Episode 12 | The big disruption about to shake up real estate agents | John Cunningham, Cunninghams & REIA

Will the real estate agent of the future be trustworthy?

John Cunningham is a respected name in the estate and he is currently spearheading the Pathway to Professionalism program across the country. He brings surprising insights into what’s wrong with the real estate industry and why agents have no choice but to embrace change. We talk about:

• Why the property industry is ripe for disruption

• How will agents provide advice even though only the vendor pays them?

• The skills gap in agents across Australia.

• Problem with dumbed down “popular” agent training.

• The small percentage of agents he thinks are able to become professional

• Scarcity mindset versus abundance mindset and how this affects consumers.

• Is the end of real estate commissions in sight?

• The surprising churn rate of sales agents.

• Is Purple Bricks really a disruptor?

• What this unregulated market costs buyers.

• Why buyers make mistakes, what they’re doing wrong.

• Who is in control when you make an offer.

The future looks bright for some but not all agents. This is one very interesting interview, especially for buyers and sellers who’ll want to be able deal only with professional agents.

Links:

John Cunningham’s eBooks:
Owners Guide: https://www.flipsnack.com/cunninghams/2018-owners-guide.html
Buyers Guide: https://www.flipsnack.com/cunninghams/2018-buyers-guide.html
Investors Guide: https://www.flipsnack.com/cunninghams/2018-investors-guide.html
Sellers Guide: https://www.flipsnack.com/cunninghams/2018-sellers-guide.html

 EPISODE TRANSCRIPT: 

Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…

This episode was recorded on 17th April, 2018.

Veronica Morgan: You're listening to The Elephant in the Room Property podcast. Where the big things that never get talked about, actually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent, and co-host at Foxtel’s Location, Location, Location Australia.

Chris Bates: I'm Chris Bates. Financial planner, mortgage broker and wealth coach.

Veronica Morgan: Together, we're going to uncover who's really making the decisions, when you buy a property.

Chris Bates: In a moment, Veronica will introduce our guest. And I can tell you, you'll want to listen on, to hear what he has to say about what's going to be the big disrupter for real estate agents.

John Cunningham: The real estate industry had underquoting laws put on it because they underquoted. They have material fact laws because they were deceptive. We're now taking the lead. We're actually going to say, okay, we're going to change the game ourselves, rather than have it forced upon us.

Chris Bates: Then stick around for this week's Elephant Rider Training, and we have a cracking dumb of the Week coming up. Before we get started, everything we talk about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent. They will tailor and document their advice to your personal circumstances. Now, let's get cracking.

Veronica Morgan: This week we're picking the brains of John Cunningham, who has had a long and distinguished career as a salesperson, auctioneer and principal of his own agency on Sydney's Northern Beaches. Over the past 12 years, John has also made a significant impact on the industry as a whole. Recently concluding a two year term as president of the REINSW, that’s the Real Estate Institute of New South Wales, and now taking on the role of chairman of the Professional Committee of the Real Estate Institute of Australia. He's been around for a while, having commenced his career in real estate in 1977, he doesn't look that old I promise you, but this is a podcast, it doesn't really matter what it looks like. I'm trying to get a laugh out of him and he's not laughing. And he says-

John Cunningham: I started very young Veronica.

Veronica Morgan: You started very young. Yes. John says that he's always had a very simple philosophy to establish business relationships built on trust. Then this must have been quite refreshing back in 1991 when he started his own agency, Cunningham's, which is now a significant player on Sydney's Northern Beaches with three offices, one in Balgowlah, one in Manly and one in Dee Why. John has a reputation for integrity and professionalism and he's highly respected both within and outside the industry. His goal is to turn the industry into a profession, and we're keen to understand more about what that means. Welcome John.

John Cunningham: Thank you very much Veronica. 

Chris Bates: Welcome John. I'm very excited to have you here today. One of the things I'm most excited about is your experience in how the industry has changed over such a long period, and then also where it's going. You mentioned just before today you're excited about where it's heading. Can you explain a bit more about why you’re so excited.

John Cunningham: I get very excited very easily so be aware of that. I think we've been in a bit of a status quo environment for a long time. Where change has been incremental and minimal. Yes, technology has had a massive shift, but the reality is in terms of how we deal with buyers and sellers and landlords and tenants really hasn't shifted much at all. I'll get back to where I started 40 odd years ago, and the reality was it was still about relationships. Nothing's changed and it always will be about relationships. But you know what? The fundamentals haven't shifted. We're in a place right now where technology and disruption in general, the whole stickiness and friction in transactions is changing the world in front of us. Unless we adapt and evolve and in fact disrupt ourselves, our world is going to change dramatically.

Veronica Morgan: Interesting you talk about disruption and certainly in the space of real estate too, because one of the topics that a lot of people have been talking about is Purple Bricks, and then coming in as a disruptor. What do you think about them being given that title?

John Cunningham: I don't think it's a disruption at all. It's just another model. There's multiple models that occupy most industries. This just happens to be what I call the discount process model. That model exists. I've known that model for probably 30 years in various forms. It's just now been digitalized. When you digitalize a process, and you put a truckload of money into marketing, you can convince anyone of anything. This is probably one of the issues in terms of the reality of how industry is that, you can put out there whatever you want and say whatever you want and a certain portion of people will believe it. But the proof as we know, is in the delivery. Promises are hollow, and delivery is what it's all about.

