Hire a 'banker'
Good real estate agents are like bankers - they are experts at analysing and negotiating
When buying a home, the price has to be negotiated and agreed on between a willing buyer and a willing seller.
So it's helpful for home buyers to borrow practices and techniques from the investment banking world.
Most acquisitive companies have a department of analysts who identify, analyse and negotiate buying opportunities on behalf of the company. But this department still hires expensive investment bankers to seal a deal.
Why does a company need to hire bankers if it already has corporate business development experts?
There are two primary reasons, and they also apply to you when you buy a home.
First, bankers bring an independent assessment of the fair market value of a potential acquisition. They arrive at the value of a target company using a pricing method called Comparable Market Analysis (CMA).
The bankers analyse recent transactions of similar companies and measure their worth and attributes against the estimated potential and value of the target company. CMA is part science, which is about hard data and financial models, and part art, which requires judgment and experience.
While the company checks the bankers' work with its own analysis, bankers bring unique expertise and judgment that strengthens the company's position in the deal.
The second reason smart executives hire bankers is that they know the importance of getting the negotiations right.
To quote deal expert Chester Karrass: "In business as in life, you don't get what you deserve, you get what you negotiate."
Given the high stakes, companies bring in expert negotiators - bankers and lawyers - to protect their interests and maximise their "get."
Good real estate agents are like bankers. They are experts in using CMA to assess the price of properties. They know which home comparables to use in the analysis and which ones to discard. They understand the nuances and price mismatches in a dynamic market that can change daily.
Also, professional real estate agents are well-positioned to negotiate the right home at the right price on your behalf.
It is risky for you, as a buyer, to negotiate yourself. As a home buyer, you have an emotional interest in getting the deal done. If you are careless, your emotions can cause you to overpay, which could make for future sleepless nights worrying about your financial well-being.
So smart home buyers find and interview real estate agents to find one with the expertise to price and negotiate property deals.
It might cost you a small percentage of the transaction cost, but good real estate agents will more than pay for themselves. The savings and peace of mind that he or she brings will more than offset the cost.
I leave you with this advice with regard to paying for an investment banker or a real estate agent: don't be penny wise and pound foolish.
Sam Baker is co-founder of SRX, an information exchange formed by leading real estate agencies in Singapore to disseminate market pricing information and facilitate property listings and transactions. For more guidance on buying, selling or renting Singapore property, go to SRX.com.sg/ask-home-prof
"In business as in life, you don't get what you deserve, you get what you negotiate."
- Deal expert Chester Karrass