Yes, I can hear Jack Nicholson bellow out to all buyers and sellers…”You can’t handle the truth”
Typically agents will say the property is worth more to the owners. This way they will have those owners sign up with them. Because most owners like to think their property is worth more. It’s a simple human trait called greed. (Michael Douglas just stepped in and added his line “Greed is Good”)
But for the real estate agent it’s a simple numbers game. The more properties they have for sale the better the chances they will make a sale and therefore get paid.
Guess what comes next? Agents learn that it is far easier to sell something cheap.
Everyone wants to buy a bargain so the agent pursues a process of marketing the property with such clichés as “marriage bust up”, “owner desperate”. “bank instructs to sell” and “owner wants all offers”. They are simply aimed at attracting the most buyers with the lure – BARGAIN BUYING. Now the poor owner at this stage is horrified at this approach, but the agent convinces them it is the way to attract the most interest. They should know - they completed a course within a week!
Conditioning follows, stage 3 in the evolutionary process. The agent will now try to get the owner to accept less for their property. The buyers won’t offer more – because they are the bargain hunters, so the agent tells the owner with all sincerity – this is all the market will offer. Cheap is easy to sell. The faster an agent can convince an owner to accept less the faster they get paid. This is largely the whole auction process. Auctions are designed by agents to get paid as fast as possible.
The sad thing about most of this is that the larger franchise groups have corporate training which promotes these processes as the best way to get a result for their clients. Many an agent is brainwashed with corporate training that simply focuses on evolution of the shark.
Now whilst all these activities are occurring, we have the 4th issue in the evolutionary process. VALUE FOR MONEY.
Buyers and sellers assess the agents’ activities. Most buyers and sellers will have at least one unhappy experience with a real estate agent to describe. Yet they both know the agent is paid handsomely.
The owner has the added grief of being very aware, that they pay for the advertising, the sign, the internet, the brochure, which will attract the buyer that they then have to pay for again. Yes, that is exactly what occurs. Sounds quite stupid when you say it like that! The agent may throw it around they can organise a better sign or get a cheaper ad etc, but usually the owner is required to pay. They have training for this process as well. It’s called Vendor Paid Advertising.
Lets not even talk about agents suggesting they have better negotiation skills. They do, it has been finely honed by corporate training to get the owner to accept less and pay for all the advertising.
So, with all these processes in mind, the general public are very dubious about the honesty and integrity of any agent they deal with. The agents counter this with expressions such as “Buyers are Liars” and “Vendors are Benders”.
And the evolution is finished. You have a shark or you have someone leaving the industry. Survival of the most dishonest, well it would make for a funny reality tv show.
Da dum, Da Dum, Da Dum, I think I hear the agents circling my home right now.
Michael Eroz
Property Analyst
http://www.zeroagents.com.au
Real Estate agents are regarded poorly by the general public. To be fair, there are many conditions that impact on a real estate agent. These impacts can either spit them straight out of the industry or have them evolve into sharks. In many cases it becomes survival of the most dishonest.
Now before all the trustworthy hard working real estate agents groan and moan, about another person giving their industry a hard time, please read on. I believe it is the system in many cases that is broken, and it is that system which shapes many a real estate agent into that predatory shark.
Firstly, becoming a real estate agent isn’t difficult. Most states within Australia have a real estate institute where you can complete a course in under a week.
(I completed my course by distance learning in one night and I am no mental giant. The before mentioned groaning agents are really agreeing with me now!)
In the US you can complete a course online and be accredited. All it costs is $99 US.
We are talking a very easy entry point to become a real estate agent.
Now that you are a real estate agent – with your suitable qualifications, you expect people to trust you with their single most expensive asset, typically their home! Sounds a little bit out of whack right from the start doesn’t it?
Now from an external point of view, real estate looks like a pot of gold.
Commission rates of between 2.5% to 3.0% to sell a house. A property worth $500,000 represents a commission of approximately $12,500 to $15,000.
“WOW, I should be able to do one of them each week and earn $650,000 per year. Finally an industry that pays me what I am worth.”
