The Elephant in the Room Property Podcast | Australian real estate
The Elephant In The Room Property Podcast with Veronica Morgan & Chris Bates


Episode 74 | Disruption, technology & trust in the Real Estate Industry | Veronica Morgan & Chris Bates

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Will AI mean the death of real estate as we know it?

  • Will AI replace real estate agents & mortgage brokers?

  • Why trust is such an important factor in our property decisions.

  • Can AI manage you through the rollercoaster of a property purchase?

  • Is it possible for APPs to counsel us through highs & lows of key life changes

  • What will happen to our negotiation capability with AI?

  • Who is getting paid for what? Kick backs you need to know about!

  • Don’t assume technology or disruption to our industry is going to be a better solution.


Home Buyer Academy - 3 videos on how to price a property 

Chris Bates - Wealthful

Veronica Morgan - Good Deeds Property Buyers 

Related Links:
Elephant Ep 7: Mary Anne Cronin

CoreLogic - Pain & Gain Report

Work with Veronica?

Work with Chris?


Veronica: You're listening to the elephant in the room property podcast where the big things that never get talked about, actually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent and co-host at Foxtels location, location, location Australia. And,

Chris: I'm Chris Bates, financial planner, mortgage broker and wealth coach and together we're going to uncover who's really making the decisions when you buy a property.

Chris: Please stick around for this week's elephant rider boot camp and we have a cracking dumbo the week coming up.

Chris: Before we get started. Everything we talk about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial adviser or buyer's agent. They were tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica: This is a recording of a conversation that Chris and I had a year ago. Now we kept it on the back burner because we'd had so many great interview from guests and then we suddenly remembered we hadn't released it. The conversation is all about disruption and the changes technology could bring to the real estate industry. Now, a few things have changed since this conversation, but you know what? Most of remained the same. So a year isn't always such a long time after all, listen on and see if you agree and if you do or even if you don't, we'd love it if you could share your thoughts in an iTunes review.

Veronica: In this episode, Chris and I are going to talk about disruption and in particular how disruption is going to affect the real estate industry. And today I went to a briefing from the REI New South Wales and it was a hot topic. The fact that the industry itself is ripe for disruption for lots and lots of reasons and one of the reasons is really revolves around the fact that agents are not the most trusted profession.They used to be pretty trusted. I think, you know, I think probably 30 40 years ago real estate agents were actually respected, but they certainly haven't been in recent times and a lot of that's obviously because of their own behavior. But to the industry at the moment is very concerned about disruption and the threat and taking very seriously or of taking a very serious look at what the options are and what they should be doing.

Veronica: I should say we, because I'm a real estate agent of course, and but what we should be doing to make sure that we have a relevance in the future. So one of the things that was discussed today was that we are at a professionalism crossroad. And so obviously the real estate industry we've talked about in a few of the episodes that we've recorded with various, um, guests change is forcing the industry to look at, well, what are our options? They put up that there's four options. One, you can just go out of business, not that, not that appealing.

Speaker 4: Two, that you just stick with the status quo, which ultimately probably means you will end up going out of business anyway. Three, that you become a discount processor. Yep. Um, he might go out of business doing that too. Uh, unless you can keep your costs down. And four, become a professional advisor, which is obviously the pathway to professionalism that is uh, very much a focus in real estate circles currently. But in terms of the disruptors, there's a number of them coming onto the market is even one coming on this very month and we're recording this in June. And a lot of these are where technology is going to be introduced to enable vendors to deal directly with buyers. And so this episode, what we want to do is talk about are these a good thing for buyers? Will buyers really benefit from sales agents being cut out of the picture?

Chris: Well, I mean it's a huge, huge discussion I think, um, not only in the real estate industry, you know, we more I do in mortgage broking, financial vice, everyone's very fearful of what it's called, like a bit of an Uber moment, you know, the Uber wasn't here and then there was taxi drivers and then Uber came, and then all the taxi drivers lost their jobs. And everyone, I guess in every industry is a bit worried about this Uber moment happening to them. But I guess it's, it may not happen overnight, but I guess it might happen in stages and you know, over a long period. And I guess it's everyone's just a bit fearful of how long does it take and what, who loses their jobs. And so it's a very, you know, worrying thing for a lot of industries, not just real estate.

Veronica: Yeah, absolutely. We taught a couple of episodes back with Kent Lardner Episode 6 and he mentioned that website, will a robot take my job? And of course real estate agents, it's pretty much doomed. I think financial advice, mortgage broker even more so I think, I mean a lot of what financial advisors do is, is, you know, sell knowledge I guess. And knowledge is pretty cheap nowadays. You can go online and, you know, search on Google and find it. And if you know how to apply that to your situation, do you really need to go see a financial advisor? And probably the answer's no. So, you know, mortgage broking very similar as well. I mean, if, if you, if you're just there to get a mortgage, you know, do you need a mortgage broker for that? We'll no theirs is actually cheaper options online now you know, youbank today you, um, you know, home loans is all these digital brokers out there.

Veronica: So, you know, we definitely need to talk about these things because they're not going to go away. Now a big issue is, well, what can machines do? All technology do that human beings can't do and vice versa. But I think, you know, rather than than probably a little all in one big chunk, let's, let's sort of break it down a little bit. I think, um, I sort of, we're taking some nights when I was at this briefing today and the very first stage that it seems, um, already has been disrupted in many ways is the agent selection tools. So if you think about your going to, you're planning to sell your property, then you will go out there and try to find an agent to sell your property. Now, some people will believe that the agent makes a big difference to the outcome and other people have a belief that it doesn't, so they're going to go for the cheapest.

Veronica: Whereas some will go for those, that good track record or whatever criteria that they are going to look for. In terms of choosing an agent and RP data or Corelogic actually did a report on this a few years ago and the number one thing that that vendors look for in agencies trust. So I how do you establish trust and obviously vendors want trust yet agents are recorded as being one of the least trusted professions. So there's a immediate mismatch and so therefore you've had lots of apps come on the market, you've got open agents. I think you've got all the names of them and one is rate my agent, rate my agent, know my agent. Yep. Local agent or find a local agent, whatever they're called. But they're, there are all these apps out there. Now you could argue that this makes things easier for consumer and it should, except there's a massive bias that comes in with some of these.

