As for things that go up, up, up, we turn to the property market. There can be few more maligned and disrespected professions than being a Real Estate Agent. They are commonly grouped with Politicians as being among the least trustworthy people on the face of the planet.
Our opinion of them? We don't have one. But, whatever one may think of them, they fulfil an important role in the transfer of property from a seller to a buyer. There have been many business ventures in the past that have tried to remove the role of the Estate Agent from the process. So far none of them has been successful.
In Victoria there is a particularly heavy reliance on Real Estate Agents in the Auctions market. A property is advertised with an expected price range, potential buyers view it and then decide for themselves how high they would be prepared to bid on the house. It is, or it should be based purely on demand and the value that the individual places on the house for their own needs and lifestyle.
In recent years there has been one hell of a stink over what some people view as dodgy sales methods by Agents. The dummy bid for instance has been outlawed, instead 'vendor' bids can be declared in order to help push the price along.
On top of that, Agents are expected to quote an accurate price range on a property to avoid underquoting. According to reports in the press last week this is being flouted by Agents.
In response we ask ourselves how much do we want a free market for housing prices where the market (buyers and sellers) decide for themselves how much they are prepared to buy/sell a house for? Or do we want a housing market that is consumed by regulation and laws that effectively tells the house owner or buyer how much they can sell/buy a house for?
We would think that most people would much prefer the first option. Let's cut away the emotional dislike of Real Estate Agents and ask what harm underquoting of a property really does? If a property is quoted at $400k, and is eventually sold for $500k what can you do about it?
If someone looks at a house and thinks they are going to get a bargain when they can see from other sells in the area that similar properties are being sold for much more, then they are really kidding themselves.
The argument goes that Agents want to drum up as big a crowd at the auction as possible in order to make the serious bidders think that they have plenty of competition and may therefore bid higher. The easiest way to avoid being sucked in is to simply research other property sales. There are published every week in the papers.
What is the alternative? Would we really prefer it as sellers if as soon as the upper end of the price range was hit that bidding would have to stop?
Also imagine if estate agents decided that they would no longer put price ranges on their advertising material at all - would that make it harder or easier for people to monitor the market?
Just looking at the report in The Age newspaper last week it strikes us that the property market, like the stock market, is best left to buyers and sellers to work out how much they wish to pay or receive in the transaction.
It's only when over-regulation rears its head do the waters start to become muddied.
Kris Sayce
The Daily Reckoning Australia
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About the Author
Kris Sayce began his financial career in the City of London as a broker specializing in small cap stocks listed on London's Alternative Investment Market (AIM). At one of Australia's leading wealth management firms, Kris was a fully accredited adviser in Shares, Options and Warrants, and Foreign Exchange. Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. In late 2006, he joined the Melbourne team of the leading CFD provider in Australia.
Comment by Anthony on 28 April 2007:
We are trying very hard to offer people real choices. People should be able to decide to sell their property without real agents, just like people choose with their cars.
We launched in August last year and we are growing quite rapidly. Maybe the groundswell is coming
http://www.zeroagents.com.au
It is real estate without real estate agents
Comment by Jude on 6 May 2007:
The problem with underquoting is that it annoys people who think that they are in the ball park for a property. Yes smart people will do their research but why do agents tell the seller I'll get you $800k and then advertise the property at $650+ and they sell it at auction at $803. Why all the bullshit??
Comment by Chuck Cobb on 16 May 2007:
Sellers are free to sell their own properties. However, in Florida when the market was stronger, only 6% of for sale by owner contracts closed. In addition, numerous studies of closed sales show that for sale by owner homes sold between 6% to 20% lower than those sold by realtors. The gmajor reason for this is that realtors have massive marketing opportunities to expose the home to buyers. 87% of buyers begin their search on the internet. Most realtors use multiple websites in addition to their companies websites. A for sale by owner sign in the front yard and an ad in the local newspaper will never compare to a professionally marketed property.
Comment by Chief Squirrel on 27 November 2007:
Only when you have wasted hundreds and hundreds of dollars for building and pest inspections on properties you never had a hope of being able to win at auction, will you fully understand why real estate agents are positioned so low on the totem pole of trustworthiness.