Industry Insiders: Underquoting, commissions and online auctions

It turns out that even Australia’s best agents get frustrated by the issue of underquoting. Four members of last year’s Top 100 Agents ranking, who together generated more than $350 million in sales during the 2013/2014 financial year, used a roundtable event to voice their concerns about the current regulations and to share how they price their properties.

The exclusive Real Estate Business discussion covered plenty of other territory, including commissions, vendor taxes, online auctions, team structures and first home buyer reform.

The agents also had some interesting thoughts on whether the real estate industry has a gender equality problem, as some believe.

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What do you think of the NSW government’s plan to launch “the biggest crackdown on real estate underquoting in a decade”?

Jason Pantzer, Phillips Pantzer Donnelley

I reckon it’s a real problem because of the way this business has been conducted over the last century. Buyers are always going to add a minimum of 10 per cent, if not 15 per cent – if not 20 per cent in this market.

Brent Courtney, McGrath Estate Agents Lane Cove

If every single agent gave the right figures, that would solve the issue – but that’s never going to be the case.

Jason Pantzer, Phillips Pantzer Donnelley

In this market, it’s very difficult. The market’s flying. I’ve been wrong for the past 12 months, to the benefit of the vendor. So how do you know?

Monique Dower, Belle Property Balmain

That’s because of the lack of supply that’s there. There’s been less sold, and so less justification for our pricing.

Andrew Lutze, Cunninghams

We’re averaging 40 or 50 groups through open houses, and some people are just throwing stupid money at a property prior to auction. Or if it goes to auction, people are walking in off the street, taking a two-second look at the contract and then bidding.

Jason Pantzer, Phillips Pantzer Donnelley

It’s not the final result, though, it’s the quote. You could have a property that’s worth $2 million, and if you’ve got $1.5 million to $2 million on the agency agreement you can quote ‘above $1.5 million’. It could sell for $2.5 million, but what it sells for is actually irrelevant.

Andrew Lutze, Cunninghams

But I don’t think the public understand that what it actually sells for is irrelevant. It’s about the starting guide – and that starting guide can’t be lower than the agency agreement. The problem is we’re basing figures on the agency agreement, which is based on historical data that is probably flawed now.

Jason Pantzer, Phillips Pantzer Donnelley

Agencies are going to starting putting massive ranges on their agreements because you’ve got to cover yourself. There’s no law that says you’ve got to be within 10 per cent.

Monique Dower, Belle Property Balmain

What ranges are yours? Ours are generally $100,000, maximum $200,000.

Jason Pantzer, Phillips Pantzer Donnelley

For stuff under $1 million, we’ve probably got a $200,000 range. For stuff between $1 million and $2 million, we’ve probably got a $300,000 to $400,000 range. Up to $5 million or $6 million or $7 million, we’ve got $2 million ranges.

Brent Courtney, McGrath Estate Agents Lane Cove

We’ve got strict rules within our offices. If it’s more than 10 per cent, you’ve got to answer to your sales manager. If it’s over $2 million or $3 million, there’s a bit more leniency, possibly up to 15 per cent. So you may say to the owners that their place is worth $2 million, but if you wanted to quote a range, you would have to do something like $1.7 million to $1.9 million rather than $1.7 million to $2.1 million.

Jason Pantzer, Phillips Pantzer Donnelley

Agencies might stop quoting. “Here’s the selection of recent sales – you make your own decision.”

Monique Dower, Belle Property Balmain

Aren’t we here to help people? We’ve got to be fair to the buyers. We’ve had a property that sold in our area for $1.92 million. It was quoted at ‘over $1.6 million’ to start with and the reserve was $2 million. This was another office – I only knew because I knew the vendor. That’s not fair to buyers: they’re quoting over $1.6 million to start, and they spend money on building and pest, but they never got a chance of owning it.

Brent Courtney, McGrath Estate Agents Lane Cove

That’s the thing that pisses them off. We’ve now got this guy from whom, for $50, the buyers can buy a building and pest inspection. Whoever buys the property then pays a little bit more and the report is in their name to cover themselves for insurance. I think that could alleviate the anger post-auction when they miss out.

Monique Dower, Belle Property Balmain

We did the same, but ours is $300. I think $50 is better!

Andrew Lutze, Cunninghams

I think it would be great to see some sort of mandatory system whereby if you’re taking a house to auction, the vendor provides the building and pest. Then there’s no more of this animosity or anxiety about auctions.

