Listener questions – Buyer’s agents who are “free”, equity use, build replacement costs and a great beachside dilemma (Ep.185)

1. Our first listener question is a bit of a terrifying one.  Charlotte is looking to buy her first home next year and asked the trio if it is normal for a selling agent to offer a ‘free’ buyer’s agent who receives substantial commission fees from the seller. Charlotte felt it doesn’t seem right…. and the trio agree with her.

Cate addresses this issue. A “free” buyer’s agent is not independent and they are actually a marketer or an introducer. Unfortunately this set up is not unusual, and Cate has seen fees as high as 8% that are paid to introducers. It is little wonder that valuations on new (and off the plan) property often come in lower than purchase price; it is because the introducer’s fees are built in to the price, and the banks know it.  Charlotte also quizzes the trio about buyers agent fees basing off a flat fee or a percentage and Dave jumps in to share his experience in the past when running a business with independent buyer’s agents. Sales agents who masquerade as buyer’s agents can be a very dangerous risk for consumers who don’t know the difference. As we all should remember; there is no such thing as a free lunch.

2. Matt is keen to access his available equity in his current investment property and asks the trio for some tips

Dave accepts the challenge to share some tips with Matt and shares an example with our listeners, including the importance of understanding tax deductible debt. Pete sheds light on the power of using equity to grow a portfolio. “Instead of having one six hundred thousand dollar property going up in value, you could have two six hundred thousand dollar properties, and in theory you’re effectively doubling your net wealth in the future.”

3. Shashank raises the question of how to manage building insurance with the rapid increase we’re seeing in construction costs and the trio discuss the importance of understanding total rebuild costs, as opposed to relying on an online insurance estimate.

“Did you know that 83% of Australians are under-insured on their properties?” (MCG Quantity Surveying)

Pete suggests that timing is not viable for building projects currently, and reminds our listeners of the supply chain challenges at hand, specifically for materials from China. He also mentions the importance of obtaining full insurance cover, (not just the cost of the build), but demolition, disposal, rent and other associated costs that should form part of a a claim.

Cate expands on this and discusses the role of a quantity surveyor and she reminds listeners that the value of a dwelling when land to asset ratio is high will not equate to the rebuild cost.

4. Sarah, a Bayside resident of Melbourne asks the trio for some help with her scenario options. She and her children moved from ‘beachside’ Mentone to the other side of Mentone, yet she’s missing her old neighbourhood and wonders what guidance the trio could offer. Should she rent-vest, buy/sell, or buy/invest? It’s a great dilemma to unpack

Cate enjoys this listener question as it takes her back to her own happy years when she also lived in beachside Mentone. “Follow your heart, and go back to the beachside. Buy there if you can, don’t rent there. Your capital growth prospects based on the scarcity and desirability of the area will outperform non-beachside.” Cate also encourages Sarah to consider the cashflows associated with holding her existing townhouse.

Dave highlights the benefit of modelling the scenarios and Dave reminds our listeners that cashflow and borrowing capacity are not the same. He puts some questions to Sarah so that she can navigate the three scenarios and reach her important decision optimally.

5. And… the gold nuggets

Dave’s gold nugget relates to thinking through the various options before you jump in to make your next purchase.  Trying to find experts who can give you the numbers to enable us each to make an informed decision. “Our next purchase is always the most important one.”

Cate’s gold nugget is all about taking the opportunity to set your plan and arrange your finance over the holiday break so that you can hit the ground running in 2023 and make the most of the market when it reopens.

MERRY CHRISTMAS EVERYONE! Wishing our listeners a safe and happy festive season.