And thus the evolutionary cycle begins. You have an easy entry and the prospect of a huge amount of money. Sounds damn perfect. In fact so perfect it attracts a huge amount of willing entrants with that simple view. Most may I say have the full intention of doing real estate far better than what they have experienced when dealing with real estate agents themselves. Ahhh the noblest of intentions.
The problem is, it attracts far too many people.
Now we have a vast amount of agents all vying for that property sale. The industry cannot support all the agents that are working within it. People rush to enter this industry and there simply is not enough property sales or money to go around.
Now we have the 2nd most critical issue in the evolutionary cycle from person with best intentions to shark real estate agent. COMMISSION ONLY.
Most agents are on commission only. This means they only get paid when they make a sale.
Any agent competing against a vast number of agents for any one property sale, if they don’t say the right things, they won’t get the job. Which means they don’t get paid. It means agents learn to say what ever it takes to get that property listed for sale and then whatever it takes to get it sold. It ‘s the only way they get paid. It’s survival of the most dishonest, because many times, potential buyers and sellers really don’t want to hear the truth.
Yes, I can hear Jack Nicholson bellow out to all buyers and sellers…”You can’t handle the truth”
Typically agents will say the property is worth more to the owners. This way they will have those owners sign up with them. Because most owners like to think their property is worth more. It’s a simple human trait called greed. (Michael Douglas just stepped in and added his line “Greed is Good”)
But for the real estate agent it’s a simple numbers game. The more properties they have for sale the better the chances they will make a sale and therefore get paid.
Guess what comes next? Agents learn that it is far easier to sell something cheap.
Everyone wants to buy a bargain so the agent pursues a process of marketing the property with such clichés as “marriage bust up”, “owner desperate”. “bank instructs to sell” and “owner wants all offers”. They are simply aimed at attracting the most buyers with the lure – BARGAIN BUYING. Now the poor owner at this stage is horrified at this approach, but the agent convinces them it is the way to attract the most interest. They should know - they completed a course within a week!
Conditioning follows, stage 3 in the evolutionary process. The agent will now try to get the owner to accept less for their property. The buyers won’t offer more – because they are the bargain hunters, so the agent tells the owner with all sincerity – this is all the market will offer. Cheap is easy to sell. The faster an agent can convince an owner to accept less the faster they get paid. This is largely the whole auction process. Auctions are designed by agents to get paid as fast as possible.
The sad thing about most of this is that the larger franchise groups have corporate training which promotes these processes as the best way to get a result for their clients. Many an agent is brainwashed with corporate training that simply focuses on evolution of the shark.
Now whilst all these activities are occurring, we have the 4th issue in the evolutionary process. VALUE FOR MONEY.
Buyers and sellers assess the agents’ activities. Most buyers and sellers will have at least one unhappy experience with a real estate agent to describe. Yet they both know the agent is paid handsomely.
The owner has the added grief of being very aware, that they pay for the advertising, the sign, the internet, the brochure, which will attract the buyer that they then have to pay for again. Yes, that is exactly what occurs. Sounds quite stupid when you say it like that! The agent may throw it around they can organise a better sign or get a cheaper ad etc, but usually the owner is required to pay. They have training for this process as well. It’s called Vendor Paid Advertising.
Lets not even talk about agents suggesting they have better negotiation skills. They do, it has been finely honed by corporate training to get the owner to accept less and pay for all the advertising.
So, with all these processes in mind, the general public are very dubious about the honesty and integrity of any agent they deal with. The agents counter this with expressions such as “Buyers are Liars” and “Vendors are Benders”.
And the evolution is finished. You have a shark or you have someone leaving the industry. Survival of the most dishonest, well it would make for a funny reality tv show.
Da dum, Da Dum, Da Dum, I think I hear the agents circling my home right now.
Michael Eroz
Property Analyst
http://www.zeroagents.com.au
Monday, August 21, 2006
Changes to the Property Agents and Motor Dealers Act 2000 (PAMD)
Amendments to the PAMD Act 2000 are effective today (21st August 2006). Fair Trading Minister Margaret Keech claims that the amendments will make property buyers and sellers more confident of getting value for money and improved consumer protection.
