Can I Trust Real Estate Agents in Bali? – Dominique Gallmann – Exotiq Property Bali

In most countries, real estate agents are not considered the most reputable group of guys. This is true for Bali too. I am, so I know. Many people openly hate real estate agents. In the United States, only 25% of the population believe that real estate agents are honest and hold high ethical standards. Only car salesmen, lawyers and members of Congress get a lower rating (source: Gallup, 2018)!

Why is it so? Ask around and you will get answers such as “I (or my friend) had a bad experience” and “a real estate agent doesn’t need a lot of skills,” or a combination of the two.

What kind of bad experience? “Well, the real estate agent promised to sell my property for a higher price – just so he could get the list – but then brought in buyers with offers well below the asking price. “Or” the real estate agent did not disclose all of the costs associated with the sale. He was not forthright about taxes and how to make payments to my offshore account and the associated 20% withholding tax, which killed the case in the end ”. And so on.

What is at the origin of this mistrust of real estate agents?

It lies in various conflicts of interest in the agent-principal relationship. Let me explain. In Bali, the real estate agent is usually paid by the seller i.e. the seller is the principal and the real estate agent is their trustee or agent. A trustee is a person who has a duty to preserve the good faith and trust that a principal has invested in him. This is formalized in the listing contract, which defines that the agent acts in the seller’s interest to sell the property at the best possible price against a commission on the sale price. Since the agent makes more money if he sells the property for a higher price, it is assumed that the interests of the principal and the agent are aligned. But this is not necessarily the case.

The first conflict of interest arises when the agent offers his services to the seller. In order to get the ad, he can inflate the price he “promises” the seller. This is almost always the case in Bali. Agents offer unrealistic prices to compete with other agents for listings. And since there is no reliable database on the true prices of real estate transactions in Bali, most sellers do not know what constitutes the fair market value of their property and therefore wishful thinking takes precedence: the sky becomes the limit, not the market! And after a few months and desperate calls from the seller, the agent drops the bomb and pushes for a substantial drop in prices because he cannot find buyers at the asking price.

The second conflict of interest occurs because most of the listings in Bali are multiple listings. As the seller is generally suspicious of the agent, he hedges his bets by appointing several agents at the same time. This reduces the motivation of the individual agent to expect the best possible price. Once he receives a reasonable offer, he will insist that it be accepted, even though he knows that a better offer is possible. Why? Because he fears that another agent may sell the property before him.

And what about the buyer?

Should the buyer trust the real estate agent? After all, the seller pays the agent and the higher the price at which the agent can sell, the more he earns. Obviously, the agent is not the buyer’s trustee in this scenario, although he may claim to represent the buyer’s best interests.

What can our poor agent do in such a situation? On the one hand, he is supposed to maximize the price for the seller (and for his own pockets), on the other hand, he must credibly demonstrate to the buyer that the price he is offering is the lowest price. possible for this property. It must please both parties at the same time. This is called doing the splits! Ouch!

To be successful, real estate agents must be true acrobats, walking a tightrope and always in balance. Who said you don’t need a lot of skill to do this job? Isn’t it extremely clever to please both parties? After all, the best training for a real estate agent might be a course in psychology, not law.

Having said all of that, what’s the exit?

Read my next post and find out.

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