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Private Versus Agent Sale

Investors planning to sell their property may be tempted to try their hand at a private sale. But are private sales a good idea? Miriam Bell explores the pro and cons.

By: Miriam Bell

1 July 2016

The superhot housing market means demand for property is running high, particularly in Auckland. Odds are now tipped in favour of sellers.

This means many a property owner planning to sell will be pondering whether they need a real estate agent to help them. After all, it can’t be too hard to sell in a booming market, can it?

A For Sale sign on the front lawn. Advertising brochures in the letter box. A listing on Trade Me… Everybody knows the components that go into a property selling campaign, but does that mean it’s easy to sell a house?

We set out to find out the pros and cons of selling a property privately as opposed to selling via a real estate agent. It’s not hard to establish why a private sale might seem an attractive option.

Experts say the primary reason vendors decide to sell privately is to avoid paying commission to an agent. Given the current strength of house prices, particularly in Auckland, a vendor can end up paying tens of thousands of dollars to an agent once their property is sold.

Saving Motivations

Such companies as Homesell.co.nz help people sell their property themselves. Managing director Chris Caldwell says user feedback shows they feel the amount of commission they are likely to be charged be out of whack with the amount of work an agent would do for a sale.

“Potentially the savings can be colossal - especially in situations where you have a massive sale price for the property,” Caldwell says.

“There can be very big commissions involved.” People choose, however, to sell privately for several other reasons, he says. “One of those is a bad experience with an agent in the past. Another is that they have done it before, know the process and know it is relatively straightforward. And another is to remain in control of the process.”

Aucklander George Seton, who conducted a successful private sale recently, is a prime example. His choice of a private sale was initially motivated by the potential savings.

He estimates he saved about $25,000 to $30,000 on the commission. This saving was well worth it, he says. But he also found he enjoyed the process itself. “I felt like I knew what was going on. I felt more in control – rather than simply being told what was going on.”

Components Of A Sale

Potential savings and greater control might be on the cards for a private seller, but it’s easy to overlook crucial components of the sale process which in turn can have a significant impact on the end sale result. Caldwell says private sellers who try to deal with everything themselves can very easily come unstuck. There are a number of common mistakes, with the biggest downfall for many being an overpricing of their properties.

“The reasons people fail in private sales, or don’t get the result they should, are: pricing, presentation and marketing. It is not enough to just shove a sign outside the house or put an ad up on Trade Me Property. To achieve good results from a private sale, sellers need to have an end goal and an organised plan on how to achieve it.”

To be successful, a private sale's campaign should incorporate all the elements of a conventional agent-run campaign. This includes preparing the property, pricing, choosing a method of sale, staging, marketing, running open homes, conducting an auction, negotiating and legal consultations.

Adding Up Costs

While a private seller can undertake some of this work themselves, they can also choose to pay for assistance with some or all of these elements.

For example, Homesell.co.nz offers an array of packages with different costs. These include a web only advertising package for $699, an auction package for $1199, various marketing packages (ranging from the $1099 budget package to the $2899 ultimate package), and a property negotiation service for $4999.

Caldwell says they can help present a property if it is being marketed by an agent. They provide sales data to help sellers with pricing; photography; print and online advertising; signage; provision of an open home kit and forms for negotiating; along with coaching and support.

Specialised Services

“We are halfway between truly private sales and acting as a form of agent,” he says. “We cater to both ends of the private seller market and those in-between. We deal with a lot of traders and investors, who realise that by the time they do it themselves it will cost them more than going through us. And we help those in need of a more supportive process.”

Homesell.co.nz is the major player in this space, although there are other companies that work on a smaller level or offer more specialised services. Various companies provide signage and production of marketing material, for example. Trade Me Property can be used for listings and online marketing.

Trade Me Property head Nigel Jeffries says private sellers should aim for the same marketing spend as an agent. “Vendors should spend about 1% of the value of the house on marketing. An agent would do that, it should be no different for a private seller.” However, he points out that agents will usually be able to achieve more for the same amount as they get discounts in many marketing areas.

For example, agents get volume discounts for multiple listings on Trade Me Property. This means private listers will have to pay a higher fee.

“For a private listing the value of the property is key to the cost. So if the Government Valuation is under $450,000, it costs $359 for a listing. If the GV is over $450,000, it costs $419 for a listing.

But to promote the property as best as possible, then they should be looking at $600 to $700 more for marketing, over a three week period, to maximise their sale chances.”