We are not so sure these amendments will work in achieving those aims. The basic changes to the PAMD Act 2000 are effectively;
A) Bidders at Auctions will have to register prior to Auction, including providing suitable identification and receiving a marker to identify when they make a bid.
B) Any Market Opinions an agent provides to a property seller will need to be substantiated by a comparative market analysis (CMA).
Now call me a cynic about the behaviour of real estate agents, but these are really not going to achieve the goals of cleaning up the behaviour of dishonest real estate agents.
These legislated changes really only make the honest hard working agents, and yes they do exists, more honest. The dishonest agents will get around this in no time, whilst buyers and sellers believe the system will protect them.
Consider these approaches to both of the above changes.
A) The dishonest agent can still get a friend or an associate to register at an auction. That person can be informed of how high to bid – so that they bid just below the reserve, to try and get the potential real buyer to increase their bids. Even if no-one bids after the friend or associate bids – they are still below the reserve price, so it just looks to all and sundry like there were some serious buyers interested in that property. Additionally did you know that the Auctioneer can bid on behalf of the Vendor. This is called a vendor bid, and the way an auctioneer does those bids can still influence a potential buyer into believing they are bidding against a genuine bidder.
B) A market opinion is not a property valuation. It’s the opinion of the real estate agent on what the likely sale price of a property will be. They now must substantiate his opinion by comparing similar type properties that sold within 5km of the property in question. Now I reckon 5km covers quite a lot of ground, in-fact it could cover suburbs that have a significantly lower average price. Additionally what about the time frame – is last 6 months a good indication. Last 12months. The market opinion is simply not a valuation done by a professional independent valuer. The agent has an agenda, they will substantiate to their hearts content and legitimately under the PAMD Act, to get the result they are after.
Sorry Mrs Keech we don’t believe either of these changes do anything to address the dishonest agents, and the process they employ.
If a property seller wants to feel truly comfortable they should seek an independent valuation. Then they can decide whether they need to use an agent or not.
As for auctions, considering current auction clearance rates in Queensland, forget the dummy bidder, you’d be a dummy seller.
Michael Eroz
Property Analyst
Zeroagents.com.au
We are not so sure these amendments will work in achieving those aims. The basic changes to the PAMD Act 2000 are effectively;
A) Bidders at Auctions will have to register prior to Auction, including providing suitable identification and receiving a marker to identify when they make a bid.
B) Any Market Opinions an agent provides to a property seller will need to be substantiated by a comparative market analysis (CMA).
Now call me a cynic about the behaviour of real estate agents, but these are really not going to achieve the goals of cleaning up the behaviour of dishonest real estate agents.
These legislated changes really only make the honest hard working agents, and yes they do exists, more honest. The dishonest agents will get around this in no time, whilst buyers and sellers believe the system will protect them.
Consider these approaches to both of the above changes.
A) The dishonest agent can still get a friend or an associate to register at an auction. That person can be informed of how high to bid – so that they bid just below the reserve, to try and get the potential real buyer to increase their bids. Even if no-one bids after the friend or associate bids – they are still below the reserve price, so it just looks to all and sundry like there were some serious buyers interested in that property. Additionally did you know that the Auctioneer can bid on behalf of the Vendor. This is called a vendor bid, and the way an auctioneer does those bids can still influence a potential buyer into believing they are bidding against a genuine bidder.
B) A market opinion is not a property valuation. It’s the opinion of the real estate agent on what the likely sale price of a property will be. They now must substantiate his opinion by comparing similar type properties that sold within 5km of the property in question. Now I reckon 5km covers quite a lot of ground, in-fact it could cover suburbs that have a significantly lower average price. Additionally what about the time frame – is last 6 months a good indication. Last 12months. The market opinion is simply not a valuation done by a professional independent valuer. The agent has an agenda, they will substantiate to their hearts content and legitimately under the PAMD Act, to get the result they are after.
Sorry Mrs Keech we don’t believe either of these changes do anything to address the dishonest agents, and the process they employ.
If a property seller wants to feel truly comfortable they should seek an independent valuation. Then they can decide whether they need to use an agent or not.
As for auctions, considering current auction clearance rates in Queensland, forget the dummy bidder, you’d be a dummy seller.