I think for the professional agent, they have to counter that by actually providing better service. Better outcomes. We believe it starts with advice. If you provide the right advice at the beginning, and you back that with expertise, you back that with skills, you back that with knowledge, you will then provide that client with a great experience. That client or that consumer or that customer will then look at the result you provide. It very much comes down to the performance at the end. Everything should be based on the delivery of the results and the experience you provide along the way. That to me is where the future lies.

Chris Bates: You spoke there about advice, typically consumers haven't seen real estate agents as someone that they can go to for advice. Can you just talk a bit more about how you actually deliver advice?

John Cunningham: It's a great question and I think that's the key to it. Because, what's happened in the past is agents have seen their sole responsibility to their client being, the person who was paying them their fee. Whether that be a landlord or whether that be a property seller. When you go to being a professional, and I'll use that word importantly because when you turn into a profession, you actually are accountable to the community. You're accountable to everyone. You can provide advice to all parties of the transaction, the people paying you the money are actually paying you the money to provide advice to those people to enable them to either lease or buy their property. It's a bit of a no brainer in reality that when you start to look after people, you get looked after. 

That's where the shift has to occur. It has to occur in the fact that people have to be skilled enough to provide advice and I think that's a massive problem in the industry that people aren't skilled. There's a lot of people who are, there's a lot of people who aren't.

Chris Bates: Do you also think it's a bit of a mindset shift for them to go away from, my job's to do a transaction to my job's to be more of a trusted advisor? It's a big difference.

John Cunningham: It's a big difference. And that's exactly, you hit the nail on the head, because the transaction based or a process based approach is a facet of what we do. To me the real gold is in the trusted advisor status. Now, I remember when I started real estate all those many years ago, I came home from my first week, I'd been a property manager for two years, I came home from being a sales agent in my first week and spoke to my father and said, "I've just figured out where my future lies." He said, "What's that?" And I said, "I meet buyers every day of the week, and they're all going to be my future clients. I'm going to look after everyone really well now, and I'll have a career in real estate." And he said, "Well done son. It usually takes people 20 years to figure that out."

Veronica Morgan: You were enlightened.

John Cunningham: To me it was common sense, and it was the fact that I was brought up well to actually-

Veronica Morgan: Recognize it.

John Cunningham: Recognize that. It was the basis of my business.

Veronica Morgan: I've got something on this, because the thing is that the way in which real estate agents are remunerated, doesn't quite allow that to happen, does it? Do you see a future where there's a different remuneration model?

John Cunningham: Without a doubt. Without a doubt. We're already seeing it in the buyer's agent space. Where a buyer's agent who is a specialist, is a trusted advisor, and I would give that probably one of the greatest sort of accolades in that space. Because that's why they've occupied that space in terms of the advice component. That is where we will go. Now, the reality is in Australian consumer law environment that we work in, it would be almost not impossible to actually have the American model in terms of how they remunerate the two sides of the transaction, because-

Veronica Morgan: I hope that never goes that way. No it's shocking.

John Cunningham: I can't understand how you can actually remunerate the representative of the buyer, but the seller is actually remunerating. Because in that space, it's the two agents doing the deal.

Veronica Morgan: Yeah. For the benefit of the listeners, that is where in America your vendor, the owner would typically pay say a five or six percent sales commission and that then is split between the buyer's broker and the seller's broker. So the seller is paying everyone and I personally believe in the user pays and I actually think that sellers should pay a fee for service as opposed to a commission, and I think that a lot of real estate agents are giving excellent advice, when I'm saying real estate, I'm a real estate agent, but I charge for my advice and that's one of the reasons I jumped the fence. Because I could see that there are a lot of very, very sales agents giving advice that is not necessarily valued as it should, because the people receiving that advice aren't actually paying for it.

John Cunningham: Exactly. I would say you haven't jumped a fence at all, you've just changed the fence. Or you've knocked the fence out and created a new environment. That to me is what it's actually about. So yes, we call it professional fee, you're actually charging a professional fee. The concept of commission I think is dead and buried. We've got to start getting creative with fees. We have four different fee systems in our business and they are about what’s suiting the client's needs, and when you look at that-

Veronica Morgan: Is that on the sales side or in property management as well?

John Cunningham: On the sales side and also in property management. You've got to look at what services-

Veronica Morgan: You want to elaborate?

John Cunningham: Yeah, we'll look into the sales side, it's quite simple. There's the standard fixed fee concept which is getting less and less used. There is incrementals, that you look at incentive based fee system. So a low base, high top end. You then look at what we call a performance fee. A performance fee is based around the delivery of the result. We actually allow the client to determine our fee based on delivery of the advice, the experience and the results, and we give them a band in which that falls into. Interestingly enough, the average fee comes in about halfway in that band. Just a little bit over halfway. I love that system, because I much prefer to be judged on what I do, rather than what I say I'm going to do.

Veronica Morgan: You still only then paid though if the property sells, correct? There's often a case, maybe not often, but sometimes there's going to be a case where actually it's in the vendor’s best interest maybe not to sell, maybe. I know it's not often the case and they've obviously committed to a sales campaign and all the rest of it, but how then, under those circumstances, would it be in the agent's best interest to actually give good advice? Because they’re still being paid only if it sells.

