What is the need of a real estate agent...?

A very common, simple question....often faced by us.

it comes to every ones mind when going for a buy, be it a car or a house.

we often get confused that the so called 'middle men' are really there to help us or whether to fleece us from our hard earned savings.

sometimes there is a bit of  truth in our dilemma, that dishonest agents really rid us of our beloved money and get us in more troubles.

But most often it arise from the misunderstanding of the role of an agent in the business transaction.

Now i will explain where the misunderstanding comes from through an imaginary situation.

Mr. Suresh (imaginary name, it could be any of us) has a rubber estate in the interiors say around 20 Km from nearby major town  and 4-5 KM from a minor town; and it is 1 Acre rubber tree, yielding rubber. and he earns an average monthly income of 10000 rupees from the rubber. 

but there is a demerit, the rubber estate has no motorable road connectivity and there is no chance of getting a direct connection, unless he buys land to construct a road which connects to a panchayath road, and he has to buy atleast 8 cents more from the neighbours for that. But there is a small foot way connecting to his property, from where he gets the connectivity.

Mr. Suresh inherited the land from his parents and grandparents, and he inherited it quite recently from his parents.
Now Mr. Suresh is married and wants to settle at a place near to his wife's place. But surrounding property belongs to his sisters, who all believes Suresh will give the land at 'friendly prices' to them. But Suresh wants urgent money to buy similar land and construct own house near wife's native place.

Suresh needs atleast 30-40 lakhs to buy land, construct his dream house, and have a decent saving, and he expects most of it to come from the sale of  the said 'rubber estate'. 

He is quite confident that he will easily get the amount from the sale, after all his neighbour just recently sold 10 cents of land with road connectivity at 50,000 Rupees/cent (which turns out to be 50 lakhs from 1 acre),. so having demerit of no direct road, he assumes he will sell it for 10 lakh less that is 40 lakhs (he calculated it by multiplying what neighbour got for 10 cents, that is 50,000/cent with his 1 acre, so as to get 50 lakhs. now he gave a discount of 10 lakhs for his 'demerit' to get the figure 40 lakhs)

Here comes the problem... when Mr. Suresh assigned the price tag, he did not take into consideration many factors.

1) No road connectivity...it is most important aspect of any plot to have a direct motorable road connectivity, if one were going to stay at the place. Most of the buyers buy land with two things in mind, either to make a home or to encash it later. So here Mr. Suresh's property does not qualify. Even if one is going to buy 8 cents more land from neighbour, it easily adds 4 lakhs to his sale tag. 
so what is the problem?
as i mentioned his plot is surrounded by his sisters property, if he is not selling it to them at friendly prices, they are not going to be so friendly with proposed buyer. And even if any one willing, people are hesitant to sell land at smaller denomination from their bigger plots. if more neighbours are involved, it complicates and depends on the 'diplomatic relation' between Suresh and neighbours.

so in real sense Suresh's property is no way comparable to his neighbours property with direct road access
another aspect is that 10 cents of land may fetch more price per cent of land since the total value is reasonably low, (5 lakhs in case of neighbour), where as 40 lakhs needs some kind of 'whole sale discount'

2) How old are the rubber trees...yes he gets 10000 rupees from his estate, but how long he is going to get it? if the trees are old and are to be slotter tapped soon, it will mean that the buyer will have no income for around 6-7 years (after the slaughter tap bonus) till the next batch of rubber trees start yeilding. that means expenses only for the 6-7 years.

3) Distance to the nearest main town...his neighbour would be lucky to get a good price, since any one who is in dire need of 10 cents in the locality will cough up that kind of price. 20 KM from a city headquarters or 5 Km from a major town is a serious issue.

4) Proper documents....actually this should have been the first consideration, having inherited the land from parents Mr. Suresh might not be in the know of property documents. If they too are illiterate on the property and tax detail (which happens often to many of us), it means serious trouble for a buyer at the time of buying and post buy.

Now comes Mr. Ramesh (imaginary), he is an NRI, worked hard abroad for quite a long time and saved money to buy land. He has a distaste for middle agents and believes he earned his money, he knows the value of it and knows how to invest it. He comes into contact with Mr. Suresh (mostly through acquaintance)
and goes to the site, sees rubber trees, sees that a minor access is there. He enquires in the locality the average price of land and is informed that neighbour sold at a bit of higher price. Mr. Ramesh is in a hurry to conclude the deal and go back abroad
.Mr. Ramesh actually wanted 1/2 acre of land near town, where post return he wanted to settle with school going children. He was ready to pay market price, but came to know that he is going to get twice the estimated land at the price he earmarked to buy property.

both negotiate a bit and intents to buys the said property at 38 lakhs, both feel happy, or are they? 

so here are the typical problems faced...