Chris: Well, I mean, I guess the, the APP is going to reward people who are selling a lot and you know who have got lots of reviews going on the system and they're going to be considered to be the best in the area. So what these apps are really probably doing is, is already 80% of the business is probably going to these agents. But even more, the business is probably still going to these agents because it's probably still the algorithms probably supporting the people who were paying them and that's people who are selling. And so, you know, I guess if you're a new agent, you know, how do you become, because if you're trying to sell a house in Bellevue Hill and you type the address Bellevue Hill in, it's going to pick the top three agents, recommend you to speak to those three agents. And those three agents are going to probably be the best selling agents.

Chris: So you know, it's pretty much doesn't, unless there's probably going to be three agents in Bellevue hill that are going to be successful on that platform. I guess.

Veronica: So that's sort of interesting too, because they don't all get payments from agents, some of these sites do. And I think that that's what the consumer needs to be very aware of. Yeah. Why are these people rated well on the site? Is it because they're paying the fees and therefore they get pushed? Or is it because it's actually a true user? Um, or the content in their site is actually truly coming from users?

Chris: Yeah, I mean, that's the, whenever you're looking at reviews, I mean, you're, you're only going to show good testimonials on your website, aren't you? You're not going to show all the bad testimonials it's the same thing with these sights. They're only, you know, however they do their reviews and their systems and their processes, if it's not independent and there's not trust there and it's kind of worthless, right. You know, everyone can write a good review, but unless it's verified, etc. Like that. So I think that's a big challenge where these platforms is that, you know, there are a lot of the reviews behind them may not be verified. There may not be independent enough. They may not be, uh, you know, I guess a transparency there that actually gives it credibility,

Veronica: which is ironic. It, yeah, because they're there because there's a lack of trust for agents. And so then there's, that just breeds a whole plethora of other platforms that actually aren't necessarily trustworthy themselves.

Chris: Yeah. I think it's, people want to just get a, pick an agent very fast. So this allows them to speak to three agents very quickly and then as long as they have one of those three agents doesn't come across, you know, on a bad light, then they're probably going to go ahead with them. So I think that's what you're right though. That's a huge disruption. You know, if you're the fourth or fifth agent or the 20th, how do you actually get in that top three? Um, and I mean, I guess even listing platforms, I mean, , Domain

Veronica: don't mind me jumping the gun here cause that's the next thing. But once before we get to that, I think for someone who wants to sell their property, one of my big tips [is] go to open houses. And essentially, you know, you've basically doing a secret shopper. Yeah. So you're pretending to be a buyer or you're going to become a buyer probably at some point, but go out as if you're a buyer and really assess how those agents deal, how they manage their open houses, how they greet you, how they sellthe house while you're there or the apartment while you're there, how they follow you up, how they engage with you. Really judge them on that because that's going to be a true sense or a bit more of an indication of the type of relationship or the type of way they're going to handle you when you list your property with them. So that will be the one thing I would recommend.

Chris: Yeah, I think that's, that's, I mean that's brilliant. If you live in Rozelle and you're trying to sell a house in Rozelle or the house that you've got or the invesment probably you've got maybe in Sydney you could probably do that. But if you're trying, if you've, you've you know, unfortunately bought an investment property in, you know, Timbuktoo and you need to sell it to you to find an agent there, it's probably a little bit difficult for that. Yeah, I mean I guess probably a good sign is to see that other agents is the agents is selling something similar to the price that you want to sell.

Veronica: That's important actually. And one of the things that we do when we're doing our portfolio review, we do actually survey agents in, in areas and we look on the portasl such as, or and actually look in at their agent profiles and who are the top selling agent in those areas. But also who's selling the most amount of property similar to what we're looking at.

Chris: Yeah. And I mean cause a lot of the time you would probably, if it's not, if you're selling it, you're selling it for a reason and sometimes you're selling it because it's not a great property. Um, which is a reason why you probably should sell it. Um, and if an agent has sold a similar property recently, you know, a client literally right now, um, you know, it's a unit in Wentworth Park, you know, it's not a great investment. Um, and you know, they're trying to sell it so, you know, they've tried to speak to a few different agents and they've gone for the agent that's pretty confident to sell it off market because you know, by the time it presents itself on Wentworth Park, there's hundreds of other properties on there. They've just tried to find a hungry agent that is willing to sell it, who's got the confidence that they've got the buyers.

Veronica: Who's seriously going to be at a sell something they where there's all these new buildings being, I think the first building has just been completed, right? Yes. Oh No, no, no. There's, there's hundreds of buildings already. Yeah. Oh, right, okay. But there's a lot more to go, right? Yeah. Yeah. So why bother with off market? I mean,

Chris: just got to get rid of it. Yeah.

Veronica: How are they going to get rid of it off mark? What buyer is going to go for that? That hasn't gone for something he's not aware of everything else that's on the market?

Chris: Well I guess, I mean that's this, they are trying to find someone to get rid of it. You know, every agent, she's unfortunately its a hard asset to sell. Right. You know, like if you're a real estate agents, the last listing you want, how do you differentiate a product that is no different? Yup. You can't say that it's nicer because it's not, it's the same. It's exactly the same as the other hundred properties for sale. So, you know, and this is when we talk about technology, you know, this is a property that would probably be perfect for a platform that you know, is just online and you know, there's someone willing to buy it, you know, because it's very hard for that property to, you know, to sell in the market.

Veronica: This is another thing that they mentioned it at this briefing today was that, um, really the advertising portal, so you know, your domain and real estate at the biggest, um, they're effectively going direct vendors now and offering vendors or direct listing opportunities as well. So you can see the landscape that if an agent themselves isn't adding any value in the transaction and you know, somebody can easily market their own property, then, you can absolutely see why agents, it started to get worried.

Chris: Oh, and domain 100%. They would be thinking about going into selling their own homes. MMM. I mean they've got everything infrastructure set up online to sell these things and they, do mortgage broking now too. Well, no, that's exactly right. So they've already got their home loan teams set up. Um, you know, if they could cut the agent in the end and sell their homes online, um, you know, I guess in the rooms somewhere there'll be thinking about that.