John Cunningham: I think the reality is a good agent understands their client, understands their client's needs, and understands how they deliver that outcome. If you're going to have someone who's away in the fairies, in terms of price, and you think I'll take it on and hope for the best, that's not a strategy. That is something where you're going to spend a lot of time banging your head against a brick wall. Again, when you move into a professional trusted advisor status, you are going to do business in a different way, Yes. And there will be different models beyond what I've just described then. 

I think that will open the door up to I think a more flexible, not necessarily cheaper, because value is what you get, it's not what you pay. It's about saying, okay, where's the value? Where's the performance in that? And we really see in our business that there's three different, I suppose differentiations as points of difference. There's points of value and there's points of performance that we have to deliver to a client. Because unless a client sees that, and understands that that is how they choose an agent based on those three things, they are going to not be able to differentiate. And that's where the door has been left open for intermediaries and all kinds of advisors that aren't actually providing advice. They're just playing the facilitation game.

Chris Bates: I think that's the key point around the transaction mindset that agents would potentially struggle with. And it happens obviously when you're sometimes junior in an industry and you're still growing. You might only have so many customers and you need to sell, and you need to get numbers on the board. When you're in this kind of transaction, kind of scarcity mindset, it's easy to get, potentially then, force that sale, but the circumstances of the seller that might've changed. They might not need to sell, they may have decided to stay in the place. An abundance mindset would say, well, that's the right decision for the customer. 

John Cunningham: Absolutely.

Chris Bates: It doesn't really matter. There's other customers out there. That's the right decision. I'll move on and on and focus on them.

John Cunningham: I've advised many people not to sell. Many, many, many. And of course when they do come to sell, where do they go? They come back.

Chris Bates: That's exactly right. 

John Cunningham: It's a matter of taking either a career view or a short view. Unfortunately in our industry at the moment, there are so many people who have entered the industry in the last 10 years, on easiest, cheapest, quickest options of getting into the industry. They're not trained, they're not skilled, they don't have what I call foundation knowledge. In this industry unless you've got foundation knowledge, in other words, okay, what's my product? I'm actually dealing in bricks and mortar and all that. Do I actually know my product? Do I actually understand my marketplace? Do I understand the environment that I'm selling into. Do I understand the legislative environment. All these things are foundation and there's a massive generation of agents who don't have it. They simply don't have it. 

They've gone to the next phase... Well, they fake it until they make it. Albert Einstein actually said, I'm sorry, say that again John, Stephen Hawkins, the late Steven Hawkins. He talked about the illusion of knowledge. It's not the lack of knowledge that's the problem, but it's the illusion of knowledge. It's this whole thing that we think we know what we're doing, and we throw stuff out there and then just walk away from it.

Veronica Morgan: Just enough to be dangerous.

John Cunningham: Just enough to be dangerous. That's another one.

Chris Bates: We've got the Royal Commission going on at the moment and it's pretty scary. In financial advice world and the mortgage broking world, they've got the similar problems to the real estate world. A lot of it is been paid by product or selling, and if those transactions don't happen, then the advisors wouldn't get paid. I think people naturally think that all advisors are incentivized purely by money, and they've all got scarcity mindsets. But the best advisors out there don't. They've got an abundance mindset, and if the best advice for someone isn't to buy an investment property or isn't to put more money into [inaudible 00:14:29] or to pay off the debt, the best advisers out there they just give the best advice knowing that longterm, those customers are going to stick around and they're going to refer people. The good advisors out there don't worry about those things.

John Cunningham: No they don't, they take a different ... and again, because of the advice that we provide leads to transactions, it's making sure people actually follow the right path. If they don't get the right advice, they're not going to take the right path, it's simple as that. So yes, is this the right time to do it this? Is this is the right investment strategy that you're looking at. Whether it's leveraging equity in your own property to buy an investment property. Okay, what's your long term view in terms of your retirement and where that's heading? Now the sort of bizarre bit is that we can't be financial advisors, but we actually are providing advice on certain parts.

There's a fine line in terms of where we cross on that space. Which is why we often deal with other professions to actually provide that extra layer. Getting someone in the right frame of mind, in the right headspace to make the right decision. I call it influencing the best decisions. That's what we do. 

Chris Bates: A lot of financial advice isn't financial advice. It's life planning advice. Telling someone to stay in their home because they love it, and they maybe just feeling a bit unsure with the area or their neighbor at the moment, it might be the best thing to just stay there and not sell. Get through this difficult period. You've got a great asset. You really love it.

John Cunningham: I've advised so many clients to stay put and renovate or knock down and start again. Because the reality is that is the best thing for them. They're looking at all these other things that they can do, but when we sit down and go through all those options, I just say, "Look, this is my advice. This is what I suggest you do. This is what others have done." Some people take the advice, some people don't. That's fine. It's whatever they choose based on their desires, but often they're actually sitting in the best spot they can possibly be. 

Veronica Morgan: It is very difficult for people when they need that advice, even know where to go to get that advice. Now that you're really getting out on a national level and getting out there and meeting agents and agencies in areas in which you probably haven't been before, what are you finding out there in terms of the general level of professionalism amongst agents? And the disparity.

John Cunningham: It's a great big gap. There's a huge gap. I've been collecting data from various data sources across the country and some interesting findings have come out of that. I always thought that maybe 20% of the agents are doing 80% of the work. It's actually 25% of agents are doing 75% of the work. It's an interesting number and there are pretty much 75% of the industry, is not making a living. It's overloaded.

Veronica Morgan: Too many people.

John Cunningham: Too many people. 