Jason Pantzer, Phillips Pantzer Donnelley

It still doesn’t get you away from the underquoting issue.

Brent Courtney, McGrath Estate Agents Lane Cove

I don’t see why anyone would quote even $1 less than what they’ve written on the agency agreement.

Jason Pantzer, Phillips Pantzer Donnelley

Let’s say you’ve got $1 million to $1.2 million on the agreement, and you’re quoting ‘above $1 million’. If you receive an offer of $950,000 then you need to print that offer off, you need to put it in the file, put a file note in there as well, and say, “We have received an offer for $950,000. The market’s not coming in as per the agency agreement quote, so we’re now dropping the price. We’re now saying we’ve declined an offer of $950,000 and we’re quoting ‘above $950,000’.” You also need to get the vendor either to sign off on it or have an email trail from them.

Brent Courtney, McGrath Estate Agents Lane Cove

I think this is also a question of office management and setting up the right compliance systems. On our system, we as agents can’t change the buyer’s guide on a property unless it’s been approved by our compliance officer.

Jason Pantzer: Do you have buyer’s guides on all your properties?

Brent Courtney, McGrath Estate Agents Lane Cove

We try to for the first week leading up to the first open house. After that we take it off and push it up.

Jason Pantzer, Phillips Pantzer Donnelley

Do you find by having that price guide in that first week that it reduces the amount of enquiries you receive?

Brent Courtney, McGrath Estate Agents Lane Cove

There are a lot fewer texts and emails asking how much, but more people coming through the open house – and more of the right buyers coming through the open houses.

Andrew Lutze, Cunninghams

We do something similar. We love price guides as well. We try to get them on every property if we can. If we’re confident about pricing from the start, we’ll always put them on from the start. If we’ve got an unusual property or an unrealistic vendor, we’ll keep it off for the first week only to get feedback. Once we’ve got the feedback, we’ll always put a price guide on after week one.  

Brent Courtney, McGrath Estate Agents Lane Cove

You can write something less on the agency guide as your opinion and so have a lower price guide for week one, but as soon as you get the feedback from the marketplace, you can’t continue to mislead the public. I’ve got one at the moment where we started quoting ‘over $1.75 million’ last week. On Saturday, the overwhelming feedback suggested $1.9 million to $2 million. On the Monday, we took the price guide off and we’re now quoting ‘over $1.9 million’.

Andrew Lutze, Cunninghams

Do you guys put price guides straight away?

Monique Dower, Belle Property Balmain

Mostly.

Jason Pantzer, Phillips Pantzer Donnelley

Sometimes we do: it depends on the property. But we like to receive as much enquiry as we possibly can.

Monique Dower, Belle Property Balmain

Because your enquiry also gives you leads?

Jason Pantzer, Phillips Pantzer Donnelley

Correct. We meet about 400-500 people per week at our opens.

Andrew Lutze, Cunninghams

How are you finding stock levels? We’re down, compared to the same time last year, about 40 per cent.

Monique Dower, Belle Property Balmain

We’re 40-50 per cent down.

Jason Pantzer, Phillips Pantzer Donnelley

It’s tight, and I think there are just a handful of agencies that are getting the bulk of it.

Andrew Lutze: Are you getting pressure on fees? Things seem to be tightening up.

Jason Pantzer, Phillips Pantzer Donnelley

I hate that. Everyone should just go in at 2 per cent and be done. I had a scenario about a month ago where the vendor had called myself in, one agent from another group and another agent from that same group. Those two agents played themselves off against each other on fees; they ended up listing the property with me, but because those two guys had gone nuts on fees trying to win the business, it affects everybody.

Brent Courtney, McGrath Estate Agents Lane Cove

They should’ve gone in together and then they would’ve gotten the business. How dumb is that?

Jason Pantzer, Phillips Pantzer Donnelley

Maybe that’s the thing when stock is tight: people drop their fees to win business. But it’s not the way to do it because it affects the whole industry. You don’t want the government to come in and regulate fees because that would be a disaster. But something needs to be done to stop this. You don’t want vendors selecting an agent based on fees.

Brent Courtney, McGrath Estate Agents Lane Cove

But in this market, some of them are.

Jason Pantzer, Phillips Pantzer Donnelley

They think everything is selling itself, which is far from the truth as we all know. Sure, you get the odd cracker that’s just going to take off, but with the bulk of them you need to work hard and do all the things behind the scenes that nobody knows we do.