Veronica: Yeah, there's a bit of an elephant in the room really, isn't it? When you think about that's bolshie I mean they've, they've grown on the back of all that real estate agent advertising and now they're going to say, well see you guys, we can do it without you. MMM. On that too. There's a new APP being launched this month. I do believe, um, called I found out about this via, Linkedin actually, and it's sort of its premise and may have got it slightly wrong here, but the premise is that, uh, you can list your property on there. You get a registered valuation, rh, evaluation of my registered valuer. And then as long as you commit to selling it within a range of, I don't know what the variance is, maybe it's 5% plus or minus or something like that. As long as you sign and go, right, yes, I am prepared to, to sell within that range, then you can put it on there and basically it's like an online bidding platform.

Chris: I mean, if you're trying to sell a unit in Wentworth Park as an example, we're not trying to pick on them. Now, it's not just the only area in Sydney I'd be worried about there's plenty of areas like that. Um, and other cities like Melbourne, you know, Brisbane. We could keep going like these type of new units. Fundamentally this is the big floor in them and why you have problems with their prices and you know, their growth. But if you were trying to sell that from an agent point of view, it's very tough work, right? You've got very few buyers. You've got a product that's hard to sell, you do all this work and you only get paid if it actually sells. Yep. Do you really, is that really profitable? Is it really good business to be running around chasing and trying to get to joins to end like two ends to meet? Um, so, you know, really these are the type of agents shouldn't really be doing this anyway, you know, because it's very hard work trying to sell something that's, you know, that so many of them,

Veronica: From a buyer's point of view, that should be a warning sign for the buyer. So you could argue, oh, it's great for buyers cause I can get to buy it cheaper. You know, because the person is a race to the bottom. Really isn't it? The person who's prepared to offload their property at the cheapest price, will get the first buyer. Yep. There might only be one buyer then 10 properties, but that from a buyer's perspective and what we're trying to do in this podcast is educate buyers. Then from that buyer's perspective, that's a massive warning sign. You know, if, if that is the way that a property has been marketed because it's a commodity, then I would say run.

Chris: You know, you, if you've got a good property, you know there's going to be competition. You know, you've got probably got six agents knocking on your door everyday trying to sell it. Um, but also, you know, if you list it, you're gonna get lots of markets, you're going to hit lots of and these are the properties that won't have any problems or from technology because the whole reason that pushes the price up, that extra five or extra, 10% is that competition, you know, over that four weeks where you know, like they get all the buyers together and this internal competition starts to push the price up and a technology. This is where I don't think a lot of technology can, you know, manufacturer I guess. Um, and this is where I think a lot of agents who are working with selling these type of properties, probably not that bothered. They know that they've got good products, they're very competitive, they're in great areas and they're in great suburbs and days they stop. A properties are always going to have competition if they've always got competition then emotion is going to come in. And when emotion comes in, you're going to need, you know, a human in there to basically try to keep the elephant out of control. So we get the highest price.

Veronica: Okay. You could think that only having humans involved is, well, you could argue that in an emotive sort of sale scenarios such as that, that human involvement is actually going to stimulate the elephant, this analagy gets a bit messy, doesn't it? However, online auction platforms in, remember we talked to David Scholls and that's episode 8. Um, you know, online platforms equally have, you know, they operate differently. They, generate the fear of missing out and loss aversion and kicking the low those behavioral biases in a very different way than say an rooms or onsite auction with the live auctioneer. But those auction online auction sites, online bidding sites, I don't necessarily think that they're good for buyers either.

Chris: No, I do think that it was very interesting, you know, in that conversation around mmm. You know, the Ebay of property selling, you know, when you've got a time, it's gonna finish up Friday at 5:00 PM. Um, and there's a beautiful platform that says that this place is worth $1 million and they've got open homes over that month that you can go check it out. There's an online building and pest report. Um, and do you really want this place? You know, I think that's still going to create competition. And you still find the people will over pay.

Veronica: Yeah. And I think that, so they'll overpay for different reasons or responding to different stimuli perhaps, but they certainly will still overpay. And I think that's going to be harder because personally I think what, you know, these are pushed forward as saying that they're transparent, right? There's a new APP is a new agent, aportal called openn with two n's negotiation. Now this has only been recently released and this is actually being targeted at agents themselves. So for them to use this technology rather than them getting involved in the negotiation with buyers, this is, this is basically agent lists the property, agent markets the property, agent opens then property follows up with buyers, but at the end of the day, there's a deadline on a timer. The buyers themselves register online. They see that there are other people registered. Um, so there's a danger there from an agent to, in case in those situations where there might only be one buyer interested, but there's this, there's this transparency, but it's not really transparent because at an auction you actually physically can see what somebody just bid for or bid to. Whereas when you're in your dark room looking at your computer screen with your glass of wine and your mind is going crazy thinking, I'm going to miss out on going to miss that. I'm going to have to, I have to bid an extra hundred thousand dollars. I'm gonna have to be, you know, there's all these sort of stuff goes on that is very different type of incident or very different type of pressure.

Chris: Well, yeah, I'm an Ebay had that problem. I was probably still does have that problem. I don't know. But where, you know, if you had a minimum reserve of a dollar and you list something, then there's nothing stopping you opening up a fake account and actually bidding against your own, uh, you know, things you're selling. There's no reason why you can't at $100. You see someone's interested, opened up a fake account and then bid at $105 and then basically vendor bidding against yourself. Um, you know, to push the price up. So I don't actually, that was years ago. I mean, I knew that they, they, there's probably tools and ways it can be able to stop this. I'm not a mad ebay buyer, so I don't even think about that. But yeah, but it's the, you can game the system, right? And there's no reason why it's, you know, some of these apps is you couldn't start gaming the system, you know, I hadn't thought about that. And so this is where, you know, the transparency is there, but you know, it's only how much it is to, yeah.

Veronica: And No, I mean, look, obviously we haven't gone into the depths of their mechanisms of these sites, so, you know, we could easily be proven wrong here. Maybe they do have great systems in place and I'm sure that the smart operators and smart developers would have thought of all these things, but I think it's really important to consumers and buyers do you think and do question whether these are actually better for them or not. Because dealing with an human being, one thing that I think Simon Russell said this, that a machine doesn't have a conscience, you know, so at the end of the day we say we trust the machine. We trust the APP, we trust the valuation model. We trust an AVM. Really? I wouldn't not, not yet. MMM. Why do we trust that? You know, I think as buyers we have to be very, very careful you know how trusting we are of technology.

