success story that depended on a low-cost model.
Agents know they ultimately fail or prosper based on results. The same is true of every startup business that enters the industry intent on cutting the agent out of the process.
Real estate firms range from small to very big businesses, but up to 90 per cent of the residential real estate industry could be counted as small business. Given their connections to media-owned websites and newspapers, much of the revenue that runs through these small businesses flows straight to large media companies as advertising fees. At a Melbourne real estate conference in December 2015, it was estimated that $800 million was spent on real estate advertising in Australia each year.
Media companies are unlikely to offer any lasting support to startup businesses that wipe out estate agents unless their revenue stream is maintained. Agents are a media company's best salespeople when it comes to real estate advertising. Startup businesses will therefore probably need to find support and build a strategy outside of media companies.
Many private sales companies have started in Australia, but to date all have failed. Eventually someone will break through and take a sizeable share of the market. The company that does that will need to be addicted to data and cost-effective marketing to enable it. The key for these companies is ‘automated connections', with buyers and sellers connected directly through technology. The moment they insert a human to negotiate between seller and buyer, they become no more than a cheap real estate agent.
Can the seller and the buyer arrive at a mutually satisfactory transaction? With the right advice and temperament there is a good chance, although many mistakes will be made and money lost when commercial and savvy negotiators find themselves negotiating directly with non-commercial consumers.
As real estate agents, private sale companies and media conglomerates fight for market share, it will become a battle of data versus advertising, with agent intermediaries looking to justify their existence.
It will resemble a game of scissors-paper-rock.
Agents will be challenged to justify their fees in the face of digital disruption.
4 Insider trading
How does insider trading happen in real estate and why should we be aware of it? Insider trading is strictly defined as the trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to non-public information.
The definition of ‘insider' can be broad and may cover not only industry insiders themselves but also any person related to them, such as brokers, associates and even family members. Anyone who becomes aware of non-public information and trades on that basis may be guilty.
Stock market regulations regarding insider trading are tough, enforceable and detailed. Regulations to curb vested interests in real estate transactions are much weaker, and it's fair to suggest insider trading and versions of it are rife in the market.
By making yourself aware of the many ways in which insider trading can apply to real estate, you have taken the first step towards protecting yourself.
Here are three of the most common scenarios.
Real estate agent (or employee) is the purchaser
Real estate agents need to live somewhere. That's fine. What agents don't need to do (and should not legally be able to do) is purchase a property through their firm while also taking a commission from the vendor. The transaction can be above board, yet too many questions can arise later. If an employee of a real estate agency wishes to purchase a property through their firm, the vendor should not pay any commission and full disclosure to the vendor should be made.
Buying from a client is a messy business.
In the very worst form of insider trading an agent purchases a client's property for their own benefit, without any disclosure to the vendor. This usually occurs when the vendor is unaware of the true market value and/or is otherwise vulnerable. While most of an agent's clients want an above-market price, it is amazing how many have literally no idea of the true value of their asset.
Sadly, it is often the elderly who are the least informed about the market. They also tend to be the most trusting.
If you have an elderly relative or friend trading real estate, volunteer to assist them through the process. It could save them hundreds of thousands of dollars.
The developer's promise
Real estate agents hear the developer's promise almost daily: ‘If we buy it from you, you can have the resale.' The developer is offering the agent an unwritten inducement to favour them during discussions. Here are some facts. Every developer makes the promise; some agents fall for it, some don't. The vendor is paying the agent, but the agent is being wooed by the buyer. The best agents won't fall for this empty promise. If you are selling a property that is a development or renovation opportunity, it's prudent to look for any signs that the agent is favouring one buyer over another.
Feel free to ask the agent which buyers/developers they have done business with before. It's crucial to know if the agent is negotiating with someone they have just met, as opposed to a developer who may have bought several sites from them in the past. Ask the agent if they have ever sold a property for the developer who is now trying to buy your property.
Agents are in constant role reversal in their respective markets: the person paying them today is the person they are employed to extract full market value from tomorrow.
In sport, when a team or athlete fails to put in a full effort in order to win, it's called tanking. Watch for any signs that your agent is tanking when negotiating on your behalf.
You can sell ours if we buy this one
It's a fact that most homeowners trade up or down within the same marketplace. Today's buyer is tomorrow's seller. In a competitive market, buyers often attempt to engage agents with the promise of their listing. The best agents are fanatical about separating the two transactions in the interests of their existing client.
Ask the agent if the interested buyer has another property to sell. If so, does your agent expect to be their agent in the future? Direct questions can elicit surprising responses. Just because the agent is likely to gain the buyer's listing, it does not mean that something untoward has occurred, but as a homeowner you are entitled to understand all potential areas where a conflict of interest might arise.
Once you are aware of these, you can make your own assessment. The best agents will declare their previous dealings and relationships upfront so you are aware of all elements and undercurrents at play.
The best agents lead with disclosure. If the purchaser's name on the contract is a company, take a moment to find out who the individuals behind it are by checking the Australian Business Register, ABN Lookup. Once you sign the contract, it's extremely difficult to withdraw.
You need to stay on guard for signs of insider trading in real estate. It's not rampant, but it does happen. To suggest it doesn't is naive in the extreme.
The once ‘cleanskin' sport of tennis has recently been undermined by match fixing. If professional tennis is not immune to ‘fixing', then high-stakes transactions such as real estate are bound to attract vested interests and questionable practices. By asking the tough questions, and documenting the responses you receive, you will have gone a long way towards protecting yourself against unfair play. Game, set and match to the empowered consumer.
Insider trading