Michael Eroz
Property Analyst
Zeroagents.com.au
Friday, August 11, 2006
Agents get trips to Cuba – You get expensive Advertising
Recently it was reported in The Australian that Real Estate Agents in Melbourne who spent a minimum of $250,000 a year on real estate advertising in The Age Newspaper were gifted an all expenses paid trip to Havana, Cuba.
It’s all courtesy of a reward program The Age has implemented for Real Estate Agents.
The Victorian Government outlawed rebate schemes which at some stages were as high as 40% of advertising paid for by property owners.
The Age wants to reward Real Estate agents for revenue it generates for their paper. When you consider we are talking 120 Million or so in real estate advertising revenues, we are talking lots of money.
It’s not just Havana. Agents have been taken to Tuscany, Dubai, Thailand and Las Vegas.
Whilst The Age considers this to be a reward program for clients who spend serious money with them, consider whose money the Agents are spending.
You guessed it. It’s the money they extract from property owners for vendor paid advertising.
Not only do the property owners have to pay huge commissions to these agents – they are also indirectly funding their overseas junkets.
So if you want to pay thousands in commissions, plus sponsor an agents overseas trip, we suggest you select an agent who is very prominent in The Age Newspaper.
If you want to put your money back in your pocket, sell your property yourself. 70% of all property is sold as a result of internet advertising or a “for sale” sign. You can easily do this yourself.
And when you do……. buy a big Cuban Cigar for yourself.
Michael Eroz
Property Analyst
http://www.zeroagents.com.au
e: michael@zeroagents.com.au
It’s all courtesy of a reward program The Age has implemented for Real Estate Agents.
The Victorian Government outlawed rebate schemes which at some stages were as high as 40% of advertising paid for by property owners.
The Age wants to reward Real Estate agents for revenue it generates for their paper. When you consider we are talking 120 Million or so in real estate advertising revenues, we are talking lots of money.
It’s not just Havana. Agents have been taken to Tuscany, Dubai, Thailand and Las Vegas.
Whilst The Age considers this to be a reward program for clients who spend serious money with them, consider whose money the Agents are spending.
You guessed it. It’s the money they extract from property owners for vendor paid advertising.
Not only do the property owners have to pay huge commissions to these agents – they are also indirectly funding their overseas junkets.
So if you want to pay thousands in commissions, plus sponsor an agents overseas trip, we suggest you select an agent who is very prominent in The Age Newspaper.
If you want to put your money back in your pocket, sell your property yourself. 70% of all property is sold as a result of internet advertising or a “for sale” sign. You can easily do this yourself.
And when you do……. buy a big Cuban Cigar for yourself.
Michael Eroz
Property Analyst
http://www.zeroagents.com.au
e: michael@zeroagents.com.au
Saturday, August 05, 2006
Conditioning Property Owners
Conditioning a property owner is one technique real estate agents use to try and get a deal.
This is a very manipulative technique many agents use. More distressing is the fact that as an industry many of the franchise groups actually run structured training courses for their staff on this technique. The basics of this technique are;
The way an agent may condition you is quite simple.
a) They accept the price you want to list the property at. Their goal over the next 4 weeks is to condition you to accept far less money as a cheaper sale price always makes the agents job simpler.
b) They then work on providing feedback to you from any open homes or inspections which basically says that everyone who has inspected the property believes that it is overpriced. They may convince a few potential buyers to submit offers which are significantly less than what the owner is after. They do this - knowing the owner won't accept it, but nevertheless will convince some buyer they may have a chance with that offer.
c) The agent has built a relationship with the property owner that is far stronger than any individual buyer who may make an enquiry. It is easier for them to condition the property owner to accept a lower price than it is for them to get a better price from the potential buyer. (Even when the buyer could have been very prepared to pay more.)
d) Now that the owner has received a really offensive cheap offer or offers, the agent hopes that the property owner will now accept less than what they originally wanted because the owner will see any subsequent offers as being considerably better than what they were offered previously.
e) Its deceptive behaviour designed to make the property owner accept less and therefore the agent gets a sale and gets paid.
