Property Hub - Investment Insights & Inspiration - Realty Talk - The truth about hidden Strata fees and side-deals

Episode Date: October 3, 2024

This week Veronica Morgan, a seasoned property expert and founder of Good Deeds Property Buyers, details her role as a seller advocate. Veronica shares how her advocacy service empowers property sellers, helping them navigate the complexities of the real estate market to achieve the best possible outcomes. From negotiating with agents to strategically positioning properties, Veronica’s insights offer a fresh perspective on maximising success in today’s competitive market.    Then we lift the lid on hidden fees, conflicts of interests, overcharging and side-deals being struck between strata managers and suppliers.  Bushy Martin talks to Amanda Farmer, a 20 year veteran Strata lawyer.  Subscribe for free to Realty Talk on the Property Hub channel, join our community and get more insights here: https://linktr.ee/propertyhubau Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media.See omnystudio.com/listener for privacy information.

hello and welcome to the show this week i'm joined by veronica morgan veronica is a seasoned property expert and founder of good deeds property buyers we explore with veronica her role as a seller's advocate we just want to point them in the right direction our mission is to help people make good decisions and the amount of people that get coming to us saying look you know i need help choosing a selling agent veronica shares how her advocacy service empowers property sellers helping them to navigate the complexities of the real estate market to achieve the best possible outcomes. From negotiating with agents to strategically positioning properties, Veronica's insights offers a fresh perspective on maximising success in today's competitive market.

And then we lift the lid on hidden fees, on conflicts of interest, overcharging and side deals being struck between Strata managers and suppliers. Bushy Martin talks to Amanda Farmer, who is a 20-year veteran Strata lawyer. Before we start, I want to thank our supporters and content partners, Realty.com.au, BMT Tax Depreciation, Know How Property Finance and Apira Marketing. You'll find us on all podcast players as The Property Hub, Also on the Southern Cross Australia Network, on Hot Copper and all social media platforms.

At Know How Property, we're more than just the best residential and commercial loan arranger. We craft a plan for your lifestyle and future with our three-stage strategy. We start with your lifestyle strategy. Whether it's fighting your dream home in the perfect location

or adding to your residential or commercial portfolio, we listen to what you want and need to do. Next, we create a financial strategy. We dive deep to uncover what you can do, ensuring your finances are set up for success. Finally, we implement our validation strategy. We become your John West of property because it's the property we reject

that makes sure you get the best. Know How Property, smart, tailored strategies for your life and investments. Unlock bonus content now as a premium subscriber. it's so easy to underestimate the level of stress involved in either buying or selling real estate because it's something that most people don't do very often multiply that stress level 10 times when it's someone my age there is a need for some special consideration when someone in their later years needs to sell to move to retirement. It's not that agents generally aren't caring but

they are busy and maybe lack the understanding and dare I say patience to be there to add certainty and to offer assurance. That's why my interest was tweaked when my good friend and very talented agent veronica morgan told me about her seller advocacy service veronica welcome to the show you and i've been talking for many many years and i'm just looking at that photograph in the back there location location location that's a back taxi back i think isn't it and here's a taxi back yes i don't have a lot of memorabilia around it is memorabilia it's good 10 years now since we last filmed so yeah and my hair's gone too so but that taxi back still background it's Looking good, you hear that.

Hey, Alison, really, really interested in this. And as you know, in our conversation, I had a little bit of experience in this in my selling years as well. Now I'm not an active agent, but I just think there's such a huge need for this. Tell me, what is it that drew you to this, Veronica? Was there some sort of special personal experience? I guess, you know, I've been now a professional, a real estate agent now for 24 years. and over that time you do build up loyal clients who come to us and we encourage our clients in the buyers agency side of things to come to us with any property related question and we just

want to point them in the right direction our mission is to help people make good decisions and the amount of people that get coming to us saying look you know I need help choosing a selling agent now when we were doing that in our own backyard that was very easy we said absolutely yes we'd recommend people but then they were increasingly coming to us and saying in the middle of the campaign, look, the agent's telling me this, but I don't know whether to believe it or not. I'm not really sure we actually went down the right path with auction. I'm not exactly sure what to expect to sell for. And all of a sudden it became really obvious to us that people were selling properties and the agents may well have known what they were doing, but the owners

