You’re using a buyers agent that charges a fixed price fee and you’re wondering whether you should purchase a more expensive property so that you can get further value from their services?
This was a question posed to us this past week.
If you’re starting from “square one”, you might want to first take a look at our “What is a buyer’s agent” report HERE.
Firstly a buyer’s agent that offers you a fixed price contract to secure you a property is a good thing, by offering you a fixed price you know how much you are up for and you also know there will be no price creep for them to receive a higher fee if they were to operate on a percentage basis. Especially if they were to represent you at auction…
Typically Buyers Agents that have a set fee will usually have a tiered structure something like this. For a property under $400,000 they may charge you say $9,000. From $400,000 to $650,000 $12,000. From $650,000 to $1,000,000 $16,000 so on and so on.
So coming back to the question am I better to spend more to get additional value?
I think this comes down to your overall strategy? Every investor should have a strategy and the BA is another one of your advisors to help you execute that.
I’ll give two examples of why you maybe using a Buyers Agent and answer the question from those.
- Your portfolio may have minimal equity available but you have a high cash flow to support it, however to continue investing you need a high growth property otherwise you’re stymied?Or
- Your current portfolio is heavily negatively geared, but in a high equity position and really needs something that is cash flow positive like a block of flats, house and granny flat or a commercial building to assist in supporting it all?
In these two examples your strategy is the underlying current of the outcome that needs to be met, and why you engaged the BA in the first place.
If it is capital growth that you need to build, then the conversation with the BA will be along the lines of what can you buy me that will achieve the maximum amount of Capital Growth in the shortest possible timeframe? This will open the door to conversations around subdivisions, raise and slides, adding value or even strata titling, pretty much anything that will give you calculated manufactured equity.
So in this example trying to achieve better value from the dollar spent with the BA by purchasing a more expensive property is a non discussion. The Buyers Agents brief has become ‘create me equity’. If they have the tiered structure that I mentioned above then you may drift from one tier to another whilst they’re looking for that perfect deal. When that deal is found, it’s quite simply down to the numbers, so does it really matter how much they charge you if the outcome is met? Probably not.
In the second example where your strategy is in need of high Cash Flow then you may get better value from your Buyers agent if you were to spend more. An example of this could be they can secure you a Granny Flat compliant house and project manage it onto the back of it for you with say a 8% yield. But if you were to engage their services at a higher level and changed the brief to say a commercial property, you could end up with a 11% yield and a national tenant. In this example there would be more value to you in lifting your investment amount to get more value from the Buyers Agents services.
There’s one thing in all of this that stands out though and that is it comes back to the underlying strategy. Once that has been established then it is simply an execution of that.
Don’t have a strategy yet, give one of my team a call or Click HERE to Schedule a Consultation – we’ll happily give you 30 minutes of our time and help build you a strategy.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).