Veronica Morgan: How long typically does somebody come into the industry, and stay there for, realizing that look, I made a bit of a mistake, and then get out?

John Cunningham: Well here's interesting stat. Of the 40,000 real estate agents across the country who had their name attached to at least two properties in a year, there was 80,000 who had their name attached to one, half the industry has come and gone. Many people coming in, there's an established group and there's a truck load of people-

Veronica Morgan: Just transitioning.

John Cunningham: Transitioning in within 12 months and out. We're talking across the nation, and I was talking to another franchise head today about this, and their figures were about 20% of who comes in goes. That's a low, that's a low number. It's a smaller franchise and I think it's a good franchise that that's a good sign.

Chris Bates: That's 20% is a good outcome. Right?

John Cunningham: Very good outcome.

Chris Bates: Yeah. I think in broking and advice it's well over 50% don't last more than 12 months.

John Cunningham: Yup. And that's the problem. People are actually taking, we believe 80% of the people are doing Certificate of Registration course, come and go within 12 months. So either come and don't even go, in other words they then get a job, that they've done the courses. The courses have been offered as quick easy fixes. It's supposed to be a five day course. The records about two and a half hours.

Veronica Morgan: Shocking isn't it?

John Cunningham: Yeah. 

Veronica Morgan: We could bang on about how awful that is for hours-

John Cunningham: But it's just ripping people off as well.

Veronica Morgan: It is ripping people off and it's also false promises and there's a whole buyer's agent course out there at the moment. The advertising basically says that you're going to be on seven figures after a year. Effectively that's what these false promises are being given. Even if you actually sat down and looked at the amount of people in that actual business that's running this, the actual buyers agents there, there could not possibly be turning over the amount of property. It's just not possible with their own buyer's agents, let alone, selling that dream to a bunch of people coming into supposedly a new... massive.

John Cunningham: The industry is really what makes them. In terms of their target audience for their professionalism program, our goal is about 20% of the industry. That's it. We're not actually looking beyond that because we have to create this massive point of difference. It'll split the industry in two. There will be the professional agents who are actually taking their career seriously and provide that advice, experience, results, concept, and those that will be just real estate agent. There'll be quite a distinct difference. But the professional status isn't officially recognized profession. 

It's actually recognized Professional Standards Council. We're going through the application process at the moment, and we hope to become the seventh profession. This is a pretty big step up for the industry from where it's been. I was talking to someone yesterday and they said, "Oh, I thought we were a profession." We've never been a profession. We've always been an industry who thinks we're a profession, but doesn't behave professionally.

Veronica Morgan: It's not just words? It's not just saying, "Oh, we're all going to become more professional and therefore we are going to be a profession." You're actually saying that there's actually a path literally-

John Cunningham: About the way to being a professional.

Veronica Morgan: A path way to be a professional. What do I need to do? Like I've got loads of experience, can I just get some credit points and become a professional?

John Cunningham: There's a process, there's a course content, and someone like you or me for example, with our recognition of prior learning, you have to get a diploma status. So yes, there will be some components we have to go through to get there. I've already got a diploma so it's easy for me. But most people will have that recognition of prior learning in the first instance. But there is other things that they have to meet. The biggest one is a commitment to the ethical standards that apply to the industry. What we do is by setting these ethical standards, they're actually setting them above the law. In other words, you're setting standards that go beyond the law. It's a given that a professional adheres to the law. In other words, they don't under quote, they actually follow the law. They don't try and find ways around the law, they comply with the law.

Then the professional standards adds another weight to that. Which is the way government then views professional standards. Government comes to professions for advice. Industries bang on the door of government to get what they need. The whole thing's flipped on its head, and that's what we need to do. But do you know what? The industry was not ready five years ago, but it wasn't really three years ago. It's ready now.

Veronica Morgan: It is?

John Cunningham: Yeah.

Veronica Morgan: When you say it's ready, what has been done to get industry to that point?

John Cunningham: There's a shift, in my view, and you actually do see it a bit in training these days in terms of the concept of values. We never got trained on values. We never actually got trained on belief systems. We never got trained on having a set of guiding principles, which is what your values and your ethics or about. You never got trained on actually converting those into behaviors. Because the behaviors is what the consumer sees. The whole consumer experience concepts is becoming trained. People are saying, "Hey, there is a better way, there is another way, there's a way I can actually sleep well at night. There's a way that I can actually look my kids in the eye and see that they're proud of me. I can actually go to a barbecue and be proud of being a property professional or a real estate professional, as opposed to a dodgy real estate agent." There's another path in other words, there's another way we can go about this.

Chris Bates: I guess the worry is this same similar conversations in the financial advice industry. It's not really a profession.

John Cunningham: And it's not.

Chris Bates: You can stay with AMP today. It's quite hilarious really. Because I understand how horrible the outcomes that they've delivered to people, and I'm glad they're actually getting dragged over the coals and the mortgage broking and things like that. I guess the thing with the real estate industry taking that direction is, to become a professional you've got to basically sign a fiduciary agreement that you're there and to act legally and responsible and in the best interests of the vendor. It's a massive responsibility and all the smokes and mirrors and all the playing the games and, it would have to basically go. It would have to be a much more transparent. I guess it's a big, big step. 

John Cunningham: That's why it's not going to appeal to everyone. 

Veronica Morgan: No. No. 

