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Why is it Important to Know Who Pays Your Property Agent?

Updated: Mar 16

Is there really a free lunch? What do you need to know about sales agents helping you buy for free?

Before you engage the services of ANY real estate agents (including buyer agents and buyers advocates), even if it is an agent who is willing to "help" you find a property "for free", have you checked that they are properly licenced? And have you ever wondered how your real estate agents are paid?

Did you know, knowing who pays your agent can affect how much you pay for your property? You might be saving a bit on buyers agents fees, but that can end up costing you hundreds of thousands more.

Here's what you need to know.

Who pays your real estate agent?

Not many property buyers bother to find out. But, not knowing the answer to this basic fundamental question is one of the biggest sins of property buying. All home buyers and investment property buyers should ask your agent this. The answer to this fundamental question will help you understand who your real estate agent is really working for, and how much you should trust your agent.

Here in Australia, buyers agents (or buyers advocates) are everywhere. Just like a real estate sales agent, there are too many to choose from. There are the legitimate, licenced and fully insured legal buyers agents, and there are fly-by-night property sales people (yes, some are calling themselves buyers agents to gain your trust) who are here today, sell you a investment and retirement dreams, and disappear by night. Then there are the "free" property sales agents who are also willing to help you buy properties, without charging you any fees.

With so many to choose from, how do you know who are the legitimate, genuinely independent Buyers Advocates (or Buyers Agents) that work to protect the interests of property buyers? How do you know who are the ones you should trust?

Is there any real free property buying services?

Everyone wants a free thing or two. But the secrets you are about to know, will make you think twice about engaging the "free" buying agents. The answers here may shock you. And they will more likely than not, cost you hundreds of thousands more, without you even realising it.

There are simply too many people calling themselves buyers agents in this industry. It is indeed very difficult for uneducated consumers to differentiate the real buyers advocates from the fake without understanding the fundamentals. We will explain the different types of 'buyers agents' in this property education blog. By the end of this article, you will know how to differentiate the legitimate buyers agents from the sales agents masquerading as fake buyers agents. You will also know how to identify and choose your buyers' agents.

Understanding the Real Estate Agent Regulations

Why do all real estate agents have to be licenced?

First off, let us explain the basics. Why must all real estate agents be licenced.

Real estate transactions typically involves millions of dollars. It is usually a big ticket item. And unfortunately, most buyers are buying properties based on blind trust. Not many buyers really know the whos, what's, whens, wheres, whys of buying a property in Melbourne and Australia. And because of this high value, there had been too many scams by dodgy salespersons. To protect the interest of property buyers, it is therefore necessary to enforce licensing of real estate agents. However, enforcing licencing only provides only about 33% of the protection, as this property buying guide will explain.

The law is strict. Anyone helping to sell or buy properties are, required by law, to be licenced. This licencing requirement helps to ensure the agents know their code of conduct, and helps protect the buyers' and sellers' interests in a real estate transaction. In Australia, this code of conduct and regulations are state-based, and each state has a slightly different set of regulations. But the regulations are largely similar. The need to protect property buyers and property sellers are very well spelt out in these regulations.

Here are what you should know, before you engage your real estate agents who are willing to help you buy your property. And here is why your "free property buying service" will cost you hundreds and thousands of dollars.

But first,...

How are real estate agents paid?

Like any other professions, professional real estate agents need to get paid for their work. No one is expected to work for free. Not in Australia, at least. True Australians always pay fair price for their goods and services. True Australians believe in being fair. True Australians do not take advantage of others.

And, here is one thing you should always remember. Simply by paying for the services of the real estate agent, the payor would make themselves the employer, or the "principal" of the person getting paid. This is a very important basic concept, in any transactions. All property agents know this. And all property buyers should also know this. "Who paying your real estate agent?"

Who do real estate agents work for?

Even though real estate agent licensing and regulations are managed by each individual state, the regulations are largely similar. The regulations states that real estate agents should ALWAYS protect the interests of their principal. Now, who is their principal? Principal is whoever pays for their services.

