Industry Insights

Real estate agencies fear this man

Luke Chiodo has bought, renovated and sold almost 20 residential properties for profit. Everything from one-bed studios in the heart of Melbourne’s CBD to 4 bedroom executive homes in the suburbs. He loves flipping properties, though his love wanes when it comes time to put his renovated properties back on the market. It’s the all-too-common real estate agent’s rhetoric (read: BS) that most sellers endure just to get their property listed and sold.

BS aside, the biggest bugbear of all is commission. And more so, its variability, and not just agency-to-agency but property-to-property. At some point in the process of selling a property, sellers will ask themselves why or how real estate agents justify their service as a percentage or ‘cut’ of their property’s value. By its nature, isn’t selling property just another service? A service that could (and should) be priced according to the seller’s and the agent’s effort?

We researched what Albury-Wodonga’s top 10 agencies offer by way of duties and responsibilities (service) to their sellers for a fee. Across the border, the agent’s services (to list, market, negotiate and settle property sales) was consistent, so why isn’t the price of that service equally consistent between the properties they sell? A prominent agent said, “Our agents will always be more motivated to list and sell a prestige property in Central Albury over a studio flat in Lavington.” It sounds like their service commitment, like their commission, is also variable.

Luke says of percentage-based commissions, “It’s an antiquated business model that very few local sellers dare question, but should. In more diverse cities like Melbourne, haggling over selling fees and advertising budgets is commonplace.”

On flipping homes he adds, “Following months of painstaking renovations, lost income, and a few busted knuckles, the agent swoops in at the eleventh hour to list my property on a search website, wait for a buyer and make a sale.” Though Luke may have wanted to sell his renovated properties himself over the years, the marketplace wasn’t supportive of self-sell. Though that has changed.

It’s perfectly legal to sell your own home. And many Australian’s are turning their back on traditional real estate agents to go it alone. Over the last decade, the self-sell real estate market has grown faster than other real estate brand or franchise. Why? Because today’s sellers demand better value and greater control in the sales process, whether it’s real or perceived. Though self-sell isn’t perfect, or right for everyone nor every property.

There are limitations to self-sell. Used by the real estate industry, property and market research groups such as CoreLogic and PriceFinder, who are Australia’s most reliable and trusted market and property data organisations, don’t allow personal accounts. And property search engines such as domain.com.au and realestate.com.au do not allow individuals to list their own properties for sale – you’ll need to list your property with a licensed agent for your marketing campaign to reach its audience (your buyers).

I asked Luke to dig through his filing cabinet.

Looking back on Luke’s last 5 property flips totalling some $1,400,000, each sale cost on average $12,000 in commission and another $2,400 in advertising. As a property developer he can claim the cost as a tax deduction, but what about the average Joe; is he really happy to pay $15,000 to get a buyer?

In the 5 sales we reviewed together, the commission Luke paid between the lowest sale at $120,000 and the highest at $580,000 varied by as much as $14,000. In all sales, the selling agent listed the property on domain.com.au and realestate.com.au, as well as a few other sites, erected a sign board, conducted open-for-inspections (OFI), negotiated the sale and settled the transaction. At this point you might, what did the agent do differently to justify their commission between the lowest and highest sale? Other than the optional premium marketing, which Luke paid extra, we couldn’t find any difference.

We went one step further.

Let’s take a look at Luke’s most recent flip. He bought a 3-bedroom house at $215,000 plus the cost of the purchase at $8,600, to arrive at $223,600. Add $30,000 for the renovations and $5,000 for finance, and his total investment was $258,600. He engaged local outfit Ray White to sell the property they valued and advertised at $345,000. He liked their promotional flyer, which claimed a bulging database of clients ‘ready-to-buy’.

We did the math. Had the agent sold the property at the advertised price, Luke would have paid $10,520 in commission and a further $1,800 for marketing – all up $12,320. Or in other words, 14% of his profit. Ouch!

After the first open house, Luke got a single offer $25,000 under the agent’s listed price, which he declined on the day. After a dozen phone calls, emails and text messages, the agent became frustrated at his refusal to accept the offer. Had he accepted the offer, the agent could have earned $9,760, or just $760 less than she expected. But on the downside, he would take a whopping $25,000 hit upon settlement. And there was no re-negotiating the agent’s fee. Another 7 days, and dozens more calls got him nowhere. After another 3 weeks, he got an offer of $340,000, which he accepted at just $5,000 less than ask. And the agent? She earned just $152 less than she expected. Where’s the fairness in that scenario?