No wonder nobody trusts real estate agents.
Michael Eroz
Property Analyst
http://www.zeroagents.com.au
This is a very manipulative technique many agents use. More distressing is the fact that as an industry many of the franchise groups actually run structured training courses for their staff on this technique. The basics of this technique are;
The way an agent may condition you is quite simple.
a) They accept the price you want to list the property at. Their goal over the next 4 weeks is to condition you to accept far less money as a cheaper sale price always makes the agents job simpler.
b) They then work on providing feedback to you from any open homes or inspections which basically says that everyone who has inspected the property believes that it is overpriced. They may convince a few potential buyers to submit offers which are significantly less than what the owner is after. They do this - knowing the owner won't accept it, but nevertheless will convince some buyer they may have a chance with that offer.
c) The agent has built a relationship with the property owner that is far stronger than any individual buyer who may make an enquiry. It is easier for them to condition the property owner to accept a lower price than it is for them to get a better price from the potential buyer. (Even when the buyer could have been very prepared to pay more.)
d) Now that the owner has received a really offensive cheap offer or offers, the agent hopes that the property owner will now accept less than what they originally wanted because the owner will see any subsequent offers as being considerably better than what they were offered previously.
e) Its deceptive behaviour designed to make the property owner accept less and therefore the agent gets a sale and gets paid.
No wonder nobody trusts real estate agents.
Michael Eroz
Property Analyst
http://www.zeroagents.com.au
Thursday, August 03, 2006
Interest Rate Increase Sucks
But consider the longer term position.
Statistics can often be quite confusing, and whilst we will take some liberties with the following examples, the picture that evolves is still quite reflective of the net effect to property owners over a longer term.
We can’t offer any help with rising interest rates, increasing petrol prices, general inflation and a stagnate property market, but we can make suggestions for how you could put money back into your pocket.
And when you turn us all upside down and shake the money out – isn’t that what we all want.
So firstly we will deal with some of the basic statistics we are going to use in this comparative analysis.
1. Average Australian Mortgage = $220,000
2. 0.25% increase in interest rates = $36 month extra repayments
3. Annual increase in repayments = $432 per year
4. Average property price Australia = $ 400,000
5. Average life cycle of property ownership = 7 years
6. Average household income = $60,000
Now the following data has been rounded to make the presentation of the analysis easy, but sources of this data include, Australian Bureau of Statistics, Australian Property Monitors, Real Estate institute of Australia and various other publications and sources.
We start with the approximate median property price within Australia of $400,000 (it is slightly less – December 2005 weighted average all capital cities $394,531). This is what the average sale price will be for a property throughout Australia.
Now statistics suggest property owners sell their property roughly every 7 years. In 2004/2005 there was around 500,000 dwelling sales. This doesn’t include sale of land, which is roughly 70,000 parcels per year sold.
Traditionally these sales would have occurred by the property owner employing a real estate agent.
The costs associated with selling a property are approximately 2.5% of sale price for the agent’s commission and 0.5% of sale price for advertising costs charged by the agent. On a $400,000 property sale this means you would incur costs of $10,000 for commission, $2000 for advertising for a cost of $12,000. Now you must add GST because the government wants their bit and the total cost to you for selling is $13,200. Approximately 3.3% of the sale price.
That’s $13,200 out of your pocket after tax. If you are selling your principal place of residence, you are not liable for any tax on any capital gains you may have achieved. This means any gains are tax free.
So how much would you have to earn in a taxed environment to give you $13,200 in your hand.
Based on the average household income of 60,000 – you would be in the 25,000 to 75,000 tax bracket which incurs income tax at the rate of 30 cents in the dollar. So the exercise becomes how much extra do I need to earn to put $13,200 in my pocket based on 30% tax rate.
The answer is $17,286 required to generate $13,200 after tax.
Now consider the cycle of 7 years for property. If you were paying the extra interest rate of 0.25% over that period the extra cost to you of $432 a year for 7 years would equate to an extra $3024 you would pay due to the latest interest rate rise.
