Inside Real Estate. O'Malley Peter

digital revolution has already changed the nature of the real estate industry. For better or worse, the disruption is likely to continue, and agents will need to reassert their true value to the general public if they are to fend off this threat.

      Airbnb has its sights set on real estate agents' rent rolls. Landlords will increasingly opt out of traditional management structures to chase Airbnb-style service and efficiency. Much of the traditional real estate industry survives on its rent rolls. If they don't innovate, some agents face extinction in the face of these changes.

      Recently a client who is a savvy businessman mused that he felt like a novice every time he transacted real estate because of the speed of change in the market. The purpose of this book is to bring the consumer seeking insight and knowledge on the industry up to speed before they transact.

      Consumers will learn for themselves many of the traps and tricks exposed in this book once they have completed their property transaction. Unfortunately, that may well be too late to avoid financial loss and heartache. When it comes to real estate, learning through personal experience is expensive and painful, and the knowledge gained is often largely redundant, given that most people make such transactions infrequently.

      I hope Inside Real Estate becomes your trump card the next time you play in the property market.

Peter O'Malley March 2017

      PART I

      Mastering property

      The real estate game

      1 Who can you trust?

      For many people, stepping into the real estate arena feels like entering the Colosseum with lions on the loose. Is it any wonder? The industry designed to get you to buy or sell your most valuable asset isn't noted for outstanding service.

      Attempting to conduct any transaction in the face of contradictory advice and other people's vested interests is certainly daunting. Selling agents, buyers' advocates, a varied array of property commentators, well-meaning family members and ‘helpful' friends will all promote their own version of received wisdom about property transactions.

      This confusing scenario begs the question, ‘Who can you trust in real estate?'

      If you trade in real estate regularly, you should have a better idea about how to conduct these transactions. Nothing beats real-world experience. But being in a position to trust your own judgement based on past experiences is an earned luxury.

      Experienced consumers enter real estate negotiations with foresight. Inexperienced consumers, who buy and sell perhaps every five or 10 years, are often knowledgeable and wiser only with hindsight. Once a contract of sale to buy or sell is signed, the transaction is complete, and it becomes very difficult to change its terms. This makes getting it right before locking into a contract imperative. Real estate mistakes can be devastatingly costly and take years to recover from. Hence the roar of lions.

      This book is designed to be the buyer's and seller's guiding light through the journey. It provides you with both the insight and the foresight of a career real estate agent – the tricks of the trade, so to speak.

      It provides an overview of how the industry works and what you need to know before heading into the property arena for the first or a subsequent time. Knowledge is power. It can alleviate much of the stress and confusion that so often accompanies what should be an exciting time. And while you can study parts of it in isolation, it would be difficult to find all of the information on your own.

      Welcome to the insider's journey, and let's start with the first surprise for many – namely, just how time-consuming buying and selling real estate can be. Where to search, how to search, understanding how market pricing works, the best way to select an agent, getting value for your money, what questions to ask … the list goes on.

      It can soon feel like you are holding down a second job. For the time poor, this almost inevitably leads to making decisions on the run and hoping it turns out well. Transacting real estate in this way can be a big mistake. Knowledge, not luck, should always be the main driver.

      Buyers and sellers take many different paths when seeking someone to trust in real estate. Some will select an agent who was referred by a friend; others will base their decision on an agent's website; others may conduct an exhaustive interview process. Many still rely on that old ‘gut feeling' to decide which agent to work with.

      Finding an adviser you trust is vital for a successful property transaction, but undertaking your own research into the industry and its systems should be an automatic part of your due diligence. If the real estate market feels like the Colosseum to you, doing your due diligence is the best way to allay your fears. I hope you will make reading Inside Real Estate a part of that process.

      Gain market knowledge before acting or transacting.

      2 The modern real estate firm

      No industry stays static or immune from change. In real estate we have seen the ongoing development of more sophisticated business models and marketing strategies. So what has changed?

      Today's agency tends to be larger. Some firms, with supersized sales teams that tout for Vendor Paid Advertising (VPA), inject millions of dollars into marketing their brand and message. It's all about getting as many listings as possible.

      Home sellers are usually unaware that the primary objective of many real estate agents when selling this VPA is building the firm's profile, rather than selling your home. As will be made clear throughout this book, expensive newspaper and internet advertisements do very little to improve a vendor's chance of selling. But you pay for it nonetheless.

      When a consumer entrusts the sale of their home to a supersized firm, they often take comfort in the notion that they have a large company behind them. Their expectation is that the company is more likely to have superior management and internal processes for managing staff and the sales process.

      Many consumers who have experienced problematic sales campaigns are alarmed to discover their salesperson is not representing a large firm, in which management holds the agent's performance to account. Their agent is actually the CEO of a micro-company and pays a percentage of their commission to ‘the mother ship'. The management of the apparently large firm with a high-profile brand has little, if any, ability to hold these salespeople to account.

      Agencies are structured this way in order to avoid the payroll tax and superannuation payments that would apply to permanent staff. This ‘contract' arrangement of outsourcing makes a big difference to their bottom line and adds to the perception of the firm's size. It gives these salespeople autonomy, but leaves them to fund their own running costs. All is not what it seems from the outside.

      A practical example of how this structure plays out to the consumer's detriment can be found in the non-sharing of data between salespeople operating within the same firm. You may list your $3 million home with a supersized agency that has sold a number of similar homes in recent times. You are unaware, however, that one particular sales agent at the firm sold those homes and that you have unknowingly listed with one of their colleagues, believing the same service will be provided.

      As an uninformed consumer, you have just jumped to the unfortunate conclusion that the salesperson you hired will be contacting everyone on the agency's list, including the underbidders left over from those other $3 million sales. It is reasonable to believe this would provide an important pool of genuine buyers to market your home to.

      To your astonishment, however, a month into the campaign it becomes clear that these underbidders have not been contacted. On questioning the agent, you learn that those potential buyers are on their colleague's database and your agent does not have access to them. It's a shock to learn that agents in the same firm will not share their buyer databases with each other.

      It then dawns on you that you have listed, not with a super-brand, but with a fledgling ‘one-man band' trading under the super-brand's name. This now common business structure means many real estate agents are in fiercer competition with their colleague at the next desk than they are with rival agents down the road.

      Given