In case you missed it, TV 3 showed a story recently (10th Aug) about real estate salespeople being approached by property developers wanting to buy houses cheap (avoiding an Auction situation), and offering in return to renovate the property and sell it through the same agent, allowing them to achieve 2 commissions.

One of the agents in question told the undercover reporter that she had such a property available and used words along the line of “You can probably pick it up for $850k, the owners don’t really know prices in this area”.

This sort of thing is what gives our industry and bad name. Agents are hired by the owner to achieve the best possible price and while they have a duty of care to the Purchaser, they always need to remember who pays them at the end of the day (that would be the owner).

It saddens me to see this and I am deeply concerned for any owner receiving this sort of representation. I was pleased to see that the agents at Harcourts, and also at Barfoot & Thompson appeared to tell the developer that they weren’t prepared to do that sort of business which is great to see. Although sadly I am sure there are many more bad apples like this all over the country.

This is really old school real estate in my opinion. I have met countless builders / investors / developers in my career who have suggested a similar proposition, eg. “Find me a property I can subdivide, renovate, make some money on (preferably cheap). If you find me the property I will sell it through you again when I’m finished.”

There are a number of problems with this approach:

1. The agent you buy through shouldn’t necessarily be the agent you sell through.

Think about it, if an agent helps you buy a property cheaply, do you think they are the best person to help you sell the property later on for the best possible price? Hell no.

2. Every property should be marketed to it’s best potential.

Not just the ones that are being sold by a repeat customer / investor. That’s what agents are hired to do. That’s why they charge what they do. It’s the single elderly owner that owns the run-down property on a big section (which has gotten to be too much for them to look after) that are likely to fall prey to this kind of approach and it’s those people that need the most protection from this sort of activity.

3. It looks bad to re-sell a property for a higher price 6 months later.

If an agent sells a 3 bedroom property in Newlands for say, $350k to a builder / investor who completes some renovation, then 6 months later that same agent sells the same property again for $480k it simply looks bad, especially to the previous owner (who now feels as though they got ripped off), no matter how much renovation has been completed. For this reason alone this situation should be avoided if agents want to have a long career in real estate. Wellington is a small place and people notice these things.

4. It’s lazy real estate.

These people are looking for quick money at someone else’s expense. Seriously, it’s not that hard to do 2 or 3 open homes and open the property up to the whole market. I’m pleased to hear the agent involved in the story above has since left the industry.

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I believe this sort of scenario (where houses are sold to developers before they hit the open market) is happening less and less as sellers become better educated about the benefits of a proper marketing campaign and as real estate salespeople develop better systems for handling large amounts of buyer enquiry. There is obviously still a lot more that can be done though!

I would love to hear your thoughts / comments below.

Other articles to check out:

5 questions to ask at every open home

How to negotiate like a pro

5 things you should never say to a real estate agent

How to avoid losing money when buying and selling