According to Bill Gates in 1995, the Internet was going to herald the obliteration of the middleman; that the Internet itself would become the “universal middleman” putting scores of brokers, agents and dealers out of business.
While this prediction held true in some professions, real estate globally has actually thrived with the existence of the Internet and Tokyo real estate is no different.
When most people imagine a middleman, a common answer would be a real estate agent. However, between a buyer and seller agent, for very large deals over 1 billion yen, there usually are non-agent middlemen that work to facilitate a deal.
These non-agent middlemen have enough influence to make or break a deal. Before we get into how, I want to define the term “non-agent” as being someone working between a buyer and seller agent whom is not going to stamp a sales & purchase contract. They only facilitate information between the buyer and seller agents.
While middlemen may or may not have their own real estate license, they are not an agent of the deal. Non-agent middlemen will not take responsibility for the execution of a trade like a buyer or seller agent does. Hence the term non-agent middlemen.
It is very debatable whether these middlemen help or hinder a deal but one thing is certain; their existence in Tokyo RE will not disappear anytime soon. The reason being is that a lot of the best properties in the city are sold off market and tapping into these middlemen is key to catching wind of a great deal prior to hearing about it in the past tense.
Hence, whether you are buying or selling, for properties in this budget your agent, must wade through these unaccountable middlemen to connect to a counterpart agent to make a trade.
It is easy to imagine how these middlemen can derail a perfectly good deal. Think of the telephone game where people sit in a circle and whisper a message to each other. As the message passes around the circle, the last person announces what they were told to the amazement of the others in circle; amazement created by how distorted the original message became when compared to what it started out as.
Non-agent middlemen can distort information the same way and the more middlemen there are, the higher the chance a deal falls over. I’ve seen both successful and unsuccessful deals with as many as 3 middlemen between the buyer and seller agents.
If you are in the market as either a buyer or seller of property over 1 billion yen, then it would serve well to understand the vested interests by both buyer and seller that allow the existence of these middlemen.
It starts with the seller. Most sellers of this ilk don’t wish their agent to publicly announce the property is for sale. There are all kinds of reasons for this ranging from a desire not to fuel public speculation about money troubles to purposefully keeping the property off market to keep its luster and thus achieve a higher price.
From the buyer agent’s perspective, sourcing a suitable property means wading through the whispers and rumors heard via non-agent middlemen such as lawyers, accountants and even “friends” of the seller.
Each of these middlemen guard their contacts from either side out of fear of being cut out of the deal. This brings us to how these players are paid.
In every second-hand property trade, there is a total of 6% commission to be had. The 6% is made up of 3% paid for by the buyer and 3% paid for by the seller to their respective agents at the close of a successful deal.
Non-agent middlemen make their living from taking slices from either agent’s 3%. The more middlemen involved in the deal, the thinner the slice of the pie each person involved in trade execution receives.
One might think as a buyer or seller why should you care? If you agree to pay 3% then it shouldn’t matter.
In principle, you are right however in reality, despite the best and ethical intentions of both agents responsible for the trade, the non-agent middlemen are usually to blame when a deal falls over.
The most common causes of non-agent derailment are a lack of real estate law and practice understanding, mistaking a simple introduction to mean “bringing the buyer / seller” and an overall inflated sense of importance in the creation of the deal.
In my experience, 1 inexperienced non-agent middleman decreases the chance of a successful sale by 20%. Imagine there are 3 middlemen total and 2 are inexperienced. There is a 40% chance the trade will not be successful.
So, how does one eliminate non-agent middlemen? If you are a buyer, then it is imperative that your agent moves through the middlemen to speak directly to the seller’s agent as this assures the most accurate information on the seller’s position.
This contact should be made prior to signing a sales and purchase contract. Due to the desire of the non-agent in protecting their contacts, this is easier said than done but must be done nonetheless.
Ask your buyer’s agent if they are talking directly to the seller’s agent and if not to explain the structure and detail of non-agent middlemen preventing them from doing so. What side are these middlemen on – your side or the seller’s side; how many non-agent middlemen are there in total; do these middlemen have enough experience in RE deal making to know what they are talking about. The more detail the better.
If you are a seller than the simplest way to eliminate middlemen is to put your property on the open market. Light is the best disinfectant and the value of a middleman drops to zero if the property information is publicly available.
In perfect world, all sellers would put their property out in the wild. This isn’t a perfect world and the best deals require your buyer’s agent to go through middlemen to get access your ideal property. Maintain a trust but verify attitude, have patience but be determined and sooner rather than later people will hear about your great deal in the past tense and not the other way around.
Editor’s Note: Shirley is Sales Director for Housing Japan. She has sold billions of yen of real estate and arguably has the highest client satisfaction rating in the industry. Shirley writes a weekly column for Housing Japan readers to help illustrate common challenges buyers and sellers have when trading Tokyo residential property.