Ep 15. What Do Buyers Agents Charge?
Have you ever been confused by how a Buyers Agent charges for their services? In this episode Michelle breaks down the 3 different ways that Buyers Agents will price themselves to the buyer.
Here’s what you’ll learn from today’s episode:
Percentage-based pricing
Tiered-based pricing
Fixed fee pricing
Buyers Agents’ motivations behind their chosen pricing model
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
FOLLOW US:
ENJOY THE SHOW?
Don’t miss an episode, subscribe via iTunes. If you like it, please leave a review!
Or, find us on the podcast app of your choice, such as Spotify.
This podcast has been recorded and edited by Cobalt Soundscaping
Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
Listen to the Episode Now
VIEW TRANSCRIPT
Hi, and welcome to another episode of the Buy Your Side podcast, the property podcast to help you buy better. My name is Michelle, and I am the principal of Michelle May Buyers Agents here in Sydney. Now today I thought I would tackle a very popular question that is always one of the first ones to be asked when people call me, and that is, “what do you charge?”. So let me break it down for you.
Typically there are 3 ways that buyers agents will charge. There will be the percentage based on your purchase price paid for the property. There is the tiered approach, and then there is the fixed fee approach.
So the first one, the percentage fee-based model is basically very simple. It is a variable that could move up or down based on the property that you end up buying, obviously. And the percentage that buyers agents can charge typically sits around the 1% to 2%, and it depends on where you are in the country, what kind of service that you are getting, and I’m doing another episode on the services that buyers agents typically offer. But for the fully comprehensive search, which is where the buyers agent will select, and shortlist, and inspect, and evaluate, and negotiate, and potential bid at auction for you. The fully comprehensive service, that’s where they can typically charge 1% to 2% of the purchase price paid. So from the get-go, you might have an idea of what you’ll be spending, but obviously you don’t know until you’ve signed on the dotted line of the property that you’ve bought.
The second approach is the one where it’s tiered. So depending on where your budget is, or depending on what you agree upfront, whether that’s your budget initially that you start with, or the property price paid, you move into these different brackets. So say for example, under $500,000 and then from $500,000 to $1 million, you move up a bracket in price, and then, again, up from $1mil to $1.5mil or even $2mil, and upwards and onwards you go. And those tiers will then have a fixed price marked next to it, but as I said you really need to understand upfront, is it based on the budget that you start with, or is it the price that you end up paying for the property?
The third option is the fixed fee approach. So based on your brief, which by the way here in New South Wales, it is a legal requirement for the buyers agent to have your brief in writing up-front for the comprehensive service. You will be quoted a fee, and that’s typically a combination of how difficult is it going to be for the buyers agent to achieve what it is that you want. So they’ll be looking at the location, they’ll be looking at your budget, the type of property that you want to buy. And obviously, the more flexibility there is in terms of areas looked at, or the type of properties that you looked at. Are you only looking at fully renovated or would you potentially be open to putting in a new kitchen or bathroom? Are you also looking at Strata vs Torrens Titled? All of those things will come into play before a buyers agent will quote you a fee, but this is fixed in at the beginning, so you know exactly what it is that you’re in for from the get-go, and it shouldn’t change even if your budget moves up or down slightly. There are usually clauses in the contract which will state if your brief changes significantly, and you sort of need to understand what significantly means, then that fixed fee quote may be changed. It could be, for example, that you start off wanting to buy in a particular location and then after a certain amount of looking you decide, “Actually this is not where I want to be, I want to move to a different area.” Effectively the buyers agent could say “Well listen, that’s a whole new search altogether, I need to re-evaluate the quote that I’ve given you”.
So those are the 3 types of fee structures that there are. Myself as a principal of my own buyers agency, I charge a fixed fee for all the services that we offer, so there’s great transparency upfront. I also find that charging a percentage is, in my opinion, a conflict of interest. Because the more the client pays, the more I get paid, and so therefore any incentive for me to drive a hard bargain and really try and whittle down the price of a purchase, is sort of taken out of the equation because the less you pay, the less I get paid. So I don’t think that that’s fair. The other thing that it implies, and that’s the same with the tiered structure, is that, it implies that the bigger budgets actually warrant a higher fee because somehow it’s more work or it’s more difficult. That is actually not the case at all. I find that the bigger budgets are usually typically far easier to satisfy. It’s usually for the first home buyers who need a lot more education, they need a lot more hand-holding, if you like, because it’s their first purchase, they really have no idea what to do, even what to want in a way. There’s a lot more work and nurturing involved, than there is for second and third time buyers, and even investors. So by rights we should be charging first home buyers more. We don’t, of course, because we’re very conscious of course that whatever we charge is going to eat into their purchasing budget.
But that’s something to bear in mind when you are choosing buyers agent, just check the motivations behind their fee structure, and ask them to back it up, and if the answer isn’t satisfactory then maybe you should consider talking to other buyers agents. I mean, it’s always good to shop around anyway. But you’ll find that in this industry which is still a fairly fresh industry, a fairly new industry where the barrier to entry is very low, it’s very easy to set yourself up as a buyers agent. You might find that the newer, less experienced ones are charging a lot less. So it’s important to understand, what are you actually getting for that money? It sounds great if someone gives you a quote which is half of what a more experienced buyers agent has quoted you, but at the end of the day, what are you actually going to get for that money? Is it someone who’s still got their training wheels on, and is effectively learning on the job IE. on your purchase. They could be making massive mistakes because they simply don’t know what they’re doing. Well then every dollar you spend on them is a dollar wasted in my opinion.
So just do your homework, and try to understand for example, the fully comprehensive service, what are you going to charge me, and what do I get for that service? It’s all well and good to sort of have a basic understanding, “Yes we are going to do due diligence”, but what kind of due diligence are you going to provide me with? Are there things that you help me coordinate after the purchase? After you’ve exchanged, do you still get involved until settlement? Do you coordinate everyone else in the project, as in your solicitor, your broker? What else are you going to offer me? Is your pricing research, is it just an automated autoval from one of the big data providers such as RP data or Price Finder? Because in my opinion, if the buyers agent’s going to provide you with pricing research from auto-generated, those really aren’t worth the paper they’re written on. So make sure that you really understand also, A, what are you going to be charging me? But B, what am I actually going to be getting for that? Because any dollar that you spend on a buyers agent really needs that return, otherwise you may as well be doing it yourself.
I hope that’s helped you understand a little bit more about the great mystery about what buyers agents charge. If you’ve got any more questions off the back of that, of course, get in touch. My email is hello@buyyourside.com.au. Thanks for listening, and until next time.