Chris: Yeah. I mean I think he's talking about there, I mean Purple Bricks version example, um, you know, it's a lower cost way of selling a property. So it saves you money through selling. But does it cost you on the sale price? Do you get a lower sale price or do you get the perfect sale price? You know, and I guess that's the other thing to this, you know, to think about hear that might be saving you money on one hand, but is it costing you money on the other hand?

Chris: Um, the same as when you choose to use a buyer's agent or not. A lot of people will go, oh, I don't want to pay the $20K or whatever it is for the fee because that means it's coming off my deposit. And you think, well actually, you know, if you get the right buyer's agent, then the value can either be in terms of buying at a cheaper price because better negotiation skills or it could be actually buying a better asset that actually appreciates exponentially greater rate then poor asset. So it's a sort of flipside of the same argument,

Chris: isn't it? Yeah, I mean it's, it's, it's all about how you, on howyou're trying to save money. And I think if you're trying to save money on, on selling a thing and extra five or $10,000 to an agent that may get, you know, $50 - $100K or more, it's, you haven't really saved money. Have you, you know, you've actually lost money, but

Veronica: There is no parallel universe. So how would you even know? And because these are, it taps into another bias, is it auspices bias where basically you, you'll convince yourself that I hope, I've got the right word here for it, but you'll convince yourself that you made the right decision because, considering the consequences of having not made a good decision is too painful. So you just, you, you will seek, you know, to reassure yourself that you did make a good call.

Chris: Yeah. I mean, no one wants to ever look back on hindsight and I think they've made a mistake. So iespecially if it's a property. Yeah. But I mean that's what you learn, right? That's where you actually really understand, um, you know, what's a good decision, what's not a good decision? If you're not reflecting on your own mistakes and things that you've done in the past, how are you ever going grow? And that, I think that's the, the one of the things you should be doing is, is really questioning everything you've done in the past. Especially around property. And has that been a good decision? And not many people have gone back and looked at the properties they're purchased and compared that to the, the average, you know, or compare that to the median.

Veronica: I would say less than 0.1% do that. Yeah. Cause most people when I say to them, well, they say to me, Oh, I'm really happy with my property portfolio. I've done really well out of property and all I'll say, oh that's fantastic. I'm really happy to hear that. How have you measured that? And it's like crickets because they haven't, they just, if they've actually sold it for more than I paid for it so that they're happy with that, but there's no measure for how did that compare with what could have, could've been.

Chris: Yeah. And it's pretty easy to do, you know, if you've got a unit in an area, we'll go from, if it's, you know, whatever suburb. Um, I dunno Brunswick for example, in Melbourne, um, you know, you compare the units to the houses. Okay. Okay. Well that's great. And then maybe if you've got a house on a main road, maybe try to find a house on a quiet back street, a beautiful tree lined street and compare that and that to your property. What was that worth? And you know this and then if you can yeah,

Veronica: A lot of case studies on this. I've actually picked properties that I know are, have been underperformers and then I've gone and trowled through the data to find other properties that have sold, bought and sold in similar time periods in the same suburbs and sometimes in different suburbs as well. Particularly if you're looking at investments, it's really important to consider what else could you have spent your money on. And one particular, uh, case study I did on a little house in Balmain and over the period of time that sold a number of times over a 12 year period. So you could track this one against the median, for instance. Um, very easily. And so these property had actually lost, it had it had fallen away from the rest of the market effectively to the tune of $180,000 over the 12 year period. So if it had tracked the median, it would have been with $180,000 more. 12 yeah.

Chris: Down the track, let alone outperforming the medium which some properties do absolutely. You know, it kind of compounds, you know, they're throwing more on the technology side. What are some of these other apps that you've seen out there?

Veronica: Yeah, well it's not necessarily some of the apps themselves is the use of other apps, like for instance, um, other advertising, other advertising vehicles such as the use of Facebook. Mm. And so vendors can actually put their own property out on Facebook if they want it to, you know, and there's been some examples of people that have done that, so they may have, you know, they, uh, a lot of Facebook friends wouldn't you? Well they might boost it. You want even if say say you did have a property with some level of uniquenesses scarcity, a beautiful view or something that made it um, unique and appealing and you put out a fabulous image on Facebook and pushed it out that way and have people feeling like they had this exclusivity, an agent was going to get the listing, for instance, in a certain market conditions, certain times that is a perfect vehicle for it.

Veronica: I mean, any big platform with lots of big databases, you know, your Amazons, your Facebooks, Google, Google have tried to go there for home loans. Um, they do it for flights and you know, there's definately, these platforms will be thinking, well after we've exhausted the growth in this area, what are the other areas? And selling things, making and transactions are always going to be where they're going to think about doing. And the bigger the transaction, the more money there is to be made. And so real estate probably higher up on the list of these platforms. So think about if we were going to go into other areas, what products could we sell that would, and are big transactions. Um, and so, you know, you have to think about these things, but why wouldn't Amazon as an example move into selling homes at some point when you know they've got all the technologies they've got all the AI,they've got the machine learning, they've got all the brand trust and awareness

Veronica: They have put those devices, everybody's houses so they can hear what they're talking about. Yeah, right. I just don't get how smart people do it. It was bad enough with Siri and I know Siri listens. Yeah, I know because I've talked about random stuff and then I've turned on my computer and the next thing is ads being shown to me so I know. So Siri listens.

Chris: I'll attach, a very interesting youtube clip for that actually in the show notes. Yeah,

Veronica: I'm mortified. And so, you know, you bring in Google home or you bring in a Amazon Alexa, what are we doing? Letting these into our homes?

