Recognize Broker Tactics to Avoid Losing Money on Real Estate Sales

Many owners who are considering selling their properties have consulted with brokers, but have sold their properties at a lower price than was originally appropriate, taking their word for it that "this price is the market price" or "it is a property that is difficult to get financing for".

In fact, there is a structural conflict of interest in the broker's business model, and the incentive to prioritize one's own profit over the owner's profit is a mechanism that works. In particular, the transaction form of two-sided brokerage is a very attractive deal for brokers because they can obtain brokerage commissions from both the seller and the buyer. However, in many cases, this two-sided brokerage is the cause of the owner's inability to sell at a fair price.

In this article, INA & Associates, Inc. explains how to recognize an intermediary's position talk, the trap of two-sided intermediation, and concrete actions that an owner should take.

Brokerage Business Models and Structural Conflicts of Interest

What is two-sided brokerage?

There are two major types of transaction forms in real estate brokerage: one-handed brokerage and two-handed brokerage. One-handed brokerage is a transaction form in which separate brokerage firms enter the seller's side and the buyer's side respectively, and each firm is expected to act in the client's best interest.

On the other hand, two-sided agency is a transaction form in which one agency mediates both the seller and the buyer. In this case, the vendor can receive a brokerage fee from both the seller and the buyer, thus doubling its profit. However, it is extremely difficult for the vendor to maintain a neutral position because the seller has conflicting interests of wanting to sell at a high price and the buyer wants to buy at a low price.

Reason why a brokerage firm prefers two-sided transactions

The reason why an intermediary prefers two-sided agency is clear. It is because the brokerage fee is doubled. For example, when mediating a 50 million yen property, a commission of approximately 1,560,000 yen can be obtained from the seller's side if it is a one-handed mediation, but if it is a two-handed mediation, a commission of approximately 3,120,000 yen can be obtained in total from both the seller and the buyer.

Furthermore, a mediator prepares the environment in which it is easy to conclude a two-sided deal by utilizing the customer database held by the company and introducing the property for sale to the company's prospective buyer on a priority basis. As a result, the possibility of losing the opportunity to sell at the most favorable terms for the seller increases.

Trap of "two-sided agency": Why is the sale induced at a price lower than the market price?

Incentive structure of two-sided dealings

In order for an intermediary to conclude a two-sided deal, it is necessary to have the buyer who is a customer of the company purchase a housing. Therefore, the vendor tries to offer conditions that are attractive to the buyer. Specifically, they offer the seller a "slightly lower price than the market price" to create an environment in which the buyer can easily purchase the property.

In this structure, the seller loses the opportunity to sell at a fair price, which he or she should have obtained, and the builder earns a high commission from the transaction. The seller may lose several million yen, but the builder has a strong incentive to double its commission.

The true meaning of "It is a market price" and "Financing will not be attached.

Have you ever heard words such as "This price is a market price" or "It is difficult to get financing for this housing" from a vendor when you consulted with them about selling real estate? These words sound like they are based on objective market analysis at first glance, but in fact they may be position talk for the convenience of the vendor.

The words "It's the market price" have the effect of giving the seller the impression that it is difficult to sell at a higher price, thereby blocking any room for price negotiations. In addition, the words "financing is not available" are presented as a factor that reduces the buyer's willingness to purchase, and as a result, induces the seller to lower the sale price.

In reality, however, there are many cases where financing can be obtained by approaching multiple financial institutions, and it is not unusual for the assessed value of a property to differ greatly from one vendor to another regarding market prices. It is important to obtain a second opinion and not just take the vendor's word for it.

Owner's "commercialization" and target of revolving sales

What is a turnover sale?

Revolving sales is a business model in which the vendor proposes to the owner, "Why don't you sell this property and buy another, better property," and makes the owner repeat the sale and purchase. For the vendor, this is a very profitable transaction because it earns a brokerage commission on both the sale and the purchase.

For the owner, however, there is a risk of a diminution in the real value of the property, as he or she will have to pay brokerage commissions on both the sale and the purchase, as well as other expenses such as registration fees and real estate acquisition taxes.

Signs to be wary of

To avoid becoming the target of a turnover sale, you should be on the lookout for the following signs.

First, be wary if you frequently receive offers from vendors to sell and purchase another property. In particular, if you are strongly advised to sell even though there is nothing particularly wrong with the property you currently own, you may be the target of a turnover sale.

Second, you should also be wary if the new property proposed by the vendor is a property in your inventory or one that is profitable for your company. The vendor's profit may be prioritized over the owner's profit.

Specific actions to detect position talk

How to obtain a second opinion

It is important to always obtain a second opinion and not just rely on the broker's proposal. By obtaining a second opinion, you can objectively determine whether the broker's proposal is truly in the owner's interest or whether the broker's interests are prioritized.