John Cunningham: That's the reality. The interesting thing though is an agent, we are agents, so common law definition of an agent is you are your principal. In other words, you are acting as them. It's an entirely different concept to an advisor. The common law, I suppose, standard, is that we are already in that place, or we should be in that place as an agent. You are looking after their best interest. You are them. They are authorizing you to be them. If you start from that premise, and then you build the concept of, okay let's say the financial services industry as a whole. They are being forced to do certain things because of certain actions.

The real estate industry had underquoting laws put on it because they underquoted. They have material fact laws because they were deceptive. We're now taking the lead. We're actually going to say, okay, we're going to change the game ourselves, rather than have it forced upon us. The concept of we are going to be the change, and determine our own destiny based on what the consumer wants. Now that's a flip. We're talking about flipping the industry on its head. Because unless we do that, we are going to be regulated more and more and more. Governments much prefer industries to actually move into-

Chris Bates: Self regulation.

John Cunningham: Self regulation ultimately. We can't go “bang” to self regulation. We've got to go through a process, and it will be generational shift. But you know what? It has to start somewhere.

Chris Bates: How developers feel about this?

John Cunningham: We haven't actually spoken to developers yet. The reality is, it's got to start at the ground. We've started at the feet and the head of the industry. We've actually been talking to industry leaders, and not what some people think are industry leaders, industry leaders aren't trainers. Industry leaders are people in the industry who are actually leading teams and doing things like that. Then with the feet, are the people on the ground. We believe that once we get the head and the feet together, we'll get the body sorted out. But we only want the best people. In other words, people who actually do have values. People who actually understand what ethics are, and actually can tell me what the definition of integrity is because most don't know it. You've got to have a set of guiding principles to have integrity to go by.

We're shifting the concept. We've actually been the last two years in New South Wales talking to the best agents to get them on board to the scheme. To understand the scheme. Unless you actually win the hearts and minds to understand there is a better way, yet you won't bring people on the journey. But I had one agent, a very, very well known agent, who will remain nameless, said to me, "What's all this BS about?" 12 months ago, and then two months ago said, "John, I love what you doing. This is awesome. The best thing that's ever happened to the industry." Now that just took 12 months of planting seeds and watering them. That's what we're doing.

Veronica Morgan: It is interesting because effectively it's going to be a two tier industry then isn't it? Also interestingly that you're doing this now on a national basis which is separate to our licensing laws. The licensing is state based. That sort of does take into a different sort of realm. That will be very interesting because I think buyers and vendors will then be faced with that challenge of actually trusting an agent, and it'll give them an opportunity to be able to differentiate between, those who are on the program for instance, and those who aren't, or those choosing to go down that path. 

One of the things that we're finding, even just interviewing agents in these podcast is that, a lot of agents are saying, "I am ethical and I have a way of working with buyers and I am transparent in my dealings and I have a long term view and I do view buyers today as my vendors for tomorrow, and so therefore I'm not in this business for short term transactions. I want to look after people, etc. And give good advice." The frustration with them is that because not everyone is like that, it's really difficult for buyers to determine who is who in the zoo. 

John Cunningham: Absolutely. There's no differentiation.

Veronica Morgan: No, there isn't. I guess what this does is bring that into the whole thing. For this podcast as well, and look, I'll listen to a lot of podcasts, and we probably should put some references to some of the good ones, but I noticed there's quite a crop of training podcast for real estate agents. I'm sure you've been listening to some of these and perhaps, I don't know, it may be even you'd be able to give us some resources so we can pop them in the resource section of this podcast. That will be great. I see you're nodding so that's great.

One of the ones that I listen to, I was a bit shocked by, and these are high profile successful agents. A couple of them. They're right they are in a footy locker room these guys. They sort of, hey! I don't want to use their names so I won't use their name. Said, "Hey Bobby and How you doing Bob?" One of them says, "Oh, Bob, Bob mate. Real estate's not very technical. It's what I say." This is my accent, "This is what I say to the guys I'm training. I say, all you got to do is find a seller and you've got to find a buyer, and what happens in the middle is getting them together. It's not that technical."

Now my skin crawled when I heard that, because I think it's extraordinarily technical. What's your answer to that? This is a sort of populist training that's out there. I hear quite a bit of this.  How do you tackle that? On an industry level, how do you get the young guys, the young, and women too I guess. But it seems to be particularly targeted at blokes this one. How do you get the youngsters of the industry, the newbies in the industry listen to good stuff?

John Cunningham: Really difficult question to answer because we have identified that. In fact there was an email troll going around today about a particular trainer and use of language and other bits and pieces that were sort of becoming inappropriate. I think the space that that occupies has been allowed to be occupied by various facilitators of training, various supporters of training, but now the discussions have been had with those organizations to say, "Hey, do you understand the messages that you're actually putting out there?" And it's mixed messages.

We are getting this concept. This is actually an extremely technical business. I was told only probably 12 months ago by Victor Dominello, the minister for Better Regulation and Innovation back then, that there were 23 pieces of legislation that affect real estate, and I would guarantee you the majority, 99% of agents would know one piece of legislation. So yes, if you are going to be a facilitator of a buyer and a seller and putting a transaction together, that's great. That's fantastic. That's what you do in a facilitation space. But that's saying a lawyer exchanges a contract. 

