Property investment firms and buyers’ agents that buy interstate for their clients are getting very creative outsourcing inspections and the property selection process.
Drawing on recent, on the ground experience, Anna Porter, Suburbanite principal, property commentator and value shares that one of her staff was approached by a local competitor to her in southern Sydney asking if her staff member would ‘scout’ properties for them in QLD for their clients because they just didn’t have the ‘people power’ on the ground, and couldn’t fly their own team there due to border closures.
“When our buyers’ agent said they also couldn’t travel from Sydney to QLD, this local buyers’ agent was happy for it to be further outsourced to a local building inspector who would work through our staff member,” shares Porter.
“This made it now 3 times removed from the client, and the company that the client engaged was not providing the services they promised clients – which is to have a qualified investment advisor working from them,”
“It is now so far down the chain where the actual property selection is occurring that it is like the ultimate game of whispers down the line.”
They suggested a building inspector would be a good fit if they knew one that was happy to do it.
“The worst one I have heard of recently was a firm using an uber driver to go around to a range of properties, take photos internally and were also offered a few thousand dollars for every property given the green light,” says Ms Porter.
Porter urges that now more than ever, buyers need to beware!
With COVID making many businesses look for ways to pivot and still provide services in the new world of border closures and travel bans, the property buying business is under the microscope.
Pre-COVID many property investment firms and buyers’ agents would jump on a plane and travel to the locations they were buying in, inspect properties on behalf of their clients and make buying recommendations from there – the selling point was having access to and knowledge of property in locations most buyers just can’t get to or don’t know about.
“COVID dominated 2020, and border closures and air travel are a thing of the past, a concerning trend has been revealed in this sector,” Porter says.
“Property buying firms are in many cases NOT inspecting the property and relying on a video or photos from the selling agent to make buying decisions for the purchaser,”
“This is a significant conflict of interest and in many cases, not disclosed to the purchaser – generally, the purchaser is under the impression that the buyer’s agent they have engaged and are paying a healthy fee to have inspected the property on their behalf.”
She reflects on her own experience and explains she would never purchase a property that she has not inspected or had an ‘independent’ professional inspect on her behalf.
“If I won’t do it, I would never let my clients do it,” says Porter.
“I have seen too many times what can go wrong with ‘buying off the internet’ and relying on information from the selling agent.”
More concerning is when property firms have an agent, or friend (usually with no property expertise or licensing) inspect for them, and they are paid IF the property is purchased as a success commission.
Through Anna Porter’s experience, she sees this as a way to incentivise the agent or representative to recommend or push bad properties to investors for all the wrong reasons.
This practise will result in buyers getting properties that are not what they seem, and pay money for expert advice that they are not getting.
Anna Porter shares what buyers and investors should ask before engaging a property buying firm;
- Who will be inspecting the property and what formal qualifications do they have
- Do they hold a real estate license in the relevant state?
- Are they at all linked to the sale of the property (the selling agent is to act in the best interest of the seller, NOT the buyer) and should not be relied upon for the buyer’s due diligence such as inspections and so forth
- Is the representative paid or incentivised by the property being purchased, as opposed to being paid a salary or per inspection irrelevant of if the property is purchased or rejected?
- What is the inspector’s liability if something is missed?
- What is the inspector’s property experience in that market and how long have they worked there?
“When our valuers and advisors inspect 20 properties for our clients, ones that have already been reviewed online, vetted and researched thoroughly, we will generally reject 17 of them entirely because they did not meet our strict investment criteria,” shares Porter.
“So, we have a rejection rate of 85% on inspection by our qualified property professionals,”
“It significantly concerns me when we see other buyer’s agents’ not inspecting at all, using the agent to inspect for them or buying most of the properties they look at for their clients.”
Anna believes we’re left to wonder what their barriers to entry are.
She says buying property needs to be the ‘John West’ approach, it’s not what we buy you that you will thank us for, it’s what we don’t buy you that you will really thank us for.