Real Estate Bad Practices in Portugal

The Real Estate Market in Portugal is unfortunately filled with bad policies and practices, in this article I’m going to explain the best I can how things operate and where the problems are so you can try to avoid them.


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MOST COMMON REAL ESTATE AGENCY FLAWS

LACK OF EXCLUSIVITY

PRICES ARE NO LONGER AS NEGOTIABLE

LACK OF DUE DILIGENCE

OUTDATED LISTINGS

WHAT WE DO DIFFERENTLY



MOST COMMON REAL ESTATE AGENCY FLAWS

BECOMING A REAL ESTATE AGENT

It is very easy to get a real estate license in Portugal - you must have no criminal record, have mediation insurance, pay the fee and do an annual tax evasion / illegal capital screening training. On top of this agencies can extend their licenses to their workers, and they usually do.


Agents are required to have training but there is not much control on said training quality or execution. On top of this most agents work with commission only and have absolutely no base pay or guarantees as most mediation contracts are not made with exclusivity. Agents have no reason to be committed to understanding buyers and meeting their needs unless something in their portfolio fits them.


ABOUT MOST REAL ESTATE AGENCIES

Most agencies capitalize as much as possible on having no direct cost on agents, they don’t invest on their new hires at all, they tend to just send them out there to “weed out” the best sellers and let the other ones give up organically, as it costs them 0 to do so. You will also find that a big part of agents only work part time as real estate does not provide them a stable income, which often makes them hard to reach. In the end the result is a lot of untrained and unqualified professionals on the market.


It also leads to a very heavy selling culture where information sharing is frowned upon, and everyone's competing against each other to try and close deals as fast as possible. Unethical practices to close sales such as withholding information from clients and listings becomes a common thing. You will find that it is very rare for listings to be clear about the location of properties – this is because agents don’t want other agents to find those properties and sell them before they do.


ABOUT THE SYSTEM: UNBALANCED & NOT REGULATED

Most real estate agencies in Portugal work from a seller perspective. They do contracts with the sellers for promoting and showing their property and charge fees between 3% (rare) and 8% (also rare) the average commission is 5%. It is legal for the same person to represent both the seller and the buyer, and a common practice, despite the obvious conflict of interests. When there are different agents representing each party, the commission is usually divided 50/50 between agents/agencies. However, there is no legal frame to do so, and agencies can refuse to share. In the end this only hurts the seller as they lose potential buyers because the agent wants to get the most payment out of the transaction.


This system also leads to selling within the company being much more advantageous for the agency and agents, which often ends up with them trying to push their portfolio and not even show other things to buyers (as they aren’t even sure if they will get paid if they do so, so why should they?). They also have a personal interest in selling for higher prices as they get paid more, given they receive commission. In truth they are working for the sellers and from that perspective it is in their client’s best interest to do so. However, it is not in the buyer’s best interest.


Many agents also tend to not put a lot of effort into accompanying the buyer and doing due diligence because they never know if they are actually going to get paid (they are only paid if the buyer buys through them, no exclusivity). They often pressure and oversell the property, and only say the good points and not the bad ones.

This leads to uninformed buyers overpaying and being misled on property purchases, it also contributes greatly to gentrification.

In the end, because of the way the market currently functions, buyers are widely underrepresented.


LACK OF EXCLUSIVITY

Houses that are listed without exclusivity do tend to have a bidding war of agents and it creates a lot of chaos both for the seller and for the buyer. The seller get flooded with people calling them and it’s terrible for the buyers because a house might be sold and the agent doesn’t know about it


Example: at the end of a house visit, it’s possible for the agent to get a call and say that the house is not available anymore because another agent sold it.


SELLER’S PERSPECTIVE

From a seller perspective, people tend to think that it’s not a good thing to have exclusivity because of the unfortunate high incompetence of the market. So, from their point of view they might not feel comfortable giving exclusivity to someone without guarantee of a good job. In other words, by giving exclusivity to an agency you run the risk of being “stuck” with them for 6 months without any significant progress in selling the house.


Also, if there are more agents trying to sell your property, the odds of selling it faster are higher, right? Turns out, it might not be as simple as that. As a seller without exclusivity you must be ready for a great influx of calls, of which most of them are fruitless. Agents never cross information on potential buyers between them so you might have to answer the same questions and proposals over and over again without going anywhere.


When is it a good thing to give exclusivity? When you know an agent you absolutely trust and you build a report with that person before giving them exclusivity.