Now we cannot control this cost. But if you were to sell your own property without a real estate agent you could save $13,200 ($17,286 if you had to work to pay for it)
You would be over $10,000 ahead. Which means interest rates could climb another 0.75% over the 7 years and you would still be in front simply by deciding to sell your property yourself.
So whilst we have no answers for Australian fiscal policy, rising inflation and other common ailments to your weekly pay packet we do know that if you choose to sell your property yourself you will be well ahead over the longer term.
It saves you thousands.
Michael Eroz
Property Analyst
Zeroagents.com.au
E: Michael@zeroagents.com.au
http://www.zeroagents.com.au
Statistics can often be quite confusing, and whilst we will take some liberties with the following examples, the picture that evolves is still quite reflective of the net effect to property owners over a longer term.
We can’t offer any help with rising interest rates, increasing petrol prices, general inflation and a stagnate property market, but we can make suggestions for how you could put money back into your pocket.
And when you turn us all upside down and shake the money out – isn’t that what we all want.
So firstly we will deal with some of the basic statistics we are going to use in this comparative analysis.
1. Average Australian Mortgage = $220,000
2. 0.25% increase in interest rates = $36 month extra repayments
3. Annual increase in repayments = $432 per year
4. Average property price Australia = $ 400,000
5. Average life cycle of property ownership = 7 years
6. Average household income = $60,000
Now the following data has been rounded to make the presentation of the analysis easy, but sources of this data include, Australian Bureau of Statistics, Australian Property Monitors, Real Estate institute of Australia and various other publications and sources.
We start with the approximate median property price within Australia of $400,000 (it is slightly less – December 2005 weighted average all capital cities $394,531). This is what the average sale price will be for a property throughout Australia.
Now statistics suggest property owners sell their property roughly every 7 years. In 2004/2005 there was around 500,000 dwelling sales. This doesn’t include sale of land, which is roughly 70,000 parcels per year sold.
Traditionally these sales would have occurred by the property owner employing a real estate agent.
The costs associated with selling a property are approximately 2.5% of sale price for the agent’s commission and 0.5% of sale price for advertising costs charged by the agent. On a $400,000 property sale this means you would incur costs of $10,000 for commission, $2000 for advertising for a cost of $12,000. Now you must add GST because the government wants their bit and the total cost to you for selling is $13,200. Approximately 3.3% of the sale price.
That’s $13,200 out of your pocket after tax. If you are selling your principal place of residence, you are not liable for any tax on any capital gains you may have achieved. This means any gains are tax free.
So how much would you have to earn in a taxed environment to give you $13,200 in your hand.
Based on the average household income of 60,000 – you would be in the 25,000 to 75,000 tax bracket which incurs income tax at the rate of 30 cents in the dollar. So the exercise becomes how much extra do I need to earn to put $13,200 in my pocket based on 30% tax rate.
The answer is $17,286 required to generate $13,200 after tax.
Now consider the cycle of 7 years for property. If you were paying the extra interest rate of 0.25% over that period the extra cost to you of $432 a year for 7 years would equate to an extra $3024 you would pay due to the latest interest rate rise.
Now we cannot control this cost. But if you were to sell your own property without a real estate agent you could save $13,200 ($17,286 if you had to work to pay for it)
You would be over $10,000 ahead. Which means interest rates could climb another 0.75% over the 7 years and you would still be in front simply by deciding to sell your property yourself.
So whilst we have no answers for Australian fiscal policy, rising inflation and other common ailments to your weekly pay packet we do know that if you choose to sell your property yourself you will be well ahead over the longer term.
It saves you thousands.
Michael Eroz
Property Analyst
Zeroagents.com.au
E: Michael@zeroagents.com.au
http://www.zeroagents.com.au
ZERO MAN
Zeroman is Australia's latest superhero.
He fights for truth and fair play in real estate...... and advises people to sell their property privately.
If you have a bad experience with any real estate agents you can call upon Zeroman.
Sunday, July 30, 2006
Welcome to the Zeroagents Blog
We want to hear from everyone who has a story to tell about their real estate experiences. The good, the bad and the ugly are all welcome.
Particularly stories from people who have bought or sold property privately would be most welcomed.
Particularly stories from people who have bought or sold property privately would be most welcomed.
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