What does property advice cost ?

It’s important as Advisors when working with your clients, that you help them to understanding the way the property market works and that all property advice (free or not), costs as some point.

Unlike the financial planning, mortgage broking and insurance sectors, the property sector is not regulated by a national governing body such as ASIC so alarmingly, there is no requirement for people involved in the property sector to have a minimum qualification to provide ‘property advice’.

As a result, there is an abundance of property spruikers, selling agents, developers and even brokers, planners and accountants who are all selling property based on the ‘free’ education, strategy and advice they provide. This property based education often takes the buyer down the path of buying whatever property or strategy the ‘expert’ has to sell, because it matches the ‘free’ education provided (the exception being those who offer genuine independent and unbiased ‘advice based’ buyer advocacy services).

While ‘free advice’ provided by unqualifed property advisors may seem harmless, the consequences can be devastating! The difference between buying an average property growing at 5% pa, versus an investment grade property that outperforms the market at 9% pa on a $400,000 purchase, could literally make $100,000’s and even millions of dollars difference over a 10 – 30 year period. So while the advice has been free, it has cost your clients a phenomenal amount of money in equity growth.

As an aside, there is also the matter of conflicted commissions that some financial planners are earning when referring to project marketers, developers and property spruikers. In this instance, they always represent the vendor in the transaction and not their client, so they aren't acting in their clients best interests at that point. There is a risk to their business that is associated with receiving these ‘referral’ fees (commissions), especially if not disclosed upfront. In many instances, the referrer's fee is built into the property price, which means the client could be overpaying for the property. This is why it is important for your clients to seek advice and support form formally qualfied property advisors, who disclose all fees upfront and have professional indemnity insurance which covers the provision of that advice.

Warning Signs

Much of the property sold in Australia is sold on the basis of buyers being provided with ‘free advice’. That in itself should act as a warning to buyers, who need to learn more about who they are dealing with by asking better questions.

The people selling property to them aren’t required to (and aren’t going to) volunteer answers to questions investors don’t know to ask, because it may kill their deal – and, if they are commission sales agents, they need to eat!

‘Free’ services and how they are really paid

There are numerous clever and innovative ways of selling property in the marketplace today, including memberships, referrers, research houses, telemarketing, in-home visits, clubs, coaching and property ‘experts’. Urgency and exclusivity are often used in many of these sales methods to put pressure on buyers to make fast decisions, without allowing them time to seek independent advice on the basis that they will miss out. Often these methods educate their clients to buy their product, but they may not provide holistic advice.

Let’s review a couple of methods:

Memberships

One method is offering memberships to investor groups, project marketing firms or clubs for exclusive access to special deals that have been sourced by specialist acquisition teams who negotiate amazing deals on behalf of their members/buyers.

Sound familiar? Don’t be fooled. In its simplest form, this is sales and marketing ‘smoke and mirrors’ to hide the fact that they are real estate sales agents/project marketers/property spruikers/wholesalers of property. While they might sound like they are working for the buyer and their interests, they are actually being paid by a vendor/seller/developer and are seeking the highest sale price possible. They are acting in the vendor’s best interests at all times, not your client’s.

Research houses

Research houses are often licensed real estate agencies marketing themselves as ‘research’ houses, or having specialist property research or acquisitions teams within their firm, who source or assess developments presented to them. They determine whether these developments meet particular criteria required for them to be willing to sell them to their clients or referral partners/business partners. On the plus side, some of these firms are being more selective with the property they are selling than the average project marketer, but they are still selling from the limited selection that they have, and not from the total marketplace.

By understanding the methods in which property is sold and the underlying intent behind the ‘free’ advice provided, investors have the greatest chance possible of asking the right questions to ensure they are buying the right property to meet their needs and not the vendors needs.

Miriam Sandkuhler is the founder of Property Mavens - a specialist property advisory firm based in Melbourne.

Unlike most ‘Property Advisors’, Miriam is an Accredited Property Investment Advisor (PIAA), Licensed Estate Agent and REIV member and award nominated Buyer Agent, with 15 years of real estate experience in two states. She is also the author of the book Property Prosperity.

Miriam and her team excel at identifying high-performing property and strategically building a client’s portfolio with high capital and income growth assets. She is also a passionate advocate of fair play for all and complete accountability and transparency in the real estate industry. She has a strong track record helping investors and home buyers and believes education is the key to empowering people on their journey to achieving their goals.

Miriam is a regular real estate and investment media commentator and has published articles in Australian Property Investor, Property Observer, Smart Property Investment and Your Investment Property magazines, as well as having appeared on radio and in metro daily newspapers.