Buyer agents cant out perform the market? Just like stock managers cant outperform a index fund ?

There is a saying in the share market that you cant beat the market
For example
Many ppl pay high fees for managed funds (like there is a person that constantly sells and buys different shares based on research,algorithms to try and get the best returns etc ) but its been proved time and again that these fund managers do WORSE then a simple index fund that just simply tracks the market as a whole. And index funds are cheaper since your not paying the extra fees for a fund manager to play around with the stocks etc

So when it comes to real estate obviously other then knowing the basics not buying units , over paying etc not buying at the peak etc etc is all this analysis by buyers agents necessary ? Is the 10-20k people fork out to pay for their services would that really serve you well in terms of getting way better returns? Or would it just be like the stock market managers that fail to beat the index ?? Or if anything get the same result but you would personally be at a 10-20k loss because you paid them
Yeah sure you can show examples of buyer agents getting way better results for clients then average investors but then im sure you can also see average investors getting way better results on their picks then buyers agents brought for clients etc etc

Keen to hear thoughts on this.
I know stocks and RE are different but in saying that stocks are way more complicated and these stock managers have way more tools and gadgets and algorithms etc and they still fail to beat a simple index fund over the long term

Just a simple question, Im not saying this is the case with RE and thats why im asking the question i want to see what people think about this.

Thanks

 

Index investing is mainly driven by efficient market theory and the annual low costs.

With RE, the market is not efficient at all or less efficient than stocks. So someone who has done due diligence will usually perform better than someone who hasn't. When you engage a BA, you are paying for their knowledge of the area, their knowledge of value, network, time to do due diligence, thier skills to negotiate on your behalf, etc. If you have all or most of these, you may be able achieve similar results.

Average Joe would only buy 1 or 2 properties in their lifetime and so most won't know where to start with due diligence and what to look out for. They will make decisions and give advice to their friends and families based on emotions.

BAs work with property full time, they will likely know more areas, etc than you do unless you are in the industry too. Of course there will always be outliers.

 

Interesting analogy. In my experience, functions are a bit different though. BA is more of a facilitator. They generally don't operate as a property picker or decision maker. You need to provide scope and make decisions.

 

If I buy local and I can inspect properties and areas myself, I won’t use a BA. But for interstate that I can’t be there all the time, BA fee to me is like an insurance cost to make sure things are as i expected.

I don’t think we expect BA to invest for us like a fund manager. They cant, and don’t know our personal situation or psychologically ability to do that for us. For example, they buy with a view to hold for 20 years but the buyer can’t withstand the storm and sells in 5 years and underperforms, is that BA issue?

 

Agreed. BA is an insurance to make sure you don't purchase a lemon. If they pick one that outperforms the market etc that's just a bonus. Ofcourse if you are buying in your local area or are free to travel etc. and have good knowledge of property then you can do it yourself with similar confidence.

Personally paying 10-15k insurance for a 1m purchase is a no brainer for me given its only 1-2% of investment spend!

 

You pay for their time, knowledge and sometimes connetions. If you have these 3 resources available to you it can be avoided.

 

There is no equivalent to a broad index etf in resi property. Not for the same level of gearing anyway. The BA provides skills most buyers dont have and dont have time to develop.

but as investors know, the more inefficient a market is, the more emotional the participants, the more opportunity.

 

I would say at best the comparison would be closest to subscribing to a stock picking service or broker recommendation.... even then it's a stretch as the results can't be as easily measured as results in the sharemarket can be.

 

On a related topic - are there listed or unlisted residential property funds? I thought most of Australian REITS are commercial properties only?

 

Those which come to mind are vertically integrated developers eg Meriton, Central Equity, Ralan (in liquidation) etc.

The build to rent sector hasn't taken off though it was touted several years ago.