The NSW Greens announced a plan for a 2.25 per cent vendor tax ahead of the March state election. Would that be good for the property market, as the Greens claimed?

Jason Pantzer, Phillips Pantzer Donnelley

It would be a disaster. It would kill the market like it did last time. We’ve got land tax, we’ve got capital gains tax, we’ve got stamp duty – NSW is the most expensive place to buy and sell real estate. I’ve seen so many astute property investors liquidate their whole property portfolio over the last five years because they got to that stage in life where they’re heading into retirement and it’s just one massive expense.

Brent Courtney, McGrath Estate Agents Lane Cove

The vendor tax that came in last time [from 2004-2006] – that killed the market.

Andrew Lutze, Cunninghams

I was actually selling at that time and it was rubbish.

Jason Pantzer, Phillips Pantzer Donnelley

You’ve got to pay to enter and pay to exit – it’s crazy.

Online auctions are slowly gaining in popularity. Will this always be a niche offering or is it destined to become mainstream?

Monique Dower, Belle Property Balmain

I don’t like them.

Brent Courtney, McGrath Estate Agents Lane Cove

There is a place for someone sitting in Shanghai with their laptop and being able to watch the auction, although that’s probably more like bidding over the phone. When people are buying their principal place of residence, no one trusts real estate agents and they think the vendors might also be putting up people, so they want to be there to see what happens.

Monique Dower, Belle Property Balmain

That’s more transparent for buyers.

Jason Pantzer, Phillips Pantzer Donnelley

I don’t think too many vendors are going to want their property to be sold by an online auction because then they’re going to lose control of the process.

Andrew Lutze, Cunninghams

One of the benefits of going to auction is the emotion and theatrics, and if you take that away by putting it online it defeats the whole purpose of running an auction program.

Jason Pantzer: Have you guys been holding many auctions this year?

Andrew Lutze, Cunninghams

We’re at about 90 per cent.

Jason Pantzer, Phillips Pantzer Donnelley

We’ve sold about 90 per cent prior to auction.

Monique Dower, Belle Property Balmain

Are you burning out any buyers in the process? Isn’t that a concern?

Jason Pantzer, Phillips Pantzer Donnelley

They’re all part of the process.

Andrew Lutze, Cunninghams

You’re just having an auction before the auction.

Jason Pantzer, Phillips Pantzer Donnelley

We’re just finding that with the deals we’re doing, somebody is coming in with an incredibly strong bid early in the campaign, and that forces everyone’s hand. You wonder whether you’re going to get to that level come the auction, and then you engage a couple of other buyers at that level, and before you know it you’re above that level so you wrap it up.

Andrew Lutze, Cunninghams

I like to see most of mine go to auction. In this market, you see these people turn up on auction day who were never really in the mix. Maybe they had some slight interest during the campaign but then all of a sudden they turn up, and then maybe they’re the only bidder to force that other person up, and next thing you know it goes another $200,000. It’s great for the vendor and it’s really good publicity for the agent.

Brent Courtney, McGrath Estate Agents Lane Cove

Up to $2.5 million, nearly all of my properties go to auction. With $3 million-plus properties, a lot of those are selling privately.

Jason Pantzer, Phillips Pantzer Donnelley

What’s your view on all these young couples who are locking in on three- and five-year terms? It’s 4.5 per cent, so it’s free money. In three and five years’ time when these terms roll off and they’ve borrowed $1 million or $2 million and rates are back at 7 per cent – that’s a 2.5 percentage point differential. On $1 million, that’s $25,000 per year interest, which means they’ve got to earn $50,000. On $2 million, that’s $50,000 interest, which means they have to earn $100,000. It’s fair to say that most of these people aren’t in businesses where they’re getting remunerated by bonuses or commission structures, so their disposable incomes aren’t going up. I reckon there’s going to be blood on the streets because when these things roll off they’re not going to be able to service their debt. As rates get even lower, I just think the problem grows.

Brent Courtney, McGrath Estate Agents Lane Cove

But the reason you can get a five-year fixed rate so low is because the predictions are we’re still going to be in trouble in five years. So we may not see that big increase in rates.

Jason Pantzer, Phillips Pantzer Donnelley

You’re right, we may not. But I think it’s inevitable that the economy will eventually turn and rates will move higher.

Andrew Lutze, Cunninghams

I think it’s going to be a lot more measured than big hikes in rates. I think it will move slowly, slowly. But I do think you’re right, and I think supply and demand will shift as well. People will offload property and things will slow down.

