Sunday, October 11, 2020

On the trust-worthiness of real estate agents


I don't really enjoy throwing shade at the real estate agent profession because I have a number of friends who are real estate agents. Also, I think as a financial blog and trainer, I have my hands full with FAs and real estate seminar types who can provide endless entertainment for my readers.

The book Kiasunomics 2, does not paint real estate agents in great light, however, and talks about a con that could happen to the hapless real estate seller. 

Suppose you have bought a new unit and are facing some time pressure to sell your current home and have a selling price of $2,000,000. A real estate who already found a buyer for $2,000,000 may suddenly offer a price of $1,800,000. He can collude with a friend or relative to be a buyer if he knows that you are desperate for money and can take on a lower price. In the example from the book, if the seller insists on the original price and turns down the cheque, sometimes the agent may come crawling back with a $2,000,000 offer at a later time.

I don't believe my friends can be so unethical, but evidence from NUS may point otherwise. 

Reviewing the data on buying prices of real estate agents, Singapore real estate licensed agents were found to pay less 3% for real estate transactions. If a piece of property costs $1,000,0000, real estate agents pay 3% less from a combination of having more industrial knowledge and possibly playing similar games to their hapless clients. 

The research does not delve into the price premiums gained when agents sell their own properties but studies in the US show a premium of around 4.5%!

Sometimes, nothing much can be done about this problem because real estate agents have superior information about the markets and this is not a liquid and efficient market like SGX. The only thing we can hope for is more transparency and research over time. 

After all, if I get into a litigation situation, as I can do my research have a network of lawyer buddies, I may be able to resolve the dispute at a lower cost compared to a layman. This is probably the same for doctors who have to see other doctors. 

Nevertheless, this is a rare book that contains valuable research information written from a local context.


  1. Property agents are like any sales & commission biz, so conflicts of interests & vested interests are front & center. No difference from salesmen at electronics stores pushing you a particular brand of aircon over another. Only difference is the quantum of moolah involved.

    The only protection, short of a Soviet or North Korean-style "no-choice fixed price" or communal allocation, is to educate oneself as much as possible in that particular area.

    Whenever there is asymmetry of info, aspects of monopolistic behaviour plays out at the individual transaction level.

    With the rise & increasingly easy availability of property online data & data analytics, there is less info asymmetry now. I'm sure the "industry insight" advantages of property insiders have shrunk & will get even smaller.

    Their main advantage going forward will be ability to exercise emotional control & being patient. Stuff that retail mass market consumers may not have or a luxury in the case of urgently having to prepare a home or sell one.

  2. if the seller insists on the original price and turns down the cheque, sometimes the agent may come crawling back with a $2,000,000 offer at a later time.

    hmmm... i dont think I heard before any buyer offering $2m when the selling is asking for $2m... there is always a negotiation process. I think you have to factor in the bargain mindset of every buyer and tenants in all scenarios.