They have to protect whoever pays them and engage them for their services. In Victoria, this is spelt out clearly in Part 2, clause 11 of the Victorian Estate Agents (Professional Conduct) Regulations 2018 S.R. No. 49/2018.

An estate agent or an agent's representative must always act in a principal's best interests.

There are no ifs, no buts. This clause might be worded slightly differently in different states, but it is essentially has the same effect throughout Australia. in plain english, A real estate agent must protect the interest of whoever pays them.

What you should know about buying real estate?

If you are intending to engage a real estate agent to help you buy your property, and you are hoping to get one of the free buying services of a real estate sales agent, you should think twice. The free service will cost you dearly. Find out who is paying for their services. Remember the above paragraph?

Who is really paying for the free property buying services?

No one is going to work for free. The agents have a family to feed. They have a mortgage to pay. And most real estate sales agents have a fancy car loan to pay. If they are not paid by you, how do you think they are paid?

Yes, you are smart enough to know, by now, if your "free buyers' agent" is not paid by you (the buyer), they are paid by the vendor / seller / developer of the property. And remember, simply by receiving any forms of payment, such as commissions or fees, from the seller, even if it is on a co-broke or on a conjunctional basis, it makes the property vendor / seller / developer the agents' principal. IE, your "free" real estate agent is working for the seller, not you, as the buyer. They are effectively real estate SALES agents. They are working with the seller, helping the vendor sell the property to you, at a price they want. They are working against you. Real estate sales agents are working against buyers. They are out to get you to pay the maximum price. And to get your trust, many are calling themselves "buyers agents". Thus, the birth of free "buyers agents", and tarnishing the reputation of a Buyers Advocate.

Remember Part 2, clause 11 of the Real Estate Agents Professional Conduct Regulations? The estate agent or agent representative must always act in the principal's best interest.

The Principal is whoever pays the agent, and by being paid by the seller, it makes these "free buyers agent" the seller agent. It does not matter what these "free" agents tell you. They are either lying to you, or they are breaking the law.

The regulations mandates that the agents must always act in the best interest of their payor. Which, in the case of the "free" buyers agent, having the seller pay the fees effective makes them the selling agent, and they have to protect the interest of the seller. There are no other ways, without violating the regulations. So, as with all sellers agents, these "free" buyers agents will almost always aim for the highest possible price simply because their commissions are directly tied to how much they can sell the property for. It is sad that many buyers, in trying to save a small buyers agent service fee of $15,0000 - $20,000, are unknowingly being mislead into paying hundreds of thousands more for their properties, by these "free" buying agents.

The truth with Sales Agents' "Let me help you get this property" Pitch

Next, this is another important fact in the regulations that no seller agents wants you to know. One of the favourite sales pitch is "Let me help you get this property"... Now that you know the sales agent's secret, who are they really helping? Are sales agents really helping you? Being paid commission by the vendor, they become the protector of the seller's interest, the sales agents will always get you to pay max money for the property. Their commission is directly linked to how much the property is sold for. And all sales agents are trained to negotiate and extract the most out of you. So, the "Let me help you get this property" is a pitch to gain your trust, lower your guard and help them convince you to pay maximum price for the property.

What do you need to know when you engage a free buying service?

Now that you realise those 'free' buyers agent services are not your friend, and not working in your favour, what can you do? Easy. Always do your own diligence. Even if these "free agents" have claimed to find one that is the best for you. Remember these agents are working against you. They are paid by the seller and will therefore, have to protect the seller's interest. They are selling what they have to sell, not what you want or what you need.

The "best property for you" that they have recommended usually means that property will pay them the best commission from the seller. It is usually not the best for you. And it could be the property that they had been trying to sell for too long. No one wanted that, and they are hoping you will buy it. There could be many other properties which is more suitable for you, but because they are not getting any commissions from those sales, they will not recommend them. They are not earning a cent if they do. You could be missing out on a property that really suits you.

What can you do to avoid being scammed by these "Free" Property Buying Services?

There are only 2 things you can do:

  1. Be careful. Free "Buyers Agents" are fake buyers agents. They are not working for you. You have to do your own due diligence.