themselves, there's this inherent distrust for sales agents, rightly or wrongly. And they're like, I sort of socially were told not to trust agents. I don't really want to believe them. I don't really know what information I need to make good decisions. So over time, we started helping people through the actual sales process as well. And then we started charging for that fee for service. And then more and more people kept coming to us saying, oh, look, I've got an investment property in Perth I want to sell or Adelaide or Queensland. And we'd be like, well, we'll see if we can find you an agent there. And then we realized that there's this demand, but we trust you Veronica we trust your team you know we realize this is a demand for people who really

are out of depth in knowing not only which agent to choose but really key answers to key questions that they need to be able to make so that they can choose not only should I sell this and who should I sell it with but what method of sale how much should I realistically expect to get for the property in fact is it an asset I should be trying to hold it or costs you know there's there's lots lots of questions that really need to be interrogated properly before a decision is made to go to market. And so you realize that there will be people halfway through a campaign and really they probably shouldn't have put it on the market in the first place. So there's all this stuff going on and then people find they're trapped then,

they're sort of in quicksand and then they're just dying to get out of it with the least possible damage. So with all these sorts of scenarios, we just thought, you know what, we need to start offering a more of a holistic service. Yeah, I mentioned at the intro there about how, you know, most people only ever do this once or twice in their life. It is a very scary experience, particularly 10 times if you're my age, you know, and you will literally, you're a bit unsure of yourself. You're not quite sure.

And I think you touched on something there, not necessarily knowing what to expect. And I think having someone sit beside you who you trust, particularly if other family members have recommended you, someone you trust is going to give you a little bit more confidence that you're moving in the right direction because that fear uh you know not knowing what's going to happen that that's a terrible thing to happen in the latter stages of your life how much of a demand are you finding is it increasing now that you're focused on it yeah it is actually it's it's quite incredible

that it is increasing it's coming from all sort of different directions as well and certainly there's different life stages where you need to sell a property uh you know obviously people potentially the last sale ever you know they're going into a nursing home or they're going into independent living and that's really challenging because often their family their family might be or their kids for instance might be my age we're the sandwich generation gen x right so we're still looking after our kids and we're also looking after our elderly parents right and and often we don't even live in the same place or the same location the same city as our elderly parents do so you know we're trying to help them from a distance and that's increasingly

stressful incredibly stressful and also our parents often don't listen to us weirdly enough my parents in you know my dad's not with us anymore but my mum is and at times they have asked me for property advice usually they've never taken it they did take it when they did sell the house and they moved into their independent living unit they did actually take that advice and I was very pleased that they did. But previous to that, there's many times they've asked me for free advice and I've given it to them and they've treated it, you know, they valued it the amount that they paid for it, which was not much. But, you know, so that's one end of life or one type of transaction that is very emotional as well. There's so much packed

into that. So having that distance, somebody that can sort of be the intermediary, but not just that intermediary between them and the agent because of course the agent's motivation is to sell the property it first of all is to list it and then it's to sell it everything they do and say is about that which is great because obviously you want to sell it but you also do have there's a number of other things that you need to work through as well and you need the time and space better work through those those decisions and those processes at your speed and that is one of the benefits i guess of having us involved yeah tell me about the service so what do you provide? Is it all the way through from choosing the agent right through to the settlement? I would

imagine that is the case. Yeah. Look, I tell you, let's wind it back even before choosing the agent. There's four key things that people need to be able to answer, key questions people need to be able to answer before they decide to put their property on the market, right? And people will go to agents expecting to get all these answers from agents, but that's a problem, right? So we need to often talk to them about some of these things before they even get the agents in. and the first one is should I be selling this property you know I just spoke about people selling to go into a nursing home but a lot of our people come to us and they're actually selling an investment property and they might be selling it so that they can upgrade their home or they can

do a renovation or it just may have been an underperforming investment but really and truly there's been times when people have come to us when they've they've felt mortgage pressure because of course interest rates are higher and the cost of living is higher and for whatever reason they haven't been happy with their property manager and they've just felt that being a property investor is just too hard. And so we've actually looked at the asset itself and said, you know what? I'm not sure you should be selling that property. There's other things that can be solved that will ease your pain and will actually help you long-term financially rather than selling the property. And so just taking that pressure off. So that's the first question is, should I

be selling this property? And then it's like, should I be selling now? And look, the answer that that is there's a lot of aspects to this should you be selling now because your own financial reasons or should do you have the luxury of being able to time the market when you sell a property it's very important to get your timing right now if you ask any agent when should I sell it's going to be now and you might say but the market's not very hot and they'll say it's going to get worse if you say but the market's hot it's going to get better they'll say yes but it's going to hit a brick wall and then it'll fall like an eye, like drop like a stone. There's always reasons why an agent will say, you've got to list your property now, right? So that's the other

