Trouble with Real Estate Agents
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As a high end property investor in KL since 2000 (click here for my story how I got 10% off my first investment property by going direct to the developer), I have probably interacted with hundreds of agents from green RENs (still wet behind the ears from a two day NCC ) to gnarly industry veterans with decades of experience.
But is say 10 years experience as a real estate negotiator a guarantee the agent is a professional? The short answer is No. For the long answer, read RC’s analysis of the trouble with real estate agents below:
Of course, MIEA would like you and me to believe the PR spiel that all real estate agents are as professional as say lawyers, surveyors, engineers, doctors and nurses. Well, maybe the 7,000 or so REAs qualify as professionals - they have to pass two tough exams and sit out a probationary period. But the majority of real estate agents have nothing but a two day training course (at the end of the two days, BOVEA has no requirement for these new recruits to sit and pass a written exam!) and a REN badge to their name.
Would you trust a doctor to take out your gall bladder if she had a month's training? Or a nurse to give you a Covid-19 vaccination if he had two days on the job training?
Enough said.
Over the years I have come across too many real estate agents that have what I call the THREE NOs aka these agents have “No Skills, No Knowledge and No Idea”.
Let me spill the beans on what you as a the landlord of a High End KLCC condominium will typically encounter with such agents.
The Chicken Run
Some real estate agents intentionally go out to look for owners of old (by that I mean they think any property more than 10 years is already 'old') apartments who want to rent or sell. But secretly, they have no intention of ever finding tenants or buyers for these 'old' properties..
Instead these old apartments are going to be used in what I call the Chicken Run. The agents believe in the mantra “Its obvious it's easier to rent or sell newer properties to tenants and buyers than older properties, right?”
So these unethical agents PREFER to show their prospective tenants or buyers the old apartments first, being careful to note down all the negatives. Then they show the newer properties they think might appeal to the prospects. After a couple of viewings under the hot Malaysian sun, their prospects might well agree with the agents’ recommendations to pay more to rent or buy the newer properties.
If a Chicken Run is executed successfully, everyone is happy. The tenants can now get back to work. The unethical agents get a fatter pay check. Everyone is happy except for the poor saps whose properties never seem to be able to find tenants or even get a single offer after months being listed on Iproperty.com or PropertyGuru. If you suspect you have unwittingly handed over your property for a Chicken Run, its a simple matter to check. Just ask a friend or relative to pose as a prospective buyer or tenant and view it with the agent.
The Quote Lie
Almost all real estate agents will encounter the Quote Lie when inexperienced clients ask them to give a current market estimate of what their properties will fetch in PSF or how much rentals and how quickly they can be rented out.
Assume the agent is an honest one and knows the property is REALLY worth say RM1m. But if the agent is truthful and tells the owner it's worth (only) RM1m, he will PROBABLY not get hired. The job will go to a less scrupulous (or more hungry) agent down the road prepared to lie IE give our property owner a Higher Indicative Valuation, figuring they will be able to talk the owner down to the actual market price later. In the real estate industry, this process of conveying the unpleasant truth to property owners about the real market value of their properties is called “conditioning the seller”. It is a highly prized skill for a real estate professional.
But some readers of this blog might want to ask: Is there a way to avoid all this unnecessary “conditioning”? Yes, the answer lies in educating high end property owners of the financial toolkits they can deploy to find out the market value of their properties on their own. See the following websites that offer free estimates of the value of your property:
https://www.edgeprop.my/edge-reference-price
https://propertyadvisor.my/home
The advent of Automated Valuation Models has allowed the major portals like EdgeProp and PropertyGuru/iProperty to offer indicative current market valuations for properties by just filling up an online form and pressing a button. Provided there are sufficient data points for a regression analysis (in practice, this means high density property projects with more than 500 units that see a fair number of transactions per year) and no major swings in the property market either up or down, the output from AVMs is reasonably accurate.