Chris: MMM. At the moment we don't like you have one? No, I haven't got one. I'm not getting one with them though. But um, yeah, I mean, yeah, I mean people love them in the US they're huge, um, you know, it's pretty scary how many members Amazon have got and if the future of a search his voice, which, you know, a lot of good research is saying that, how do you become number one in Seo on voice? So take me to the barber and that'll take you to the number one barber, let's say in the area. There is no choice. It doesn't say, here's the top five barbers. It says, well this is the one. He's

Veronica: well, but then does it even take you to the number one SEO one or does it take you the number one advertiser rather than one that's paid the mice in advertising? And then we get back to that. Um, you know, the, the rate, my agents, although I think you Ewan Morton, we interviewed him and he corrected me when I said that RateMy Agent, they had to pay. All the agents have to pay to be on. Uh, from what I understand, that is one portal where they don't pay or don't know what they're,

Chris: I haven't looked at them in detail, but I mean, I think it's a very important point. Hmm. Any consumer though to know who pays who. Yeah. You know, like, so, you know, if they're seeing a financial advisor, how were you getting paid? You know, who, who's, where are you making your money? And you know, and if you're saying a mortgage broker who pays you, do the banks pay you the same amount asks, you know, you need to figure it out. Who pays who. Yup. You know, see a buyer's agent for example. You know, especially if they're offering anything new, you know, and it's not something that's sold and there's any chance of someone getting paid a commission. Um, you know, you need to ask these questions. Who's playing here?

Veronica: Actually, this is a massive elephant in the room topic because who pays, who is absolutely critical to the quality of advice, right? So if you're not paying for advice, then you being sold to because someone's paying that person. So, and this is one of my, I guess my issues with property anyway. Fundamentally the market or the industry has got one big flaw and that is that people don't pay agents unless they sell, which means that that agent and, and, and I'm not bagging agents, here at all, this is just systemic. It's the structure of the industry that until homeowners are willing to pay for advice throughout the whole sales campaign and have that payment not contingent on a sale, until they prepared to do that, then there's always going to be this issue of trust.

Chris: I agree in on and these new things don't have to always be this way. You know, the, the way that the agents had been paid has enough. The way mortgage brokers doesn't always have to stay that way. Financial advisors already changed. You know, I think it's a good thing that, you know, the, the way that comission and you know why the people are paid evolves with the times, but you're right, if an agent got paid, you know, own initial engagement fee, you know, $3,000 let's say. And then they were paid say 50% at the end of the campaign, whether you sell or not, um, they could have a success component. Correct. Yeah. And it was an uplift in if you, I mean, they've been trying to bring this into our funds management for years. Um, and you know, the funds management industry is very powerful. Um, and the way that they get paid as a percentage of assets.

Chris: Now it doesn't matter if they're making money or they're losing money, they still get paid a percentage of the assets. So if I'm managing a billion dollars, I get 1%. If I'm managing $900 million because the funds gone down, I still get 1% on $900 million, I still make a lot of money. So to me it doesn't really matter if we're performing or not. I still get paid. Yeah. As the fund goes up and down now very few fund managers will step away from that model because the alternative model is performance based and it's to say, well, I'll make money when we make money and you make money. And that's just something that they don't want to change. But if you were thinking what was the best option for consumers and what's right and what's fair, maybe both. You'd be a bit of both. Yeah. You know,

Veronica: I have to say that, um, one of the reasons, and I probably didn't even realize this until I reflected on it, but one of the reasons I jumped ship from selling. So I sold for six years into buying. Now I've been doing that for, well 12 nearly. Um, one of the reasons that I did that is because I like being paid for my advice and used to really frustrate me. I used to give very good advice people and often to my own detriment because I'd often suggest people didn't sell or waited, um, you know, but I had a very big, very much a big picture view of the world and also my role within that industry. And so as a consequence, I have a lot of my clients now that I had back then when I was a selling agent, but that certainly isn't widespread. That type of attitude. Um, seeing that is becoming more, this certainly a movement more in that direction, which is great, but I still don't think that fundamentally the structure of how they're remunerated supports that.

Chris: Yeah. And I think that's, uh, it's, it's definitely probably a watch this space in lots of industries. Um, you know, there's a pressure on transparency and the royal commission's doing that. It hasn't gone there for property, but did, you know, we would say lots of things come out and lots of change. Maybe it will one day, but um, you know, end of the day, if an agent is adding a lot of value and they've added a lot of value in, they've got a great sale price and they've managed the campaign brilliantly and it's unreally good job. I don't think there are many vendors out there that would say I'm more happy with paying, that agent, that fee because they've done an amazing job. I guess it's when they may not have done an amazing job and they've, they've given $10, $15, $30,000 to an agent and they feel a little bit like, well, we didn't know what happened?

Chris: I didn't really get anything for it. And I think that's in every industry, you know, it's not just agents that we're picking on here. It's, you know, the transparency around who pays who and how do I get paid and is it value for money? It's getting questioned everywhere in life.

Veronica: Well, I'm not necessarily picking on agents either, I actually think that, that our consumers and consumers and homeowners and vendors and buyers, everyone plays a part in this because, uh, if you're not paying for advice, you sort of happy not to pay for advice. You know, you don't want to change that either.

Veronica: Just before we get back to technology, one of the things that I think consumers need to be really aware of and is both buyers and vendors is are there kickbacks right now in the Property Stock and Station Agents Act in New South Wales, uh, their is a requirement to get people that you've got to sign an agency agreement with so a vendor, for instance, if you're selling agent, if you're a buyers agent, they have to sign what's called a Section 47 Disclosure and so that clearly states the organizations or people that you may recommend in the course of doing business and what kickback you get for that recommendation, if any. But what actually happens quite often is that, and I see this a lot, we sales agents, they will might recommend a buyer's agent because the buyer's agent has gone in there and offered them 20% referral fee, but because they are recommending it to a buyer who actually they don't have an agreement with, they don't disclose it, that they get a fee and the buyer's agent may not disclose it either. And I've heard of this and I've it happen like was on the flip side of that, you get buyer's agents that put sales agents over a barrel and say, right, well I'm not going to refer you to my client unless you give me a 20% referral fee and they won't refer you if you don't.

Veronica: I have a policy, my business, I never pay nor receive a referral fees. I from day one I've said that, oh, absolutely transparent. So I have had agents ring me and say, look, I've got a buyer that uh, I want to recommend a buyer's agent to, will you pay me a kickback and I say no I won't. So every now and then I've had an agent who's more interested in actually a good referral and getting good service for their client. And every now and then I'll get that person still refer their client to me. But more often than not, they're like, oh, we'll all go to someone else will pay me the 20%.

Chris: Are you happy to lose them though? To be honest. Like I think the good professionals out there have what I call an abundance mentality. Yes. They see the big picture. They understand if they go out there and help people and they do the right thing by people with the word will spread. And then they'll have more clients than they can ever handle. And you know, they believe in that.