thing. Should we be selling it now or should we be waiting? Then the third thing is how much should I expect for this property? Now, agents walk a very tight line here because of course they want your business. They've got to flatter you enough to get your business. They're also recognizing that other agents aren't necessarily going to tell you the truth. They're going to be flattering you as well. So they've got to sort of walk this fine line between giving you a realistic expectation that's not going to make their job too hard, but also not managing your expectations too much before they've actually got your signature on the agency agreement. So that's a struggle there. And then the fourth question, which agents are very well equipped to answer for you, which is,

how should I present this property to take it to market? Should we take the tenant out? Should we style it should we do any renovations etc etc and agents are brilliant at answering that question but they're not great at answering the other other three yeah the one in particular that i want to pick up on is about price i mean at the end of the day uh prices is fairly irrelevant actually because you know and there's too much emphasis put on price and and unfortunately that's a trigger for a lot of people making that decision you know they'll go with the agent who gives them the highest price yeah when it could actually be the most costly decision they'll ever make So it comes down to the quality of the person you're employing.

And that's where I see you play a key role as being able to cut through all that BS. And so don't worry about the price. Like the price is irrelevant. It's all about the marketing and how many buyers. And therefore, it's the quality of the agent we get, Veronica. Correct. It's the quality of the agent. And then it's the ingredients of the sales campaign.

So it's how you pitch that price. And so price is important in the sense that in every state and territory in this country, there's different legislation around quoting and pricing a property, what you put on the agency agreement versus what you can tell the market. So price is important for those sorts of things because if you've got a crazy expectation on price that is totally out of line with the market, you're going to ruin your campaign if you go to market with your crazy expectations. So from that point of view, you know, in terms of, well, the market will give you, if you choose the right agent and you do have the mechanics of the sale and the campaign set up correctly, the price will take care of itself. You'll get the best possible price that is available in the market for you at that time. But people get in their own way constantly and some agents are not actually very good at managing campaigns and they're quite bad at actually pivoting, if you like, with whatever the market's doing. Some agents, we call them defenders, and they get really set in on a particular, get fixated on a price and they won't actually bend and flex with that according to what the market is telling them. so you've got to be looking for so many different elements and characteristics of an agent for

mastery and all of these areas so that you choose the right one that can handle and manage whatever conditions are out there at the time yeah i want to ask you two more questions i'm going to leave the cost one you know what does it cost to write at the end before i do that how do you feel about well-meaning family members wanting to get involved and i look i can understand this like an elderly person saying i want my son to be involved in this well the son wants to be Because at the end of the day, they're going to inherit, you know, what is left over. So it's important they play a role. But how do you feel about that?

Because, you know, quite often they'll be trying to protect that family member. Yeah, I totally hear you. You know, the thing is, one of our sort of approaches to business is transparency. So if they want their family in, we will actually allow that family member full transparency. but we do have to be very clear on, A, you've got us involved because you want good guidance, so let's not try to muddy the waters. But secondly, also, we've got to, you know, get everyone involved that needs to be involved so there's full visibility

and they've all got their eyes open. But we need a decision maker. So as if you want to bring, you know, son John in because John's really good at this sort of stuff, then is John making the decision or are you going to be making the decision? Because we need to be really clear on that because when you get into a situation where you've got multiple, you know, fingers in the pie and everyone's trying to argue. We need to establish that very, very early on to make sure that we've got

absolute singularity of purpose here and we're all on the same page. Yeah. Hey, what's the cost, Veronica? Yeah. So look, you know, I'll tell you a bit of a roundabout way, right? We used to charge complete fee for service for this, but the industry as a whole, anybody who does of a vendor advocacy service. They tend to charge a portion of the sales agent's commission. Now, we typically will charge a $990 consultation fee upfront because the thing is you do need those answers to those questions without being contingent on you selling a property. So I can't have my fee contingent on you selling if really the wrong thing for you is to sell. So sometimes we waive

that. If somebody is going to a nursing home, for example, they have to sell, we will waive the $990 consultation fee. But for everyone else, it's extremely valuable for them to get that. And then the balance of it is taken as a portion of the sales agent's commission. And in the selling side, as you well know, Kevin, sales agents are used to paying referral fees. And so the sales agents that we deal with, their common feedback to us is, well, we're just paying you a referral fee, but you're actually earning it, not just flicking us a name and number and taking a clipping the ticket, you're earning it, and you're adding to the transaction. The three parties work together as a team to get the best possible result for our mutual client. And we've even literally had