PRICES ARE NO LONGER AS NEGOTIABLE

PRICES ARE NO LONGER AS NEGOTIABLE AS IT WAS LAST YEAR

Last year because of Covid-19, the foreigner presence on the market dropped drastically. For this reason, sellers that didn’t want to wait until the pandemic was over to sell their houses so they were willing to take much lower offers.


During the pandemic, there was a big negotiation margin and it wouldn’t be uncommon to negotiate 20%-30% less of the initial price. Nowadays, it’s much harder and it's likely to get even more difficult to negotiate in the future because the activity of the market is once again rising significantly which eventually will translate into more demand than offer. More demand than offer makes it a lot harder to negotiate. A good negotiation margin is when you have situations where demand has specific “measures”


It’s important to understand what exactly the situation is with the property you are looking to purchase. One of the things we keep an eye out for is understanding what is the reason for the sale: inheritance, divorced, a family moving out, someone who needs the sale money, etc etc. This makes a lot of difference in the negotiations you can do.


LACK OF DUE DILIGENCE

More often than not, there is missing documentation on the seller’s side and that can be very frustrating even when we have a closed deal. Not to mention, that it can take a really long time to get all the paperwork in order.


Example: We had a situation in the past where a husband put the house on the market without the wife’s knowledge. So when our client wanted to go forward with an offer, the husband finally told his wife that he was going to sell the house and she didn’t agree. So obviously things could not go forward. Same thing can happen with inheritances.


It’s extremely frustrating how often situations like this happen in the Portuguese real estate market.


OUTDATED LISTINGS

There are a LOT of listings online that are no longer available. This is a strategy from Real Estate Agencies to get leads. Sometimes they leave it online on purpose in order to get the leads in, other times it’s not and it just means that an agency sold the property but did not let other agencies know.


WHAT WE DO DIFFERENTLY

Savvy Cat came to be because I found the way the Real estate market operates extremely dysfunctional and figured I could do things in a way I think is fair and allows for a high standard of service quality for buyers.


OUR TEAM

One of the big differences between Savvy Cat Realty and other agencies is that all our agents are employees with contracts and salaries. They get paid to assist and provide good support to the client, regardless of sales.

This system is obviously much more taxing on the company, as there are many employee benefits and taxes in Portugal, but it allows Savvy Cat as a business to properly train our agents and give them quality of life and work balance, which in return leads to good service.


TAILORED SERVICES FOR YOUR PERSONAL NEEDS

Thanks to this we provide a lot more service than typical real estate agencies: we support with the visas, renovations, licenses, construction, documentation, opening bank accounts, networking for professionals, we do tours, we do verifications, we work with off market properties, we do reports and much more. Of course in order to be committed to do all this my staff needs to be paid, independently of sale. The system we found for this to work is to have service packages that need to be purchased prior to the property transaction, as a big part of the service will be provided prior to purchase.


Savvy Cat Realty also has Lawyers on payroll and includes legal verification of real estate transactions and documentation as well as visa documentation and process (consultation time is limited by package, Golden Visa applications are not covered – but we do offer discounted rates with some lawyer partners).

LOCAL PERSPECTIVE & INSIGHT

Another big difference is that we work countrywide, allowing our clients to explore different locations without having to contact different agencies. If you have an ideal and not a location when it comes to property, we will likely be a great fit for your needs, as a big part of our service is to help our client find the best location for them (taking in consideration factors from lifestyle to budget and requirements). This works smoothly because Savvy Cat’s agents are not competing against each other, they are collaborating as a team in order to help our clients to the best of our ability.


OUR BUSINESS MODEL

Savvy Cat’s business model was designed to provide the best possible service to the buyer, and make sure our clients know exactly what they are getting into prior to purchase. To this end we always do a property verification with a qualified professional and our clients get estimates, timelines and reports prior to purchasing.

We have exclusivity with all our clients, work with anyone on the market, agencies and private sellers, and will show our clients everything, including off market deals we come across, with full transparency.


WHAT WE STAND FOR!

Savvy Cat Realty values ethics and as a business we are very concerned with cultural and economic sustainability, our goal is to slow down gentrification by making sure foreign buyers make informed purchases that are not overpriced. We believe this helps both the new expats as they likely spend less plus have a much smoother relocation process with support from local business and the local community as it boosts the economy by bringing cash flow in a sustainable way.

 

Hope this article was helpful, any questions you might have feel free to contact us! We are always available at contact@savvycatrealty.com if you need any assistance ;)

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