Veronica: I'm totally on board with that. But what I'm saying is the buyer or the seller in these, in these instances, they, need to ask, are you getting anything for referring me?

New Speaker: Yeah. And I think even if they say yes, you need to start and say this is a great chance to leave and run away. You know, fundamentally, unfortunately though, a lot of buyers, a lot of investors still stay. They know that the person's getting a kickback by recommending this property on this development in this suburb.

Veronica: I haven't even got to that. I was just talking about recommending professionals. But now there's the next thing is there are buyer's agents and I will put my rabbit ears, you know, the "inverted commas" around that term because unfortunately it's not a regulated term and it should be, but it isn't that at that are actually property spruikers and they're getting paid by the developer.

Chris: I mean, that happens everywhere. And unfortunately, you know, sometimes I'm picking up the pieces from this and then I'll get phone calls. Um, you know, people will see that I'm on Linkedin, I have posted a few comments around property and then all of a sudden it happened this morning. You know, I get a Bdm for a developer, call me up. And you know, I think that we have a synergy and that we should work together and that, you know, so when you can recommend properties to your clients, um, you know, it's a big, big, big concern. Um, you know, the real estate industry, um, you know, and the rules around regulation around disclosure and, and I'm the financial advice industry has got, you know, a few worries around that because unfortunately a lot of financial advisers have actually gone on and got real estate license, you know, so they could actually go recommend their own property. Um, so, you know, it's a, it's definitely who pays, who was that? He's a big, big elephant. Yeah, absolutely.

Veronica: So I think what's missing though from these apps and technology and where technology replaces, uh, you know, professionals is I think advice, you know, and nuance and also negotiation capability. And one of the thing I really realized in all the people that we've been interviewing for this podcast is it, the value that a really good agent adds to the transaction isn't massive. Yeah, absolutely massive. And so the unwitting buyer out there, you know, you need to be very aware of how unequally matched you are when you're up against a really good agent and a vendor needs to understand what they're paying for.

Chris: Yeah, I mean, I, I kind of help, I think just recently, um, you know, looking out and abouts at some properties on a Saturday. Um, you know, I've gone to some very good agents in, in the, in Inner East, in the Inner West sorry of Sydney. And then I, um, the next one on the list was another property. And I looked at their listing on and I was like, oh, this isn't very good not, great photos. And the floor plan looks a very, you know, 1980s. Anyway, so I rock up at this house and, um, park the car, there's no one there, there's no flag, there's nothing. Um, and then a lady, you know, walks out with the little board and, um, I walk up, I'm the only one this viewing. And um, she was like, oh, hello and hi.

Speaker 5: And she's like, oh, well, you know, could have your details, are you looking to buy? And I'm like, ah, yes. And she's, uh, got a pen and paper out, fumbling away and, um, you know, very carefully writing my name and number down on the board and, you know, next thing you know, um, dad pops out and dads, you know, here to sell the property as well and selling their own home and um, you know he's wearing his best jumper as well. So, you know, and um, I couldn't believe it. I was like, these guys should not be selling this property. It's actually, I'm very good property. It's actually, you know, it's in a great area. It's not a good street. It's a nice frontage. It's very poorly presented, but you know, these, you know, they, they have no idea on how to sell a property and they've actually, are trying to sell a one point $1.8 million terrace, um, you know, on off market by themselves.

Veronica: So are you going to take advantage of them in and snaffle it for a deal.

Chris: Well, it wasn't that good of a property. But you know, it's as an example though, lucky it should sell. It should sell for a good price. A developer or someone willing to do a good reno job would love it. An you know, it, they're never going to get their best results. And that's why I look at the technology as well. Like if you've got someone with local knowledge, local experience, lots of relationships can actually sell the dream. Um, and you know, they're, they're always going to have a value. I think personally, you know, compared to that and that's where I think you know, technology, while it might do a lot of the things, it's not going to do that, you know, that real personalized service.

Veronica: I think one of the things that, that we do, for instance, in our business, we often call it property therapy and, and that's just acknowledging that buying property is an extraordinarily emotional process and selling is also an extraordinary, extraordinarily emotional process. And so what agents do, really good agents that is, they'll actually counsel their clients, through those emotional highs and lows. And that is something an app can't do.

New Speaker: I think that when I say I, I'm a mortgage broker, it's not the mortgage that really matters. Like who the bank we use or the rates or you know, once we even structuring, you know, good, most mortgage brokers can do that. Where I personally know that I add value that I can't add more technology card do is all those conversations. You know, I was having one on the way here. You know, all the conversations true that journey when they're thinking about doing it, when they're looking at properties, you know, even thinking if it's the right thing, when they get element of, um, when they miss out. You know, a client recently last week, missed out at an auction. They were devastated. You know, on the Monday morning we had a really good chat around it. What happened? And, you know, technology doesn't give them that, that value, you know, it doesn't help them think through should they go back to the market. They, you know, they were willing to stop buying altogether and that wasn't the right option. You know, cause they were very, you know, and so I think a lot of agents, 100%, we'll manage them through that roller coaster and you know, and then give them really good advice if they don't get the right amount and the right offers. You know, a good agent will say, well, let's be patient. Let's put on the market for rent it for a year, you know, and we'll come back next year and try to sell it. If it's, you know, if that's the right thing to do or, you know, um,