a Google review yesterday from an agent that said pretty much exactly that. So that's the sort of result that we're after. And that's why we charge the way we do, really, because that's what the market determines, even though I personally prefer to pay charge-free for service. hmm veronica congratulations i think it's a great service it's very much needed and i couldn't think of anyone more capable to do it than you seriously thank you you're such a lovely person and so caring too um if this really uh something you'd like to follow through on veronica's website is gooddeeds.com.au thank you so much kevin i really appreciate the chat property deductions can save you thousands of dollars each year. To make sure you maximise deductions, you need to work with the

most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first full financial year deductions. Call B&T on 1300 728 726 today for an obligation free quote. Subscribe now to Realty Talk. It's out every week. Now, high density and more apartment buildings are being touted as critical to solving the current housing crisis, with recent figures indicating that nearly 10% of our population live in apartments and up to 16% in strata accommodation, depending on who you read and

who you're talking to with nearly half of the existing apartments being rented. So around two and a half to three million Australians are involved with apartments who belong to some 350,000 odd strata schemes, I can't even say it, right across the country and the majority of which are run by professional strata management companies. But for many years apartment owners and advocates have raised concerns about hidden fees, conflicts of interest, overcharging and side deals being struck between strata managers and service providers. So is your strata manager ripping you off? Well, to delve into this troubling subject, we're joined by 20-year veteran strata lawyer specialist and fellow podcast host, Amanda Farmer from Your Strata

Property and Lawyer Chamber. So welcome to Realty Talk, Amanda. It's a pleasure to be here. Thank you, Bushy. Amanda, I guess to kick things off for the uninitiated, as a strata lawyer that works with many different people in the strata property space on a pretty much a daily basis what does a strata manager do and do you need one yeah a strata manager might also be called a body corporate manager your listeners might know them as or an owner's corporation manager this is the person who is hired by the building to help with its day-to-day running these are the people who will hold the books and records for the building. They will coordinate the strata meetings. They'll

send out the minutes of those meetings, arrange the insurances, operate the bank account, send out those pesky levy notices, among other things. You don't have to have a strata manager. It is possible to self-manage, but as our strata communities get more complex, the legal obligations. They get more and more onerous. It's often a really good idea to have a professional strata manager in place to guide the owners. Yeah. I'm guessing that trying to self-manage in a world where you just don't know what you don't know, then that could be potentially pretty dangerous, I would have thought. Yeah. There's a lot of compliance these days. There's a lot of legislative change, reform happening right across the country and I hear

from owners who are trying, often in those smaller strata plans, two lots, four lot strata plans, trying to go it alone, trying to save a little bit of money, they're coming a cropper when it comes to these compliance obligations and having to bring in the strata manager. It's a good idea. Could well imagine. Now, I guess jumping to the heart of the subject, in May this year, the New South Wales government launched an investigation into one of the country's largest strata management firms, which is Netstrata, and that is ongoing. Why was this strata management investigation necessary, Amanda? Yeah. So even earlier this year, the national broadcaster, the ABC, revealed that the fees

that NetStrada charges its clients for arranging their insurance are actually three times the typical rate charged for that service. Now we call these brokerage fees and they're quite common in the Strata space. But the difference with NetStrada was not only that their brokerage fees were exorbitant. In some cases, 60% was added on top of a client's insurance premium, where the industry average sits at about 20%. But the fees themselves were being paid to Netstrata's wholly owned insurance arm. So Netstrata was essentially wearing two hats, being paid twice, arguably for the same service, being paid once as the strata manager to arrange the insurance, and again as the broker being paid a brokerage fee for arranging that insurance.

Massive conflict of interest. And I'm assuming it wasn't disclosed either, I'm guessing. Well, this is the thing. The ABC News reporting also acknowledged that there's nothing illegal about this practice. There's nothing in the law in New South Wales where NetStrata was and is with these practices. Nothing that stops a Strata management company from charging a 60% brokerage fee. Some of the other allegations against NetStrata was that they're accepting benefits and gifts, that they have other wholly owned arms, a fire services company that they were referring their clients to. And there's nothing in the law that's against it as long as there is disclosure. And Netstrata have said, as other strata managers who engage in these