The reality is what goes behind that, and the classic thing, what could possibly go wrong in those environments? Everything goes wrong. Litigation is increasing at a rapid rate and it's because of people cutting corners, taking shortcuts. Doing all those things and not actually knowing what they're doing and what the implications and consequences of what they're doing. Our job in this professionalism program is to actually change that game. It won't happen overnight, it's going to happen through incremental shifts, but also by providing a national resource for both agents and consumers, that has professional advice. 

Transparent open platform, that we're working with at the moment, to create an unprecedented level of information for agents and for consumers. Because there hasn't been a credible source. You can go on and Google it and hope that you find the answers and you'll find 20 different answers. We want to come down to definitive answers that are based on the standard levels, not the bit below. We want to harmonize licensing ultimately. We want to harmonize legislation across the country. You can only do that by having a professional standards scheme. You can't do it any other way because you're just going about it the wrong way. But to me, it's all about information. If you get great information into the marketplace so people have credible sources, it starts to change. But it's going to take a bit of time and we are working on it.

Chris Bates: I would love for, in one of the conversations I do say, when clients are looking to invest in property is that it's a buyer beware market and there's very little things to protect you. And you won’t know for a very long time, you trick yourself to believe that what you've done is a good decision firstly. You'll go and get confirmation bias and you'll read all the right reports, and you ignore all the reports that say that maybe what you've done is the wrong decision. You'll ignore all the signs that tell you that what you’ve done was the wrong decision because you want to keep believing that you've done the right thing.

Then maybe five or 10 years later you'll say to yourself, "I've done the wrong thing." But most of the time you probably won't. You'll still believe that you've done the right thing, and even if you have done the wrong thing, you've figured out that you've done the wrong thing.

John Cunningham: I know where this is going. 

Chris Bates: It's years down the line.

Veronica Morgan: Damage is done.

Chris Bates: And you won't even want to admit that to yourself because-

John Cunningham: I admit to myself all the time that I've made some bad investment decisions in property and I've made some great ones.

Chris Bates: Unfortunately though with property, because it's such a big decision, you get really one shot at it. People haven't got an unlimited borrowing capacities, they haven't got unlimited equity. They're making one big decision and they make it and then 10 years later they go, "Maybe I shouldn't have done that." And then they sell it. Most property investors buy one property and they don't buy another one. The reason why is because they've stuffed it up.

Veronica Morgan: They bought a dog.

Chris Bates: The opportunity cost of making that wrong decision is huge. They could have kept the good one. The good one could have kept on getting better for 30 years. I think the hard part is that the industry being completely buyer beware. The amount of information you can get from property sellers, property experts and all sorts of things like that. 

Veronica Morgan: I think the big issue is there is, there is lot of information out there. A lot of it is biased information and comes from people trying to sell you something. But a lot of it also requires interpretation, and requires knowledge and experience. So even that, even having a national resource, it's going to be very interesting to see what's in that. Because, I consider myself a property expert. I consider myself an investment property expert. I've got the qualifications, I've got the experience, yet I can have arguments that will run into the night with other accredited property experts because we will differ on fundamental things. How is that going to be dealt with? 

John Cunningham: Great question because you say economists for example.

Veronica Morgan: Don't agree.

John Cunningham: None of them! Never have. I love looking at the views of economists. Look, in this environment, the reality is we're all looking at crystal balls. All we can do is advise on present status in my view and history. The concept we're looking into the future, in terms of an advisory space has to come with options. That is what the advisor should be doing. If you do this, this, this, or this, here's the options that you have in the way that you can go about it. But understanding what the client's ultimate needs are is to me the key. I look at the past and all the spruikers from all over the country selling products and from Brisbane to Bonnie Doon or whatever it may be, and the advice that they provide around that skirts the law massively. If you really did get into it, you'd be seen breaches left, right and center.

Chris Bates: How does the real estate industry bodies and the government feel about ... my view has always been, they don't want to open up the covers because the property market is unregulated and they want to keep it that way because it keeps the property market going. But I've always work in the real estate institute, I'll be thinking, what the hell are these guys doing? They're just giving us a bad rep, whether it's developers or-

John Cunningham: Our views is transparency, is openness. We want to create ... the world is changing at a rapid rate and lots of emerging consumer expectations are all about, okay, if I'm paying someone for advice or I'm paying someone for a service, I expect to actually get what I've paid for. And if it's not, I'll go to the regulator to slap them on the wrist. The environment is changing rapidly, and I think this royal commission is a great example of that. And the whole financial services industry is almost like the window to the future in terms of who we are. 

We saw that coming. We saw it coming, we said, "Let's change the game ourselves. Let's actually go into a consumer focus space where we lift the lid. We completely take the veil off and say, here it is." Now the reality is, the more information you provide people, the better decisions they're going to make. I'm of the view that in our charter, at the Institute is actually a big chunk of its consumer protection, so that you have to make sure consumers are looked after and not misled. That's all part of what we do. I think people have just forgotten that component of it, or some people have. Most of the agents and my contemporaries and the people I deal with understand this. This is how they operate.

Chris Bates: And they're all for it?

John Cunningham: And they're all for it. It's a change in the world. We can't ignore the fact that this is the information age. It's also the transparency age and it's open data age. Why don't we actually provide good data, good dissemination of data, good commentary around data, so people can make good decisions. Ultimately if you provide all the options, people will take a choice whether it be an investment strategy. For example, I advise clients all the time on investment strategies. The number one investment strategy, every time you buy a property, never sell a property. That's a Chinese proverb.