Veronica: Look, I mean I was actually talking to a client of mine the other day and this client is, they're selling their property and they don't want to buy without having sold. So I've sort of given them some advice obviously in the lead up to choosing their agent. And that's the thing in the back of, in the back wings I have been giving them a bit of guidance through that process as well. And she's very emotional about the home, you know, and it's, that's really common. And she also renovated these properties so therefore there's an heightened sense of ownership and, and you know, there's, there's so much invested in it when you've actually gone and done that yourself. And there's lots of lots of reasons why she's particularly emotional about this property. And so in her mind, I think to sell it less than a certain figure she feels like she's not doing the property justice. You know what I mean? There's so much tied in with this, but the simple fact is the market's slow. She's upgrading. These are ideal conditions to upgrade. She often says to me, I think I'm just going to take it off the market because I'm not going to get the price. And I have to keep saying to her, I absolutely know and understand why you are thinking that way because you feel like you've put your heart and soul into this property. And if it's not going to get that sort of price, you feel like you, for whatever reason, you're selling yourself short. But the thing is that you're upgrading the gap between what you're selling and what you're buying is smaller now than it has been at any point over the last five years, six years, and what are you going to do? You're going to wait for the market to take off again, which means that then your property will get you the price that will make you feel good. But when you go to buy, you're going to struggle to do, to bridge that gap. Because, and that's what a lot of people don't realize as well is that the timing, the market, there's certain market conditions that favor different types of buyers downsizers current currently being, well actually that's not necessarily true because I was about to say it's not ideal to downsize at the current market. You know, because when you, are selling, an expensive property, I mean, the theory goes, right? The theory goes as the market rises the more expensive property the gap between the more expensive property and the, the less expensive property is bigger. All right. So obviously there goes smarter to downsize, sell you expensive property then as opposed to a falling market. However, um, if we go back to episode seven Marianne Cronin mentioned that like in the eastern suburbs the $10, $12 million bracket is one of the hottest areas in the market.

Chris: Yeah, I think it's, it's, I think it's probably a case by case basis, but as a generalization, I'd, I, you know, you would see the higher priced properties probably fallen 10% on $2.5 million. So you've dropped and then you're probably buying something at $1.5 million. There's probably only down 8%. Ah, it's 10 across the board it's 10 and 10 you still be better off, you know, probably downsizing. You are $100k better off, I mean, I think if you're, and, uh, and uh, you know, it's hard always timing the market, right? So, you know, if you want to just downsize last year, or downsize this year, the reality is you want to downsize and you really want to do it, then you know, you kind of just got to do it, you know? Um, so yeah. Yeah. I, that's the, that's the hard thing with, with real estate.

Veronica: I think trust is a really essential part of the whole real estate transaction and that Corelogic report, which was a agent's view on, we'll actually put the link to the report in the show notes, uh, as agents, sorry, Vendor view on real estate agents. I think it was done back in 2015 and it really highlighted the things that vendors want and expect from their agents what they value and trust was obviously number one. Yeah. And I think that's a bit of a no brainer. So you can see that, that the industry's moving towards that trusted advisor type idea. And, um, you know, it's a work in progress obviously, but I think that a lot of people who are jaded and don't like agents, I think you have to really, really question whether the alternative is better for a buyer. And I think that people need to realize they can still overpay at online auctions. They can actually be just as emotional, maybe even more emotional, and bid accordingly when bidding online. The automated valuation models, you know, we talked, with Kent Lardner back in Episode six about those. And still the quality of data is not yet there to make them robust enough to be that reliable in, in Australia, uh, the US, you were saying that the data is so much better that one sites even got down to a variance of 6%. So that's not bad, but our variances, way beyond that? So we have to be careful relying on, on valuations that have been created automatically. Um, I think personally user pays gets better outcomes. So I think we've got to be aware of WHO's, who's paying for the advice. And I think too, the other thing with the online bidding platforms, you know, there's still the opportunity that comes through. Um, properties had been accidentally overpriced and I say accidentally overpriced agents like under quote so that they get lots of competition at auction, but sometimes they actually overquote a little bit accidently. They fail to read it. Um, all the time. You know, they're human beings. That can happen when they're using registered valuations as well. If they get it a bit wrong and there's only one buyer bidding, then the lack of social proof can often mean that that buyer is not going to bid online as well. They have the transparency allows them to actually see and they won't. And then maybe there's a great oppority there. So who on earth is going to step in and bridge the gap? If It's just on, on an APP.

Chris: Yeah. I can't see that everything going 100%, you know, down this route, you know, the good properties in good suburbs and the good street always going to have competition and people willing to upgrade, new migration, you know, et Cetera. So now you're always going to have this two sided market where there's not enough good property and there's too many people wanting them. And then there's going to be this, whoever wants to pay the most, how they figure out who that is. Maybe technology can do it, but then people are gonna want to be in there. They're going to want someone to have those conversations with. And you know, I can't say 100% of the market going, you know, blue that'd be job losses. You know, I personally think that, you know, there's already reports out there that, you know, maybe 50% of the financial advisors are going to lose their jobs. You know, and I think that's pretty founded. I think, you know, not everyone needs a financial advisor and you know, we could see huge job losses in financial advice, say mortgage broking. You know, if there's, if you're not adding a lot of value besides just setting up a mortgage from someone, then it's pretty likely that someone's going to get a better experience going online and you know, for your experience, it hasn't been great. They go well I can get a cheaper rate online and I may as well refinance and you know, those businesses aren't really gonna survive. And so, you know, I guess it's important for agents to be realistic on this, but I don't think it's doomsday for the good agents. You know, in working in good areas, trying to sell good property. If you are trying to sell property in areas though, and you're an agent in where there's not many property, there's not many buyers, you know, I think you're having a tough job anyway. Um, you know, let alone, uh, you know, uh, with technology coming. Yup.

New Speaker: So I think the big takeaway here for our listeners is to be critical in your thinking. And don't just assume that technology or disruption is going to bring a better solution. That some, some of it will be good, some of it will be very useful. And some of it will increase your amount of information that you have at your fingertips, but it isn't necessary. Just because it replaces agents or has the capacity to replace agents doesn't necessarily mean that's a good thing.

Chris: Yeah, and I think I look at that as the fixed fee kind of agent model. You know, if an agent is getting paid a commission, let's say the more money they sell the property for then the more money they get paid. So there's an internal kind of, yeah, connection there, for example. So just assuming that agents get commissions a bad thing and going for the agent that charged a flat fee. Yeah. Well you're not really incentivizing him to go work hard. So you know, there's all the sort of, you know, things that we, sometimes we think something's bad and so we naturally blanket it, but sometimes there's a, there's an, as the other sides of the coin, I think with this are these technologies. Getting rid of agents might not just be the best thing for anyone.

Veronica: I actually just thought of something too, a good agent. And we've had a lot in here. Talk to us about this. They will actually advise a vendor on how best to prepare that property for sale, how best to present it, what sort of improvements or maintenance or small renovations need to be done in order to maximize their result. So it's that conduit to explain to them the context of their market, what buyers are looking for, you know, what buyers will pay for those sorts, that sort of guidance.