1) agreed, each one of us value our hard earned money, but often we do not take time in decision making on investments. Mr. Ramesh's requirement is completely different than what Mr. Suresh is selling, but because of the discounted price he is impressed. Being an NRI he doesnt know much details of buying property back home. Guidance comes from friends and relatives who are rarely experts.

A Real estate agent Mr.Agent would have told him that his requirement is different and with his budget he could opt for more fitting property, where he can make his home post return from abroad and at the same time closer to towns and access to educational institutions etc. Yes he might get less land, but more befitting land. Let me remind you that with less than 1 lakhs we will get 1 acre land in other states, but barren land!. The right price has to be paid to get the right place, no escape...but after all what we want we get, right?

2) Mr. Ramesh did not know that there could be troubles with the documents of property,...both Mr. Suresh and Ramesh are now faced with legal hurdles, neither can Ramesh buy and nor can Mr. Suresh sell. Some times sale goes through but later in life the hurdles come back!

Mr. Real estate agent would have made sure that the property impending sale is devoid of legal troubles (after all the agent's income comes only in a succesful deal, his reputation is at stake). Simple to go.

3) Mr. Ramesh does not know about rubber plants, so if the trees are going to slaughter tap soon, he is going to have to spend money on next batch of rubber plants (after 2 years of slotter tap bonus), most likely he would have returned home by then. So post return life is only expense no immediate income in sight.

Mr. Real estate agent would have told in advance about the problems to Ramesh (it is not that the agent wants to turn away potential buyers, but he needs a business to go through, you will read below why)

....
the stroy is in last phase, where Mr. Suresh and Mr. Ramesh are having serious trouble to sell/buy land. Money is spend on consultation. Mr. Ramesh has to go back to abroad and goes without buying any land at all, he intents to buy next time. Mr. Suresh is dejected, now he is getting offers at 20-25 lakhs for same property. But Mr. Suresh doesnot agree, after all there was a buyer who was ready to buy at 38 lakhs how will he sell it at close to half the price.
He doesnot sell the land immediately, and waits two years and ultimately manage to sell the property at 25 lakhs since he need money for constructing house. 

But the construction materials have sharply appreciated (they always do), where he could build his house for 25 lakhs 2 years back, he now needs 35 lakhs.
Mr.Ramesh could not buy land, now he will wait 2 years and buy another property which suits him at a higher price then. He could not construct his dream home, due to lack of land availability in time.
So ultimately two unhappy people.

End of story....

Now what Middle agents will do here.

first of all seller...

Right pricing of the plot is as important as right pricing of Car. If you want to sell Maruti car at the price of a Hyundai accent, there will simply be no takers.
so he has to be made aware of the market forces and what all are in demand.
the agent will make sure all his documents are proper, he will be told of the demerits of the land, and a market price tag will be given.
In the given case we will give 27-33 lakhs tag.
Now promote it to people who are interested in getting the land as long term investment (not for building house). Let me remind you, it is comparatively cheap for a long term investment. He gets the advertisement done, gets a person whose requirement is exactly Mr. Suresh's plot. 

A little bit of discussion between two parties mediated by the agent brings the price to 30 lakhs. Good for suresh because he is getting the deal closed immediately and start construction of house. Good for buyer, he was ready for buying a plot which was better for making house, though he has no intention of making one ever, at close to twice say, 50 lakhs.

The agent gets a commission (minimal depending on the services and time he spent on it, 2% in our case which is market rate)

So here is two happy people,

Suresh : gets 30 lakhs now, other wise had to sell land at 25 lakhs in desperation and waiting for 2 years and 
lot of trouble and could not make his dream home (else spend an extra 10 lakhs there )
NETT SAVING: 15 lakhs

new buyer: was ready to spend 50 lakhs on a property which was not what he wanted. Got the required property at 30 lakhs.

NETT SAVING: 20 lakhs.

the agent: nominal commission and satisfied customers (means future business)

Ofcourse, the nett savings is not always in this range, but it is not so unusual to get that kind of savings, with a right agent.


So this is our role, that is to make business simple, and to make business happen...

WISHING YOU A RIGHT AGENT AND BEST DEALS...

RKP Properties
Please visit www.rkp-properties.blogspot.in  for the availability of property