Veronica Morgan: As long it's a good property. You said you made some mistakes do you still got those ones?

John Cunningham: I look back ago ... no, actually I shouldn't say that. I didn't make bad mistakes. I could have made better calls.

Veronica Morgan: Better decisions.

John Cunningham: Better decisions on a particular property that still gone like nuts. But my advice is-

Chris Bates: Hindsight's is an easy thing.

John Cunningham: Hindsight and I just advise people, just buy one bedroom units.

Veronica Morgan: Where?

John Cunningham: In Sydney.

Veronica Morgan: Oh God. Don’t go to John Cunningham for investment advice, guys.

John Cunningham: But seriously, you start advising people what you don't know. And it's an interesting space and I think the future in that space, particularly from a buyer's perspective, is understanding what's ahead of them. Knowing what they getting themselves into, and I just seen enough buyers not making the right decision because they just simply haven't researched sufficiently. They haven't understood the rules of engagement. They have understood the rules of the game and they're taking advice from the wrong people.

Chris Bates: A few of our guests have talked about a good agent is empathetic. I find that quite hard to hear sometimes because the buyer's the one who's buying it, and they're taking out these huge mortgages, but they've also got to encourage them to take out to buy the home. Do you think the agents are really empathetic to the challenges that some of their buyers are feeling? Because there is a buyer and the end of every transaction. It's not just a seller who's getting a great price. Do you reckon they are empathetic in knowing that buyers are really ... these huge decisions be consequences for them if they're not making the right decision.

John Cunningham: I think the answer is most don't know what the word means. In terms of the fact that a sticking up a Facebook post saying sold $250,000 over reserve is not being very empathetic to the buyer.

Chris Bates: Oh I know. 

John Cunningham: It annoys me massively. Unprofessional in my view, and “it's a street record and a block record”, it's just a load of nonsense. All that stuff is nonsense. It doesn't mean anything to consumers. It's just an ego boost to the agent. But the reality in terms of where the empathy should be, is understanding what their needs are. The advice that they're going to be given is not going to just come from the agent on the property, they're going to come, as we know the number one thing they must do, is get pre approved loan. Don't go start looking at properties without a preapproval.

Don't go through a whole process and on Friday night before the auction, say, "Ah, couldn't get finance approved." Sorry, but why did you start in the first place? Go about it the right way. Get the right advice, understand what your limitations are. Always factor in a 0.5% increase in rates, and take a long term view. And yes, people are going to get emotional. Bid for an auction for a property for my daughter on the weekend and my wife kept putting more money on the table for them. They didn't get it, then it went for extremely high price. And that's fine. It was okay. But we pushed our limits. That's exactly what people do if the property means a lot to them. If you buy for investment, there's no way in the world you're going to do that. 

It's going to be pretty much a commercial based decision unless there's a long term view that you will live in it. So I think understanding what you're actually doing and why you're doing it, make sure you get your finance approved and then create relationships with agents. That actually will enable you to actually find people you can trust. Then even if you're ... and we advise a lot of people who aren't buying from us about properties that they're buying from other agents. Just to make sure that they get a bit of an unbiased view on where it should be.

Veronica Morgan: We find quite a few agents saying that actually. That seems to be the sort of the way of the future. 

Every week we hear incredible stories of the dumb things property buyers do. Dumb things that ended up costing them a lot of money and or creating a whole lot of stress. Mistakes that can be avoided. John, we'd love to get some examples from you, because we can all learn what not to do from these stories.

John Cunningham: How much time have you got?

Veronica Morgan: Oh, give us a few. Give us a couple.

John Cunningham: Okay. So I'm going to pick one, is look, I'll make this offer. I don't want my offer disclosed to anyone. Do I make that absolutely clear Veronica? This is my offer and you can't disclose it to anyone. Okay? So this is me now. Interesting. Therefore that means that you actually don't want me to disclose, any other offers-

Veronica Morgan: To you.

John Cunningham: To you that I get from other people that might be higher than yours? Uh, well-

Veronica Morgan: I'd thought about that.

John Cunningham: I'd thought about that. So that's one. People go in thinking that they are in control. 

Veronica Morgan: Or that they can control things. 

John Cunningham: Or that they can control things. Nobody's in control. The reality is the vendors aren't in control, because they're on an emotional thing as well. Therefore they don't have the control they think they have. The seller is not in control, of the agent is not control. There is a process that everyone has to go through by understanding what I call the rules of engagement. In other words, what is going to be the way that you're going to negotiate?

That's what I always advise clients. Find out what the process is for the sale of this property. Are you taking offers before auction one? If it's a private treaty or a by negotiation, how do you process those offers? How do you actually go through? Do you require them in writing? What do you consider an offer to be? Because in our business we have a document that says we only consider an offer to be an offer in writing with terms and conditions set out clearly, and that was the only way we will consider an offer. If you make a verbal offer, it's not an offer. Fair Trading accept that and say, Yep, you have a policy and you follow it through. It's a policy procedure process.

Again, if someone says to me, "John this is my firm and final offer. 1.1 end of story." "Okay, so if I get a higher offer, you don't want to know?" "No, that's it. I'm out. Done. 1.1." "Are you 100% sure that you don't want me to let you know, because what would you find out if it was sold for $10,000 more? How would you feel about that?" "Told you, this is it." And then, "So you don't even want me to ring you to tell you the result?" "Nope. If I don't get it, I don't get it." This was actually-

Veronica Morgan: Is that a Dumbo or disciplined buyer?