Chris: I mean that had guidance would have been maybe a year or two before selling. I've gone into the agent and said, I'm thinking about selling in a few years' time. Or maybe you should do that. $50k reno. Yeah. Add that bathroom. And you know, pretend there's a bedroom in the garage.

Veronica: And on the flip side, the people that overcapitalized by doing all those things, thinking that buyers, will reward them and buyers don't give a rats.

Chris: Yeah, exactly. We all don't need three baths. But anyway, no.

Veronica: And also just making more bedrooms doesn't necessarily add more value.

Speaker 4: Every week. We hear incredible stories of the dumb things, property buyers do, dumb things that end up costing them a lot of money, and or creating a whole lot of stress, mistakes that can be avoided. Chris, help our listeners out here. Give us an example of a property dumbo. We can all learn what not to do from these stories.

Chris: No, I've got a Dumbo. Good. So the Dumbo is today is off Australia's great as news website, today I find reading, but one of their articles today, which I had to laugh and I sent it to Veronica when we, you know, we talk about these dumbos um, and it's, it's a couple that you now know. Oh, I'll add it in the show notes, but it's a couple who's reno went $5 million over budget. And do you know, because they're just kept arguing about everything from the door knobs to the tiles and they kept on going back and it was like the grand designs you could possibly imagine going wrong. Um, and uh, you know, this is the thing that I always see with, with renovations is this, make your call decide what you want to do and go for it. Don't go arguing about door knobs. You can always change the door knob. Variations where the biggest blowouts occur in renovations. Every architect, builder, everyone likes variations. So you know, pick exactly what you want to do. Think it through before and then and then get cracking.

Veronica: Cool. Love it. Okay, well we are going to pack the show notes with the links that we've mentioned. We've, we've mentioned a few links throughout our conversation. I hope you've got something out of it. I think that, you know, disruption and change, it's inevitable. It's happening all the way around us in all sorts of industries. So from our point of view, we think that some thing's are going to be for the better, but not all changes for the better. Not all changes are good. So I think for you buyers listeners, just remember to be critical.

Chris: We want to make you a bet elephant rider and this week's elephant rider training is.

New Speaker: Well actually these whole episode has been one series of elephant rider training. But I'm going to add one more in. Okay. So when you are buying a property, it is really, really super important that you set your limit before you start negotiating. Now in my business we consider four elements to setting your price limit on a property. There's too subjective and there are two objective. Now the two objective are firstly how good an asset is it. Now obviously that's something that we have developed tools within my business to actually work out what sort of a property, what property is a good asset or not. But he's a litmus test for you. Ask the sales agent or ask other sales agents in the area, how easy would that property be to sell in a flat market? And so that's sort of fundamentally it really. A good property, great asset will always sell well regardless of the market conditions and a poor asset won't in a flat market it will struggle. And average assets. Willl do really well in a good market, I mean everything does well in a good market but in a soft market, they'll get there. But eventually, okay, so there's sort of three main criteria there. Now the other objective measure we use is the actual price research and going in and understanding where this property sits in relation to recent sales in the market in the current market conditions. Now I do have a free mini course, on the, and I'll put the link in the show notes for this and there's a free mini course there, three short videos they'll actually will outline for you how to work out the right price to pay on a property based on recent sales. So that's how you can structure that research. There's also a spreadsheet in there to sort of help you plan that out. So if you'd like that, that's great, but that's really essential research and certainly we never advise any of our clients on setting their limit on a property that they want to buy until we've actually done that foundational research. So very, very important. So they are the two objective measures, the two subject measures are firstly, how uniquely does this property suit your needs? And when you do that price research and you actually look at what has sold in the last, say six or 12 months, you have a really good idea as to how often a similar property will come up. If they come up a lot, then you'd not going to push yourself as hard for this property because you know that if this one goes, that's okay. It won't be too long before another one that's suitable will come up. But if it's really unique, really unique in terms of it's style and the type of property is, but also in terms of how it suits your needs in the location that it's in, then you might be inclined to push yourself harder. And the last, uh, factor that we have to take into accoun, the second subjective factor is your limit. Now that is completely and utterly unique to you, what your borrowing capacity is, what you can afford to repay is your limit. Okay? So those four elements are absolutely essential that you consider all four aspects of those before you set your limit and I encourage you to set that walk away price before you start negotiating and certainly before you go to auction. If you are in the middle of an auction trying to work out whether you should pay more or not, you are absolutely going to do one of two things. You're going to pay too much or you're going to actually stop bidding when you should continue bidding. You're not going to know with confidence at exactly what point that property represents optimum value for you and when it's too much.

Veronica: Join us for our next episode when we talked to an economist, Warren Hogan, all about whether or not we're going to enter a recession. We also talk a lot about interest rates, where they're going, why they're going there, et Cetera, et cetera. We do talk about some of the bigger leavers that impact us here in Australia and our property market and that includes some global things, but also a lot of behavioral responses to these economic changes and how this all plays out in the property market. So it's a really wide ranging conversation and if you are starting to worry that Australia is about head into a recession, then you definitely don't want to miss this episode and you can find out really from one of the experts whether we are or whether we're not. As you know, we love to read your reviews on iTunes and they also go very much towards helping us spread the word and help other people learn the things that you've been learning when you've been listening to this podcast. And can I say, but Chris and I, we've been learning to, this has been so amazing for us also when we just really thrilled to share it with you. So if you have found something of particular value, please share it in a review.

Chris: I just want to say what actually happens when we get a review is I over Veronicaa, screenshot it and send it to each other. And you know, to be honest, it does make our day. We actually got these two in the last week, um, I mean the most recent one, 'thank you for this fantastic podcast. I love the intelligent discussion that really delves into the topics in a way that no other podcast does." I won't to go through the rest of it, but you know, it really makes us very excited when we get reviewed. So if you do have two minutes, we'd love to hear from you.

Veronica: I love the one where they say that they can't wait for every Monday on a long commute home with their partner. I mean, that's gold to us. I mean, you know, we've been doing this for over 12 months and every review means a lot to us. Thank you. Thank you for listening to the Elephant in the This property podcast was recorded at the Sydney Sound Brewery. This week's podcast was recorded by John Rhesk and edited by Gordie Fletcher until next week. Don't be a dumbo.

Veronica: Now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent who will tailor and document their advice to your personal circumstances with a statement of advice.

Veronica Morgan