But there is a major weakness in some AVMs that I have been able to identify. If the property being valued hasn’t enough property price transactions in the preceding year, the results of an AVM valuation can be skewed.
The Unregistered Agent
In September I spotted a two bedroom unit at Platinum Suites at Jalan Sultan Ismail advertised for rent in Property Guru at RM2500 pm. In 2018 I had rented a similar two bedroom unit for RM4300 pm to set up a base for a property listings website for FISBOs (For Sale By Owners) using 360 virtual tours of the properties. So I WhatsApped the agent who had the listing to find out if rentals had fallen by 40% since 2018.
Things got on well until I asked if the agent could Whatsapp a business card. Suddenly the agent terminated our conversation. I waited and then Whatsapped back a question: “Are you a registered REN? “
A check at the BOVEA website found no record of a REN with the same name. So I emailed a query to BOVEA. The reply from BOVEA is enclosed - the agent had a REN license previously, but it had expired.
4. No requirement to disclose commissions for marketing New Projects properties
The BOVEA website says real estate agents can charge a maximum of 3% as commission or professional fee for finding a buyer for a sub sale property. But for New Projects properties sold by a developer, real estate agents do not need to disclose the commission or professional fee the developer pays. This might range from 3% to as high as 10% according to anecdotal evidence for properties that are hard to market e.g. in new townships where there is only the promise of future connectivity with highways yet to be constructed, or where desirable developments like schools, shopping malls and recreational parks have yet to be delivered. Or they might be leftover units in a project where a cash strapped developer might be keen to dispose of in light of an uncertain property market.
RC thinks there is nothing inherently wrong about paying high commissions to agents to sell New Projects properties. After all, anyone who buys or sells fine art or collectables at auctions knows the auction houses typically charge hefty commissions (premiums) that can often exceed 10%.
But RC thinks the commissions paid by developers to agents ought to be disclosed upon request by prospective buyers. Just like fine art auctioneers that provide a list of their commissions (premiums) levied on sellers and buyers. Why? Seasoned property investors can evaluate new investment properties by comparing them with completed price transactions of properties of similar quality. But some FTHBs (First Time Home Buyers) might have a information disadvantage in accessing comparable property price transaction data.
So high commissions paid does not automatically imply all New Projects properties are overpriced. Prospective buyers of New Projects properties should look at comparable COMPLETED properties in the surrounding area before making a decision. What is the average transaction price psf of completed properties of comparable quality versus the New Projects properties? What is the price trend in psf ? If the New Projects properties are intended for investment, then what are recent rental price trends for similar completed properties. I have covered these areas in my post on how to identify a property’s Unique Selling Propositions (USPs) here.
Post Script
RC has a blog, Real Estate Marketing 101. This blog will focus on providing effective marketing tips for newbie real estate negotiators who intend to get listings for high end properties.
You can access FREE OF CHARGE the following:
a valuable checklist on how to identify real estate USPs- IE Unique Selling Propositions- and what I call the “X Factor” of the MIllion Dollar KLCC property you client has just entrusted you to sell. I will show how you can use a property's Walkability Score (copyright by WalkScore.com) to differentiate that property listing from the competition.
a tutorial on how to make your own video tours that you can send to potential buyers using FREE software.
a tutorial on how to make your own 360 virtual tour using a cheap fish eye lens, a Bluetooth rotator, a cheap tripod and your smartphone.
a tutorial on how to set up your own website (for example www.360kiranaresidence.com) on the Squarespace platform to promote your own PERSONAL brand.
a tutorial on how to set up your own LinkedIn profile that sets you apart from the competition. Increasingly smart real estate negotiators are using LinkedIn to market high end properties to their network. I will also show some proven strategies on how to grow your LinkedIn network, eg by contributing posts with catchy tags, (“Can I help you find the value of your home?”)
How to set up a Facebook business page to funnel prospective clients to your personal profile on a property portal.