  2. Engage a genuine independent Buyers Advocate / Buyers Agent.

How do you find genuine real estate Buyer's Agent who work for buyers?

You can turn the tables, by engaging a genuine buyer's advocate (also known as buyer's agent). They are the real deal. They are the ones who protects your buying interest and look after you on your purchase journey. The independent buyer's agents are the ones that buyers can really trust.

How do you identify who are the real independent buyers agents?

Now, remember the agent is legally required to look after the interest of their principal. IE, whoever pays for their services. If you are paying for this buying services, the agent must look after you, and ensure your purchase is in your interest. And depending on the scope of the service, this usually means helping you negotiate for the lowest possible price, or package your offer for the best possible purchase outcome. Your savings is usually worth more than the fees you pay. With our buying services and fees structure, our clients are usually saving 3 to over 10 times more than our fees.

10 times return on investment (ROI)? Now are you interested?

How do you find a genuine Buyer's Agent in Melbourne?

Now, you will be asking, when you have paid for the buyers advocates services, how can you be certain that they are working in your favour? If you have engaged a licenced real estate buyers agent, you do not have to worry. The Real Estate Professional Conduct Regulations ensured that. Part 2, clause 8(1)(a) of the Estate Agents (Professional Conduct) Regulations 2018 S.R. No. 49/2018 addresses this. An agent or an agent's representative must not accept commission from the seller of real estate when engaged to purchase that real estate on behalf of a purchaser.

An agent or an agent's representative must not accept commission from the seller of real estate when engaged to purchase that real estate on behalf of a purchaser.

A properly licenced buyer's agent cannot and will not accept commissions from the seller if you have engaged and paid for their services. There are heavy penalties leading to heavy fines and loss of licence if they were found to be receiving fees and commissions from both the seller and buyer in the same transaction.

So, to protect yourself, you should always ensure you engage a paid and licenced buyer's agent for the purchase, not any other real estate sales agents helping you for 'free'.

The free buyers agent services are not free, they cannot have your interest at heart and they will cost you dearly. If they are not paid by you, they are paid by the seller and that means, they will have to protect the seller's interest, not you.

What do you need to know of people claiming to give you Financial Freedom through Property Investing? Rogue Buyer's Agents?

So, if the law is so clear, what do you need to watch out for? Have you heard of get rich quick, property mentoring programmes?

Yes, those that charges you a sign-up fee to join their financial freedom property investor investment services, gives you access to some online sales materials, then entice you with their mass-market cookie-cutter formula to "help you buy good properties"? They claim to be able to help propell your investment into a success. If you've been shopping around for real estate, you would have come across them. Is this legal?

  • Who are these investment "strategist"? A workaround for the real estate agent regulations?

  • Are these consultants or "strategists" real estate agents? Or are they the smooth talking salespersons?

  • They have to be legally licenced to sell you properties... Are they licenced? If not, why not?

  • And because they are providing you a financial dream, do they have a Financial Planning Licence. If not, why no?

  • Are they charging you a fee for their "mentoring program", and then getting sales commission from the developers to sell you a property? Notice how they always seem to buy where they are recommending? Hmmm... Some food for thought.

Conclusion - Where can you find real, independent Buyer's Agents?

What should you do to ensure you have an agent that truly looks after your interest? You can either spend years to learn everything about the real estate industry, by trial and error, or you can pay for a legitimate, licenced buyer's advocate to help with your purchase. The regulations mandates that the licenced agents must look after the person who pays them. The same set of regulations also prevents a licenced agent from working for both the buyer and seller for the same transaction. Thus, to ensure you are engaging a legitimate, licenced buyers agent, all you need to do, is to pay for the agents services and avoid those who sells you an investment dream.

I wished there is, but there's no free lunch, unfortunately. There are no such thing as a free buyers agent service. You might not be paying them, but they will cost you hundreds of thousands.

Some food for thoughts. If you are ready to get in touch with a licenced buyer's advocate, get in touch: Here. Let us discuss if our services are right for you.


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