Legal Dimension

Lawyers are a key part of any property sale process. If a vendor opts for a private sale, they have an even bigger role to play. Usually agents search the title, check the sale and purchase agreement is drafted adequately, and ensure a vendor is aware of their obligations regarding the warranties they give and the representations they make about the property.

Auckland District Law Society vice-president Joanna Pidgeon says that if an agent isn’t being involved, a vendor’s lawyer can, and should, assist with much of that process. “They can help you draft an agreement, check out your title and iron out any fishhooks before you enter into a contract, and make sure that you understand what you are signing,” Pidgeon says.

Different types of properties can have particular catches or issues which are easy for vendors to miss, she says. “For example, if you are selling a unit title property you must have given a precontract disclosure statement to a purchaser before they sign an agreement. In the case of a cross lease property, you need to note if there have been any extensions to the property which are not captured on the cross lease plan.”

Sale and purchase agreements have finance, LIM and building report clauses printed on them, so a vendor shouldn’t miss them. But agents also have a whole handbook of useful additional clauses, Pidgeon says.

“For example, if a purchaser wanted to make their offer to buy a property conditional on them selling their house within two months, an agent might advise a vendor to put a cash out clause in. A vendor selling privately mightn’t know to do that, a better offer might come along, but the vendor might be stuck waiting for a purchaser’s sale and it might never happen.”

In her view, inaccuracy and misunderstanding are key issues. “They might see a vendor misrepresenting or misdescribing a property when expert advice could prevent that from happening. Or there can be issues with documents not being signed correctly, agreements not being dated correctly, or condition dates not being calculated correctly.”

Agent Advantages

Private sales might sound appealing, but selling through an agent does have advantages. They can add significant value to the sale process due to their experience, skills, networks, and guidance.

Jeffries says most vendors are more likely to have a better outcome with an agent than if they try to sell their property privately. “Most private sellers simply don’t have the pricing knowledge and process know-how to make the best possible sale. It looks easy but, in reality, agents have honed skills in the required areas and do their work professionally and effectively.”

Century 21 national manager Geoff Barnett agrees. “People tend to think they just need to put an ad up on Trade Me, put a few signs up – and that’s enough. But it’s not enough. The breadth and width of how a private seller can market their property is limited.”

Private sellers don’t have access to extensive databases of contacts, or experience writing marketing material, or negotiating skills, he says. “That is the key to a good agent. That’s how they add value to the sale. A private seller might be able to do some of the necessary work themselves. But a private seller might well get $50k less than they would if they used an agent.”

Vendor Perspective

Seton admits he was initially apprehensive about his decision to opt for a private sale. He took a “pick and mix” approach – using Homesell.co.nz for the marketing, employing an independent auctioneer for an auction, and conducting the open homes himself.

For a flat-fee of $5000, the auctioneer helped with pricing, conducted the auction and carried out the follow-up calls. If the house hadn’t sold at auction, the auctioneer would have conducted negotiations with potential buyers.

The auctioneer made him feel at ease as he was used to, and experienced in, the situation and process, he says. He also confirmed the pricing Seton and his partner had settled on, after doing some in-depth homework. His lawyer took care of him well, too.

Ultimately, Seton’s house sold at auction for the price they wanted. “I don’t think we would have got much more had we gone through an agent,” Seton says. “We would definitely go for a private sale again. The process was fine, it was easy. We were very happy with the result.”

Success Rate

Private sales tend to increase in a hot, bullish market, as currently in New Zealand. Yet the proportion of private sales in the housing market is still not huge.

Caldwell says it’s always a hard figure to come by – especially as it varies widely from market to market and region to region. Based on analysis of listings on sites like Trade Me Property, he estimates that the private sale figure probably accounts for between 10% to 12% of the market.

Jeffries backs up this estimation. He says that over the last 12 months about 10% of Trade Me Property’s listings were private listings. “But it ebbs and flows depending on the market,” Jeffries says. “They were about 13% at their highest and then about 8% at their lowest.” And how successful are most private sales?

Opinion is divided. Caldwell says that among their customers the successful sale rate is about 80%, while Jeffries says a reasonable amount of evidence shows a big chunk of private listings end up going to an agent.

Jeffries does concede there is no hard data on the success rate of private listings. But he points out that, in May, the days to sell rate for agent listings was 35 and 56 for private listings. “That’s quite a difference and could indicate that going with an agent makes for a speedier, more efficient sales process.”

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