John Cunningham: No, no. Is just a Dumbo, a well known Australian actor buying a property thought he was hot stuff.

Chris Bates: Russell Crowe.

Veronica Morgan: It wasn't just for the-

Chris Bates: It was not Russell… a contemporary. 

John Cunningham: There's two other parties involved in this pre auction process, which is we have a transparent open negotiation system, and it's sold for $60,000 more than his offer back then. Quite a few years ago. About two days later I get a call from him. "How'd it go, my offer?" I said, "Well, I rang you and left a message and said you’d been beaten" "Oh, how much did it go for?" "I said 60K more" "Oh, my wife's going to kill me."

Then I said, "What do you mean?" He said, "I thought you were fooling me there were other people." And I said listen mate, I said, "I don't fool anyone, I told you that. If there's buyers, and it's all transparent because I've got the offers in writing. You can come and have a look at them if you like. But it's been sold for 60 grand more than you offered." And so he took a path of belief that was based around advice that he'd been given, experiences he's had, and he thought that was the best way to go about it. Even though I explained to him exactly how the rules of engagement were going to be. He just decided to take a path. That is being your own worst enemy in that situation. 

Chris Bates: Self sabotage.

John Cunningham: Self sabotage, completely self sabotage.

Veronica Morgan: And ego. 

John Cunningham: Because we have this transparent methodology, and we have an audit trail, I would suggest that again, if any buyers in that process where there's multiple offers occurring, they want to understand what the rules of engagement are. They want to understand what the audit trail is. Exactly how this is going to play out and put trust into it. Because I would say, and in your experience, nine times out of 10 when an agency says there's another buyer, there's another buyer. There's going to be one guy that's going to play the dodgy game, but the reality is, it's not a game you want to play. Any agent new who plays that game is simply crazy because they will be annihilated under Australian consumer law. If it came out. All it takes is one complaint, and away you go.

Veronica Morgan: Yeah. And not just that they annihilated, but when you do call their bluff, it's very interesting when someone has tried that and they actually don't have any other buyers. That's something that, through our experience, when you've been doing this long enough and you can read the way people are playing and all that sort of stuff, then you can make a very educated call as to whether someone's playing a game or not. But I would agree with you, nine out of 10, when they say there's an offer on the table, because they are going to get caught out big time again with their pants down around their ankles. If you call them on that.

John Cunningham: That one is loss of license. No question. Gone. 

Chris Bates: That's definitely a dumbo.

Veronica Morgan: Yeah. And sad isn't it really? At the end of the day. And I'm glad he's ... I hope his wife did give them a real bollocking.

John Cunningham: They’re no longer married.

Veronica Morgan: He deserved it. They no longer married. I love it. Maybe it was Russell Crowe. Okay. Well it wasn't. Just for the record, it was not Russell Crowe. John, thank you so much for coming in and talking with us. I think that what you're talking about is the future of this industry and I'm very, very proud to be a real estate agent and I know that there are some excellent agents out there providing excellent advice. And so, for me I'd love to be able to say I'm part of a profession. I'm personally very excited by that and I'm so pleased that you could take the time, in your busy schedule, to come in and explain that to us and give us some insights into what's coming.

John Cunningham: I really appreciate the opportunity because it's something that I think, again, property consumers is what this is all about. It's actually dealing in that space, and we want them to feel comfortable and actually feel, okay I can trust these people. Because our reputation is not good. To change that is going to take a bit of time. But it's going to change through behaviors. Behaviors have to be learnt, and we're going through a massive learning curve for the industry, although I'll say, a lot of people have already been doing it. A lot of people have transitioned into this really easily. But the reality is change is inevitable and we've got to go with it. 

Chris Bates: Thank you John. It's been amazing. Thank you. 

John Cunningham: Pleasure. Thank you.

Chris Bates: We want to make you a better elephant rider. And this week's elephant rider training is.

Veronica Morgan: Understanding how to find the terms of engagement when you're making an offer. Now, we were just talking about this with John, but how do you find out the terms of engagement? Well, the way to do it is actually to ask the agent directly. Now, if there is a pre auction scenario going on, or if it's a private treaty property and you have to make an offer, then you need to find out how the agent works because they all work differently. Now, a professional agent will be very clear on what they expect you to do, and what they will do. An unprofessional one may not be so clear, so I'm very sorry, you're gonna have to muddle your way through that one. 

When making offers, find out the terms of engagement. Now that's what John calls it. What the terms of engagement are, is the actual way in which that agent is going to handle your offer. You need to find out how they will deal with other buyers, if there are other buyers that are interested. How they'll put that offer forward to the vendor and how they'll come back to you and communicate with you. Some agents won't give you a second chance. You need to go in with your best first up. Others will come back to you as many times as it takes until there's no money left. Whatever it is, you need to find out how they're going to handle it before you make an offer.

Chris Bates: Veronica, what have we got to add to our Elephant Memory Bank this week?

Veronica Morgan: Well, this week John has shared with us his series of flip books for buyers, sellers, investors, and owner occupiers. They're all packed with practical tips and the links are available in the show notes. Me again, don't forget, if you've enjoyed this podcast, please tell your friends and we'd love an iTunes review. We're getting lonely here.

Chris Bates: Be aware. Everything we talk about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent. They will tailor and document their advice to your personal circumstances.