 

Pre-COVID, we did our own research, shortlisted properties, fly interstate for a 3 day long weekend, looked at 30 properties, made offers on 3, bought one. Did this a number of times. During COVID, buyer's agents did the above for us. Was it worth the fee? Yes. Did they do the level of due diligence I would have done on a property before making on offer? No (e.g. didn't test the air conditioning because there were no batteries in the remote, or the oven fan, or a number of other small tests we would have done, ended up needing replacing, which cost us many k. We still would have bought it, just would have been able to use the results to negotiate better price. Lesson: use them, just direct them so they act like you, not just for you.

 

I see your point but it doesn't work that way.

First, it is not comparable. For shares, you can join an index fund that replicates the market by allocating proportionally your money to all firms in that index. In RE, you can't spend 100k on 100 suburbs of NSW, 1k on each one, to copy the market performance.

It then comes down to asset selection, which is tailored to personal circumstances, such as gearing, cashflow tolerance,.... and especially your personal skills.

The assumption of being able to buy a property performing the market average (like the share index way) could be very mistaken, because you are ignoring many important factors in asset selection. Like you can go for the right time, right suburb, right street, right house, but then pay a premium price of a comparable developing site for a undevelopable piece of land, for example, which will then distort your performance.

Secondly, because its about asset selection, no point comparing BA vs the market. A BA can overperform the market because he specialize in blue chips are, which is beyond your purchase capacity anyway. Or the BA may underperform the market but still 10 times better then yours.

So the the decision to use BA or not should not base on how the BA vs market. It should be how do you compare yourself to a BA? Is the 10k-20k fee give your the purchase that will outperform your purchase 100k-200k in 10 -20 years? Only you know the answer

 

Okay the first few things you said make sense , you cant put 1k in 100 different suburbs of property to capture the market growth

 

Everyone looks to a BA to buy property....
Let's flip the narrative
Very few people look for a BA to sell their property !

I may soon be selling, I will be reaching out to a local BA, think about it for a min, a vendor usually knows roughly what they want/need from a sale, a BA probably has (or soon will) a buyer looking, so going to a BA costs me next to nothing V's going to a REA.

As a vendor all I have to do is have my conveyancer/solicitor draw up a sales contract, BA finds me a buyer, saving me $30k in REA fee's
Yes there is the argument that a REA could get a better sale price, but if the vendor is happy with the sale price does it matter ?

Do your own due diligence

 

BrickX?

 

If the BA buys below market value and the market achieves average growth, they've achieved met the task (provided that you sell at MV).

 

Hi @HBK

The reasons individual people have for having a BA assist them are quite varied. For example, some do so for no other reason than not being comfortable with the sticky conversations of negotiating property themselves. Others do not have the skills to evaluate the integrity of a structure and likely upfront costs if renovations are required.

Setting aside BA involvement, property offers the power of leverage (swapping a small pile of money for an asset worth significantly more... through borrowing and then allowing a tenant to babysit the mortgage while the property rises in value). In this regard, property is often a more powerful asset class than an average performing collection of shares.

Hope this helps you with your ponderings!

 

Houses are a heterogenous asset group. Every share in a company is identical (usually) but even two neighbouring 4-2-2 houses are different. Because every house is different there isn't a bunch of analysts evaluating each house, also current prices are not reported/available until a month after. This is why the RE market is very far from efficient.

Another aspect of real estate is that it has lots of tax implications that differ depending on the owner. This isn't as true with stocks. For instance, not every RE buyer can deduct interest and capital works depreciation i.e. a lot of buyers are owner occupiers. So unlike stocks it is more likely that the value of an asset is different for different people. You can't just add CG and dividends and get the total return

 

I know that it’s common for buyers agents to claim they can buy property cheaper off market etc. That’s total BS. Who would sell a property cheaper off market and why?

Buyers agents don’t get you better prices. But a good one will identify the right property for you. (And more importantly help you you to NOT buy a poorly performing property or one with major issues)

 

theres reasons for selling off market... some people want anonymity... others are desperate for money and if they receive and offer before it gets advertised theyll take it... regarding ba... theres value bcs of all the connections and all the experience of doing hundreds of deals... even more important if youre buying interstate... but if youre very experienced and are buying local you prob dont need one...