There are six key questions you can ask to help you identify a modern day Spruiker. Hear about all 6 questions that are detailed in Anna Porters book “Whistle Blower” and also how you can get a copy of the book.
Kevin: One of the questions I’m quite often asked is “But how do I know that I’m dealing with a spruiker, Kevin, because it all sounds so good?” Well, you’ll be delighted to hear about a book that’s called Whistleblower that’s devoted to exactly that – helping you identify if you are dealing with a property spruiker. The author of that book is Anna Porter, who is a buyer’s agent and also a former or current – I’m not quite sure – property valuer. We’ll find out in just a moment.
Hi, Anna. How are you?
Anna: Very well today, thanks. How are you?
Kevin: Good. Are you a former valuer or once a valuer always a valuer?
Anna: I’d say the latter is probably more correct: once a valuer always a valuer.
Kevin: Okay. Your company is called Suburbanite, and I’ll tell you how you can get a copy of the book and contact Anna, as well.
Anna, I’m particularly interested in the six questions you say someone can ask to find out if they are dealing with a property spruiker. Firstly, tell me what a spruiker is.
Anna: Yes, certainly. In our books, a spruiker is someone who will come to you as your trusted investment advisor but all along, they’re actually taking a kickback from a third party, typically a developer. They won’t disclose that to you in most cases, and for me, that creates a little bit of a question around who are they working for, and if there’s non-disclosure, it makes you wonder why they have something to hide.
Kevin: Yes. I guess that leads to the first question you’d ask, which is “Who pays the fees?”
Anna: That is probably the first and most important question to ask. I like to think I’m a very ethical person, but if I’m getting paid $40,000 or $50,000 or even $60,000 by a developer when I’m getting someone into a property purchase, I bet that I’m working for the developer more than the person that’s supposedly my client – which is why we don’t do that but most investment advisors out there do.
Kevin: Yes, question number two is “Can you offer me properties other than this new off-the-plan stuff that you’re peddling?” If you go to a seminar and they are selling specific properties, is that when the alarm bells should go off?
Anna: Yes, that is a big red flag. If they can’t offer any investments other than new and off the plan – and new and off-the-plan property is just one way to invest – you have to think, does that suit everyone? Surely it can’t. So If they’re not offering anything beyond that, there’s probably a reason for it, and it’s most likely that that’s the only way they can line their own pockets on the way through the transaction.
Kevin: I guess in a similar vein, you say question number three is “If the property is new or off the plan, ask who the selling agent is for the seller or the developer.” Why would I ask that question, Anna?
Anna: There are some investment firms out there that will still deal with new and off the plan but they might be fee for service. So there will be a selling agent representing the developer and the buyer’s agent will be representing the buyer – and the fees should be according to that.
If they are actually saying they’re working for you, then the developer should have their own internal marketing team or generally a local agent representing them so that it does create two sides to that transaction that are fair and transparent. If they’re acting on both sides, it’s really not fair or transparent.
Kevin: Yes, I guess I’m a firm believer that if you’re going to be spending a lot of money – as you would do in buying a property – you have to do your own due diligence, which leads to the next question which is “Can I have my own valuer put a valuation on this purchase?”
Anna: That’s a really big one. When I was a valuer, we would often see this unfolding, this scenario, where [3:26 inaudible] valuers are inherently conservative, but there are also a lot of cases where you go out and value something, and again and again and again, it may be a new estate or a new development, the valuations just weren’t stacking up compared to what else was selling. It’s because they’re overpricing.
If the developer is giving say $40,000 or $50,000 to the investment advisor on the way through, that money has got to come from somewhere and it usually means the investor is paying too much.
They often will try and mask it or hide it by not letting you get a valuation done. To me, that’s again non-transparent. But we’re seeing some that are really, really, cheeky where they’ve actually had ones where they couldn’t settle.
It might be a financial advisory firm that’s linked into a broker or they might be one of the one-stop shops. They have into settlement, the valuation has in low by the bank. The investor actually wouldn’t be in a position to settle but they’ve gone and bumped up their own home loan, transferred money across, and played with the loan structures to get it to a point where it can settle. But effectively, they’re using more equity out of the investor’s home.
The investor may or may not have knowingly signed off to that. They might be a bit confused with the loan structure or given enough authority over to the firm they’re working with to actually rejig it without them having full knowledge and they’re just trying to hide the fact that the valuation came in low. So you really need to be across that.
Kevin: One really great telling one that I see in your book is question number five that I must admit that I had never thought of but it’s a really good one, and that is asking this person whether they’ll go back to the developer to negotiate the price for you, which is going to be a great indicator, because they won’t do it obviously.
Anna: No, because it eats into their own commission. Once that price goes down, the developer will tell them to start dropping their own fee, and they don’t want to do that.
Developers tend to set the market. If they’re setting it in line with sales in other developments and established stock, that’s fine, but often they’re not.
Kevin: The final one is to ask them about their credentials. I guess if you’re going to be taking property investment advice from anyone, you have to make sure that they are qualified. There’s nothing wrong with asking them what their formal qualifications are, Anna.
Anna: Yes, this is the one I’m probably most passionate about, up there with who’s paying the fee. This one is so critical because the spruikers will often have no qualifications, or they might have done maybe a three-day real estate course. I’m a firm believer… I’ve actually taught the real estate course at TAFE, and there’s not enough in there to make someone have enough knowledge to advise on your greatest asset and investment strategy as an overall whole.
There are also the self-proclaimed experts out there who become advisors. They fill portfolios with a heap of regional properties. They don’t look at diversification, they don’t look at the growth indicators.
We have people walk through our door on a monthly basis who have bought five or six properties in these regional locations, held them for seven, eight, or even nine years, and had no growth or sometimes had the portfolio go backwards. It often comes through either working with a firm that has no formal qualifications and limited experience in that space or someone who’s done maybe a three-day real estate course and often they’re getting paid by the developer.
Kevin: Anna, there’s one other thing that I wanted to ask your opinion on, and that is something that I’ve always warned against, and that is rental guarantees. If they are actually using a rental guarantee to justify the price, alarm bells should definitely be going off.
Anna: I couldn’t agree more. We’ve never had to offer rental guarantees to our investors because we’re in a strong rental market. I met a lady just recently who had a property she purchased where the rental guarantee was $450 a week. That was for the first six months. When that came off, she was struggling to get $250 a week. Now, that made the property unaffordable for her. She’s now trying to sell it, and she’s looking at taking a big loss because she did pay too much for it and it’s in an oversupplied market, which is often the case.
These kickbacks occur in markets that are oversupplied because the developers can’t move their stock. So now she’s in all sorts of financial strife and she really just can’t afford to hold it at the market rent.
If you’re going to go for a guarantee rent, yes, ask why they have to guarantee it. Also get an assessment of the market rent, which is another thing that the valuer will do for you when they do the valuation for the bank. Make sure that you have independent advice from an independent broker and solicitor that’s not part of the one firm because they’ll be across all that information for you.
Kevin: Yes, great advice coming from you in the book, which is simply called Whistleblower. It’s written by Anna Porter who has been my guest. You can get a copy of that book by going to Anna’s website Suburbanite.com.au.
Anna, thank you so much for your time and for writing the book. It’s been great talking to you.
Anna: You’re more than welcome.