practices have said, we disclose these practices in our management contracts. So there's no problem here, nothing to see. So that's in the fine print in nine point font that you need a microscope to read, I'm guessing. But well, how common are these sort of kickbacks, secret commissions and conflict of interest. So in strata management then, Amanda? Yeah, I think you've said the word there, Wushu, conflict of interest. And I agree that that's what this is, even though there may be nothing against it in our legislation, as long as it's disclosed, as long as it's in your contracts, it's okay. I think it's a real problem. I think it is a conflict of interest. And look, it is common, to answer your question, without that express prohibition in our legislation, yes,

taking commissions on insurance premiums, charging additional fees, other types of practices that present a conflict of interest, they are baked in to the business model of a lot of strata management companies, often the larger companies. And what they do is help to keep the appearance of low management fees. Because if you've got a manager getting income by other means, from insurance commissions, broker fees, by running some subsidiary service company, they don't have to charge as much for the actual strata management service. So when you look at the front page of that management contract where their service fee is listed, it looks competitive

and owners don't realise because they don't read the nine-point font and that clause 9.2 at the back of the contract, they don't realise that they're actually paying more in other ways. Pretty scary. I sort of deep-dived on some of this in preparation for the interview today And we're talking, you know, it's a bit of a bait and hook technique. So make it cheap to lock them in and then, excuse my French, but rate them behind the scenes. And some of the numbers in the profit levels that some of those strata bodies are making directly feeding their own organisations is pretty scary to the tune of millions of dollars a year.

So pretty scary. Yeah, look, I want to be clear that in terms of that million dollar plus profitability, Net strata is a bit of an outlier in that respect, but there are other large companies out there who are enjoying those profits. There are also many, many small, medium-sized companies that really struggle, really struggle to make money in this game and feel that they have no resort but to turn to insurance commissions and other revenue streams. And what I say and other professionals in the space say is that what we really need

to do is to start showing owners the true value of their strata manager to encourage them to pay more for their management fee or to pay, let's say, what their manager is worth. And I think there's a real education piece in there, both for owners and managers, about the value of your strata manager, what they do and how they help to preserve, if not increase, the value of your investment. Yeah. It's like any business, you need a critical mass to make it profitable. And if you're not managing enough, then yes, you're pretty much forced to look at alternatives to make a pay. So good thoughts. So bring this to a head then. What's your advice for property owners who may be concerned that they're being ripped off by their strata manager then?

Absolutely. Number one, get your hand on your contract with your strata manager. So this is a contract between your building and the strata managing agent. If you don't have a copy of it, then ask your strata manager for a copy of it. It's often called an agency agreement, but it would be attached to the notice of the annual general meeting where you last engaged your strata manager and have a read of it. As I said, these contracts that the ABC News was looking at, they've said that's there in the fine print that these companies have subsidiaries where they are funneling through other fees and commissions. That's all there in the contract. have a read of it. If you're looking for a new strata manager, if your three-year contract is

coming up for expiry, then definitely shop around. There are managers out there now who are providing fixed fee services. They're not taking commissions or other benefits. And you might think that their base management fee is high, but in the long run, you may end up paying less because there's none of these hidden charges lurking in the background. And absolutely ask questions. I think the best thing that's come out of the ABC reporting and the subsequent investigation is awareness. Owners are getting the language that they need to ask questions about what they're being charged by their strata manager. And that's a good thing. Don't be afraid to ask those questions and make sure you understand what you're getting for the money that you're actually paying.

Yeah. I often say, Amanda, in anything in property, the only dumb question you ask is the one you don't ask. And if you don't like the answer, keep asking until you understand what they're talking about because there there is a tendency at times for players in the space to try and baffle with BS uh you know if it's not making sense keep on asking until it's clear uh and then you can make a more informed decision on what feels right for you so brilliantly said look we've only just scratched the surface but I really want to thank you for these quite eye-opening insights Amanda and we suggest that anyone who's serious about apartments tunes into your very informative podcast, Your Strata Property. So thanks for your very generous time on the show

today. Thanks, Bushy. Here's how Realty's discovery search works. Now think of AI as an assistant on your real estate journey. How AI works is by using algorithms and data, the words that you use to describe the type of property you want. By entering what you want, the AI learns and makes predictions or decisions and then shows you the results. So rather than searching by suburb and then property type and land size and so on, simply type in or say what you want. The more you use Realty's AI discovery search, the more accurate it becomes. This is Realty Talk powered by realty.com.au. That's it for this week. Please join us for more property news each week with Realty Talk and get invested you can do that by subscribing to the property hub on all podcast players

join the conversation on facebook too just search for the property hub collective and please give us a like and follow thanks to our supporters and content partners realty.com.au bmt tax depreciation know how property finance and the bureau marketing until next week all the best