Jason Pantzer, Phillips Pantzer Donnelley

People who are locked in on those three-year and five-year terms won’t be able to get out because they’ll be breaking their terms and there will be $40,000 or $50,000 break fees. So they’ll be thinking that they’ll just try to hold on…

Andrew Lutze, Cunninghams

… and then when they need to sell, the market has turned.

What’s your view on the new technology that keeps entering the industry?

Jason Pantzer, Phillips Pantzer Donnelley

I think the best technology is the telephone. All these other pieces of technology make our business processes more efficient, but our core business is selling real estate, and my experience tells me the best way to secure business is to pick up the telephone.

Brent Courtney, McGrath Estate Agents Lane Cove

Because of the technology we can now sell more real estate, can’t we? We still have to do face-to-face and the phone calls but it certainly helps.

Jason Pantzer, Phillips Pantzer Donnelley

I think REA is doing some fabulous things. We had a conference with them in January in Melbourne and some of the stuff they showed us was quite amazing. It blows your mind this technology and some of the things they’re thinking about for the future.

Brent Courtney, McGrath Estate Agents Lane Cove

What about this idea of REA Group being able to get a referral fee?

Jason Pantzer, Phillips Pantzer Donnelley

They say it’s not going to happen, but I reckon it’s heading in that direction. But it’s our fault as agents because they want information and all our profiles. They’re going to be the one-stop shop for a consumer when they’re selling or buying real estate. If we provide the likes of REA and Domain with everything, we’re relinquishing [control].

Brent Courtney, McGrath Estate Agents Lane Cove

If you’re hooked into their system and you have to pay a referral fee because it’s come through there, it just means the vendors have to pay more money on their fees.

Jason Pantzer, Phillips Pantzer Donnelley

The problem is there’s not another vehicle. To go and set one up, when you see their operation in Melbourne – it’s kind of mind-blowing. It’s a massive operation. To have those IT people in the background, driving this system and enhancing it week in and week out, for us to all band together and set something like that up – it’s not going to happen.

Brent Courtney, McGrath Estate Agents Lane Cove

It’s an oligopoly at the moment with both Domain and realestate.com.au, but there’s so much room for someone else. If they go down the route of getting referral fees, all of a sudden there’s a far more profitable business for them and some big company can afford to come and do it if they’re getting commissions out of it.

Jason Pantzer, Phillips Pantzer Donnelley

But if that was to happen and another company tries to devise a new platform, it’s expensive to do, and then REA could cut the referral fee. Then they’re back to where they were and you’ve got this other player that’s invested all this money.

Joe Hockey recently floated the idea of letting first home buyers dip into superannuation to fund their purchase. Is this a good idea?

Jason Pantzer, Phillips Pantzer Donnelley

I think it’s a bad idea.

Andrew Lutze, Cunninghams

Really? I think if they can cap it to a certain point where there are some criteria in place…

Jason Pantzer, Phillips Pantzer Donnelley

… that’s not what superannuation was developed to do, though. Superannuation is a retirement fund.

Brent Courtney, McGrath Estate Agents Lane Cove

That’s just going to be putting a Band-Aid on the really strong market.

Jason Pantzer, Phillips Pantzer Donnelley

It would just create more inflationary pressure. If you ask 25 year-olds to dip into their $40,000 to buy another property, then the low end of the market is going to take off.

Andrew Lutze, Cunninghams

That’s why I’m saying there has to be some sort of formula to say you have to be earning X amount of money so that you’re contributing X amount to your super, and that you can only take out a quarter of your super. So if you’ve got $80,000 in super, that might be when you could only gain access to it, and you could only take out $20,000 for a deposit.

Monique Dower, Belle Property Balmain

But these first home buyers aren’t going to have anything in their super anyway, or not much.

Brent Courtney, McGrath Estate Agents Lane Cove

A reduction in stamp duty, like they did before, would be smarter.

Andrew Lutze: Can I ask how you run your teams? Does everyone work in a team?

Monique Dower, Belle Property Balmain

I’ve got a team – me, a co-agent and an assistant. The co-agent does a fair bit of lead generating. She’s still only a year into her role and new to real estate, but she’s in her mid-40s so she’s mature.

