Key takeaways
When it comes to real estate investing, there’s an old saying: “If it seems too good to be true, it probably is.”
One of the most insidious of these traps is the hefty secret commissions paid to project marketers, so-called “property advisors”, and sales agents.
This issue is compounded by the rise of a whole new generation of self-proclaimed “property advisors” who claim to offer unbiased advice. Many investors mistakenly believe these advisors are acting in their best interests.
When it comes to real estate investing, there’s an old saying: “If it seems too good to be true, it probably is.”
But for many first-time or naive investors, the allure of quick profits and shiny new developments often blinds them to the hidden traps lurking beneath the surface.
One of the most insidious of these traps is the hefty secret commissions paid to project marketers, so-called “property advisors”, and sales agents.
It’s a hidden fee that most buyers don’t even know they’re paying—and it’s one that could drastically impact the profitability of their investment.
Let’s pull back the curtain for a moment.
When you walk into a glitzy display suite or see posts by a so-called property advisor on social media urging you to invest in the latest off-the-plan apartment or house-and-land package, it’s easy to believe they have your best interests at heart.
They smile, they’re friendly, and they promise you fantastic returns.
However, what many investors don’t realise is that these advisors are not really working for you —they’re working for the developer.
In fact, in many cases, these salespeople or project marketers are earning commissions of up to 10% of the property’s purchase price.
On a $700,000 off-the-plan apartment, that’s a whopping $70,000 that goes straight into their pocket.
And guess where that money comes from? It’s built into the price you, the buyer, are paying.
Why are commissions so high?
The property market is highly competitive, and developers are eager to sell their projects off the plan – as they need a certain number of pre-sales to get funding for their projects.
So they rely on aggressive sales tactics and often rope in a network of marketers and so-called “property advisors” to move their stock.
These commissions are effectively an incentive for the salesperson to push certain developments over others.
The bigger the commission, the harder they’ll push.
But here’s the catch: because these commissions are so substantial, the developer inflates the property price to cover the cost.
In essence, you—the buyer—end up paying an inflated price without even realizing it.
This can leave you with an overvalued property that, on completion, often values for less than you paid for it, making it difficult to finance or sell in the future.
Off-the-plan and house-and-land packages: the usual suspects
These hidden commissions are especially prevalent in the sale of off-the-plan apartments and house-and-land packages.
Here’s why:
- Lack of market transparency: Off-the-plan sales are notoriously opaque.
Because there’s no existing property to compare prices with, developers and their sales agents can easily inflate the price. Without comparable sales data, investors often overpay.
- The promise of capital growth: Marketers often lure in buyers with promises of significant capital growth by the time construction is complete. However, they rarely mention that a big chunk of your “investment” went straight to their commission and you’ve paid for the first 5 or so years of capital growth in advance.
- Emotional selling tactics: These salespeople know how to appeal to emotions. They’ll tell stories about how prices are set to soar or how this suburb is “the next big thing.” But remember, they’re not advisors—they’re salespeople with a vested interest in selling you that specific property.
The problem with so-called “Property Advisors”
This issue is compounded by the rise of a whole new generation of self-proclaimed “property advisors” who claim to offer unbiased advice.
Many investors mistakenly believe these advisors are acting in their best interests.
The reality is that many of these advisors are simply marketers in disguise, receiving hefty kickbacks from developers for every property they sell.
Instead of having access to every property on the market, and tailoring their recommendations to the specific individual needs of the investor, these “advisors” have a stock list of properties to sell and “recommend” the same property or development to everyone they see.
They’re not your partners in wealth creation; they’re middlemen looking to fatten their wallets at your expense.
The true cost to investors
So, what’s the impact on your bottom line as an investor?
It’s substantial.
Here are a few reasons why:
– Inflated prices: Paying an inflated price means it could take years for your property to reach its original purchase price, let alone appreciate. You’re essentially starting in the red.
– Limited equity growth: If you overpay, you’ll have less equity to draw upon when it’s time to refinance or expand your portfolio. It’s like investing with one hand tied behind your back.
– Poor cash flow: In many cases, investors are left with properties that don’t generate enough rental income to cover the mortgage and other costs, leading to negative cash flow.
How to protect yourself as an investor
If you’re considering investing in property, here’s how you can protect yourself:
- Understand how the property market works and that real estate agents, project marketers and many so-called advisors are not working for you. Follow the money trail – if someone else is paying them you are the product.
- Ask the right questions: Always ask a salesperson or advisor how they’re being compensated. Are they receiving a commission from the developer? If so, how much? Don’t be afraid to walk away if they’re not transparent.
- Seek independent advice: Seek advice from independent property professionals who don’t have any vested interest in the sale. Look for fee-for-service advisors who are paid by you, not by the developer. Only deal with someone who starts with developing a personalised property plan for your individual needs. If they start talking about a property, a development or a location without knowing all about you, your goals and your timelines, run away very quickly.
- Be skeptical of glossy marketing: Developers spend a lot of money on marketing materials but remember that glossy brochures and slick presentations are designed to sell you a dream, not necessarily a sound investment.
The bottom line
At the end of the day, property investment should be about building your wealth, not lining the pockets of project marketers and developers.
While there are certainly good off-the-plan opportunities out there, they are the exception rather than the rule.
If you’re serious about property investment, don’t fall for the hype and sales tactics.
Take the time to do your research, seek independent advice, and be wary of anyone who stands to gain from selling you a particular property.
The best investments are built on solid fundamentals, not the inflated promises of a salesperson looking for a quick commission.