So fed up by the status quo in the industry, in 2017 Luke made the decision to get his real estate agent’s licence in New South Wales (where he now lives), and more recently in Victoria. And what he discovered in talking to others since his career move is their experiences are not so dissimilar.

When it comes to service, over-promising and under-performing is still a problem for most sellers in the market.

I got to thinking. A solitary agent in a regional town like Albury-Wodonga is hardly going to change Australia’s unique (read: biased) market, but they can make a substantial difference in the lives and financial security of the clients who choose him over more well-known brands and franchises. Luke’s battle to win business won’t be easy. In my research, I was reminded that the local marketplace is a kind of closed shop to outsiders and disruptors, like him.

Where to from here?

The holy grail within the real estate industry is listings, not sales. And an agency’s inherent value or credibility in any marketplace is intrinsically aligned to the number of listings they accumulate like a badge of honour, and sales for income to cover overheads and wages. It’s universally accepted that agents will do whatever is necessary day and night to earn their income – write content for a new campaign, contact a few prospects, install a sign board, take phone and web enquiries, conduct a few OFI’s and negotiate a deal. It’s not rocket science, but it is cut-throat.

It’s often said, you can’t sell a secret; so let’s accept that marketing and advertising is essential. If an agent touts the strength of their brand, reputation, or buyer database, then why are sellers paying for advertising? And why are sellers paying for advertising in the first place, when advertising is nothing more than a cost of sale item? In our marketplace, agents have created a ‘norm’ where sellers pay for advertising to attract buyers so they can earn an income, whereas in almost all other global marketplaces including the Europe, Asia and the U.S., it’s the agent who foots the marketing bill as a cost of making a sale. Food for thought.

In my research for this article, I created a Facebook poll, and asked prospective sellers if they were aware that real estate agent’s commission and marketing budget is negotiable. Incredibly, 94% did not! Luke said of the online poll, “I’m not surprised. Most sellers are unaware that commission is negotiable. An agent can schedule a lower percentage, a sliding-scale fee, a fixed fee, or a flat-fee to an agency agreement. I’ve seen one local agent charge as little as 1%. He was new to the market and needed to build name and brand recognition. But for price, his service offered was no different to that made by any other agency.”

We landed here.

In the local marketplace, Luke is loathed by his peers, stalwarts of the industry who got fat off the profits of other’s investment and hard work, and in some cases, their tactics. So much so, he didn’t last more than a few days as an employee at local franchised agency for speaking up against some of the baiting and sales practices he witnessed, all which are regulated, but exist nevertheless. But it’s his sellers – his primary client, who are his greatest advocates. They love what he does, how and why he does it, and ultimately, that’s what matters most to him.

And buyers? It’s reported that buyers who, for lifestyle or financial security, make the decision to purchase property without consideration for the selling agent. Properties do sell themselves, for their location, attributes or price. In fact, over 88% of all Australian property sales happen from an online search by active buyers and the remaining 12% by spontaneous buyers (people who were not thinking about buying until they did). Australian research has shown that neither an agency’s brand or reputation factor into a buyer’s decision to purchase a specific property once they’ve identified it as a property that meets their needs. Unlike other property professionals such as buyer’s advocates, solicitors, and conveyancers that do advise and influence a buyer’s decision.

So far, we’ve established Real Estate Agent Luke Chiodo as a disruptor, but the question remained, why do local agents fear him? It’s his service offer. A single, fixed, flat-fee inclusive of advertising and marketing, that’s also backed by an equally fair no sale no fee policy. And what’s also evident is that his sellers get a professional sales and service experience equal to, and often better, for his decision to do real estate as an independent agent trading under his own name.

In the last six months, since Luke’s flat-fee business model was introduced to the Albury-Wodonga marketplace, he has saved his sellers on average 65% of the industry’s standard 2.75% commission rate. In the case of one seller Phillip Sargeant, on the sale at Noorla Place, which sold in just 10 days, he saved Phillip $6,900 compared to Stean Nicholl’s identical appraisal. That’s real money in Phillip’s pocket.

Admittedly, Luke Chiodo Real Estate is not a one-stop real estate shop. He works to his strength which is attracting and engaging buyers, and negotiating sales. Though he has partnered with other like-minded local real estate professionals who provide leasing and finance solutions – people who share his passion and values.

As an independent agent Luke may not be your first choice, but for what it’s worth, a second opinion.