When obtaining a second opinion, it is recommended to consult not only brokers, but also small and medium-sized local contractors and those with a high level of expertise. It is also useful to consult with third-party experts such as real estate appraisers and real estate consultants.

Check the number of drawings downloaded from Raines

Raines is a real estate information network system operated by the Real Estate Information Network Organization designated by the Minister of Land, Infrastructure, Transport and Tourism. In principle, properties for which a sale is requested are registered with Raines and can be viewed by real estate agents nationwide.

The number of drawing downloads of a property registered in Raines is an important indicator of how many vendors are interested in the property. If the number of downloads is high, it is evidence that many vendors are trying to introduce the property to their clients, meaning that the likelihood of a sale is high.

However, some vendors who aim for a two-sided deal may try to reduce the number of inquiries from other vendors and introduce properties to their own customers preferentially by delaying registration with Raines or not posting detailed information even if registered. This is called "enclosure.

As an owner, you can prevent enclosure by asking vendors to present their Raines registration certificates and to report regularly on the number of plans downloaded and the status of inquiries.

Requesting assessments from multiple vendors

When considering the sale of real estate, it is always advisable to request assessments from multiple vendors. Generally, you can grasp a proper market price by requesting an appraisal from three to about five companies.

When requesting an appraisal, it is important to ask not only intermediaries but also local small and medium-sized contractors and contractors with a high level of expertise. It is also important to ask for a detailed explanation of not only the assessed value but also its basis and sales strategy.

Summary: To avoid losing money on the sale of real estate

In this article, we have explained how to recognize a broker's position talk and the trap of two-sided agency. The most important thing in the sale of real estate is not to take the word of a contractor at face value, but to judge based on objective data.

A structural conflict of interest exists in a broker's business model, and an incentive to induce the seller to sell at a price lower than the market price works in order to conclude a two-handed deal. In addition, there are vendors who attempt to commoditize owners through turnover transactions and earn ongoing commissions.

To avoid these risks, specific actions such as requesting assessments from multiple vendors, obtaining second opinions, checking the number of Raines drawing downloads, and requesting disclosure of objective data are necessary. In particular, it is important to be wary of words such as "it's a market price" or "you can't get financing" from vendors, and always confirm supporting data.

Real estate is the largest asset for many people. The difference in the sale of real estate can be millions of yen, or even tens of millions of yen in some cases. The key to a successful sale is for the owner to proactively gather information and make decisions without leaving it up to the vendor.

At INA&Associates, we provide real estate brokerage services with the owner's best interest in mind. We do not assume two-sided transactions and promise highly transparent transactions. If you have any concerns about the sale of real estate, please do not hesitate to contact us.

In addition, we operate the Oyaekai (INA Network), where we exchange a variety of information on real estate investment and real estate sales. If you join the Oyaokai, we will answer all your questions, provided that you follow the rules. If you are interested in gaining knowledge and networking to succeed in real estate investment, please consider joining us.

Frequently Asked Questions

Q1: Is it illegal to use two-sided brokerage?

Double-sided brokerage itself is not illegal. In Japan's Real Estate and Building Transaction Business Law, two-sided brokerage is permitted. However, it is required to represent the interests of both the seller and the buyer fairly, and it becomes a problem to give priority to one of the interests unjustly. Since there is a structural conflict of interest, you as the owner need to be careful.

Q2: How can I check the number of downloaded drawings in Raines?

The number of Raines drawing downloads cannot be directly confirmed by the seller, but a report can be requested from the contractor who is requesting mediation. When a full-time mediation contract or a under-exclusive-contract exclusive duty mediation contract is concluded, a contractor is obligated to report a sales activity regularly. At that time, ask them to provide you with information such as the registration status to Raines, the number of drawings downloaded, and the number of inquiries.

Q3: Where should I request a second opinion?

We recommend that you request a second opinion from a different type of brokerage than the one you are currently working with. If you are working with a large brokerage firm, ask a small local firm, or conversely, if you are working with a small firm, ask a large or specialized firm. It is also effective to consult with third-party experts such as real estate appraisers and real estate consultants whose primary business is not brokerage.

Q4: Which is more reliable, a large firm or a local firm?

There are advantages and disadvantages to both large firms and local firms. Large companies have nationwide networks and extensive customer databases, and can be expected to conduct sales activities over a wide area. On the other hand, local vendors are more familiar with local market trends and may be able to provide more attentive service. The key is not the size of the vendor, but whether they will act with the owner's best interests in mind.

Q5: How can I avoid turnover?

To avoid a turnover transaction, it is important to carefully consider the vendor's proposal and calmly determine whether it is truly in your best interest. In particular, be wary if you are frequently advised to sell even though there is nothing particularly wrong with the property you currently own. Real estate investment should be made from a medium- to long-term perspective, and it is important to have a clear investment policy of your own without being swayed by the vendor's suggestions.