Jason Pantzer, Phillips Pantzer Donnelley

I’ve got two guys and an admin person who report directly to me. They’re young aspiring agents and they’re going to be very successful when their time comes. They do my open homes, they do some of the call-backs, they handle some of my negotiations on some of the properties to get exposure. They’ve both been with me for about three years, so I think in another two years’ time they’ll go out and become agents in their own right. They’ll become contractors and then I’ll bring in two more young guns. Our model isn’t to try to poach a successful agent but rather to bring up the young ones from within and train them and make them loyal to your business and let them fly.

Andrew Lutze, Cunninghams

I’ve got a similar model. I’ve got two young guys – one on an admin role, the other a buyer’s agent – and they’ve both been with me several years. They’re pretty much ready to go and list and sell themselves.

Brent Courtney, McGrath Estate Agents Lane Cove

My sister has worked for me for 14 years. It works really well. There’s unlimited trust: I don’t have to go into the office because I know that everyone’s working. She runs the admin and marketing side. I’ve also got Tristan, who’s about 30. He’s a great young guy and he’s very switched on. He’s a salesperson under me at the moment; in time, he’ll go out on his own. I’ve got another young guy, Sam, who’s 23. He’s a great kid. I’ve had him for about six months. He’s basically our gopher.

Monique Dower, Belle Property Balmain

But he wants to be an agent?

Brent Courtney, McGrath Estate Agents Lane Cove

In time, yes.

Andrew Lutze, Cunninghams

I’ve found the most successful agents in the industry are the ones who have had good mentoring and then they grow into the role. They’ve learned the right processes and how to pound the pavements and bang on doors. I like the ones who have come from some sort of competitive sporting background or someone who has played in a team environment because they’re the ones who typically are really driven to perform. When they get to a certain point, you’ve got to let them go and then you start with someone else.

Jason Pantzer, Phillips Pantzer Donnelley

If you go and poach someone with 10 years’ experience, they’ll have a different culture. Then when they come across to your culture – I find that transition can be difficult for them.

Brent Courtney, McGrath Estate Agents Lane Cove

We’ve got that at the moment. We’ve got our office in Epping, but we’ve just bought another office in Epping too. They have a really good agent who’s doing big, big numbers. Amalgamating a high-performer with other high-performers is a cultural issue that we’re working on. It’s hard having one big performer compete with other big performers.

An argument has been raised that women are underrepresented at leadership level in the real estate industry. Does the industry have an equality problem?

Jason Pantzer, Phillips Pantzer Donnelley

I don’t think so.

Andrew Lutze, Cunninghams

I think in real estate, women do far better than men.

Brent Courtney, McGrath Estate Agents Lane Cove

There are just more guys in real estate.

Andrew Lutze, Cunninghams

Two thirds of our office are women, although, ironically, with the lead salespeople, two thirds of them are men.

Brent Courtney, McGrath Estate Agents Lane Cove

We’re the same. Many more admin and support staff [are women]. I think it’s more a question of personality – to be a top agent, you have to have the skin of a rhino. Without being sexist, there are probably more guys who don’t have as many feelings as a lady would.

Monique Dower, Belle Property Balmain

You’re right. It’s taken me a long time to get a thick skin in the industry. I’ve been in it for 16 years. I was quite a shy person growing up. You change to grow with the industry.

Andrew Lutze, Cunninghams

There is a Women in Real Estate conference, which is excellent, and we send all our team. Women do really, really well – far better than men, I think, at that top level. But it’s getting them to that point and giving them the opportunities to get to that top level. Maybe that needs more nurturing if that’s an issue that people have seen.

Jason Pantzer, Phillips Pantzer Donnelley

Look at Gail Kelly, the former CEO of Westpac. She made it to the top, but she made it to the top on her own merits. I think there are many women out there who can make it to the top on their own merits. I don’t know much about workforce statistics, but I would be very curious to know how many men are in the workforce at that high corporate level and how many women are in the workforce at that high corporate level. That may help us understand why there are more men at those top roles than there are women.

Andrew Lutze, Cunninghams

Unfortunately, because the mother has to nurture the child, you have to put your career on hold. This job is all about momentum; the longer you’re in it, the better you’re going to get. Maybe that’s why there aren’t as many women [at the top level], unless they’ve already had kids and they’re starting their career after they’ve established their family. If you’re going to have a family right through your build-up phase, it’s going to be very difficult.

Monique Dower, Belle Property Balmain

In a real estate career, it’s a stop-start situation because you have to build up your clients again [after a pregnancy break].