UKRAINIAN REAL ESTATE

HONEYPOT PROPERTY PITFALLS: Navigating the Kyiv real estate agency jungle

The Ukrainian real estate market is opaque but multiple agencies might not be best solution

HONEYPOT PROPERTY PITFALLS: Navigating the Kyiv real estate agency jungle
Investing in Kyiv property: the ancient Ukrainian capital city offers a wide range of real estate options but not all agencies offer clients the whole picture
Tim Louzonis
Friday, 10 June 2016 16:30

In a well-regulated, orderly and mature real estate market in a ‘high trust’ Western society, where brokers are subject to licensing requirements and bound by codes of ethics, and where price information is transparent, it can be tempting for some resourceful customers to bypass brokers and ‘do it themselves’ in order to save money on commission fees. However, Ukraine’s real estate market is still some way short of these stands. Newcomers can easily get lost without an agency to help them navigate the unregulated chaos of asymmetric information, misinformation, and even outright scams by ethically-challenged brokers who aren’t required to carry a license.

Which agency should you choose? Everyone everywhere always wants to get the best deal and pay the best price. In Ukraine, this means real estate sellers, buyers and tenants rarely work exclusively with one real estate agency. While it may sound like heresy, there are real advantages to working exclusively with one real estate agency in Kyiv. This article will explore the pros and cons of this approach for several types of real estate transactions.

 

A cheapskate pays twice

It is quite typical for Ukrainian property owners to refuse to pay a commission to their brokers. This sets up a conflict of interest that works directly against the interests of the owner. Instead of working to find the most suitable tenant or buyer, the owner’s broker will be motivated to find a tenant’s or buyer’s broker who will be willing to share their fee. In such cases, the owner’s broker is only representing his own interests. The owner may get free service will not get good service. Instead, the misalignment of incentives establishes owners’ brokers as unscrupulous gatekeepers - an especially common and unpleasant phenomenon at the lower and middle price segments in Kyiv, as many an apartment hunter will tell you.

 

Trusting agencies with the keys to your property

Many owners in Kyiv believe that the best approach to finding a tenant or buyer is to contact as many agencies as possible. This is a shotgun approach instead of precision targeting and can create headaches for the owner and confusion for the market. The owner has shared his mobile number with scores of hungry brokers and now his phone will ring constantly with few real leads and many nonsensical questions that he has already answered several dozen times. When an owner doesn’t exclusively work with one broker and his property appears on multiple agency sites, it can be difficult for brokers to determine whether the property is still available at all.

Kyiv owners who decide to work exclusively with one real estate agency and pay a commission to their broker can still easily reach the broader market of potential clients. For example, for a very small fee, your agent can advertise your property on one of Kyiv’s mega real estate portals. An alternative is to ask your broker if their agency website uploads property listings regularly to these portals.

Ukraine is a low-trust society and many owners are reluctant to trust a broker with the keys to their flat so they can show it to potential tenants or buyers without the owner’s presence. While this practice is still rare in Kyiv, it can save owners lots of time and hassle, and it is another potential benefit of working exclusively with one real estate agency. Many Kyiv agencies also provide property management services. These services can be combined with tenant-search services if an owner decides to work exclusively with one agency.

 

Words of caution for Kyiv property sellers

If you’re selling property in Kyiv and considering working exclusively with one real estate agency, then you should be aware that a couple of Kyiv’s largest agencies will insist on holding the ownership documents of your property in a safe to protect their exclusive right to market your property. This aggressive practice can give these agencies too much leverage and control over a deal in a way that could maximize value for the agency at the expense of the seller. For example, this could mean insisting on an overly high commission that prevents a seller closing a deal on an attractive or reasonable offer for his property.

 

How to avoid ‘honeypot’ properties

When you’re looking to buy or rent an apartment in Kyiv, make sure to find a professional broker who will take the time to understand your budget and other search criteria, and won’t waste your time sending you links to unsuitable properties or scheduling viewings of apartments that don’t meet your requirements. If you are unfamiliar with Ukraine’s real estate market, then you probably have no appreciation of how much time a good broker will spend on filtering out property listings that contain old, incorrect, incomplete, or fraudulent information. In fact, many real estate sites in Kyiv are full of photos of attractive apartments that aren’t available. These ‘honeypots’ are scams designed to entice apartment hunters to call a broker so he can pitch another apartment to the unsuspecting client.

If you’re looking to buy or rent an apartment in Kyiv, then any competent agency can offer you access to the entire market. Most owners work with multiple agencies, and even if an owner works exclusively, brokers cooperate on deals. In practice, you will find there is not much downside if you decide to work exclusively with one real estate agency. In fact, if your brokerage knows that you are working with them exclusively, then you will be placed towards the top of their priority list. But if it’s clear you’re working with other agencies, then they will prioritize exclusive clients and the biggest-budget clients ahead of you. 

Let’s say that you’re an investor who plans to buy one or more one-bedroom apartments in Kyiv’s centre to renovate and let out. Keep in mind that the due diligence for purchases like that is a lot more time-consuming than the property search for a luxury long-term rental apartment that will have a more urgent deadline. And yet the commission to a broker for that luxury rental can be higher in many cases. So you’ll be competing for your agent’s time if he also handles luxury rentals. If you are a motivated buyer and you are already comfortable with your broker, then an exclusive monthly retainer agreement could make sense so you stay at the top of the priority list, since you definitely plan to buy and the retainer fees that you pay will be applied towards your broker’s commission when you conclude your purchase.

 

Realtors are evil, but...

Real estate brokers in Kyiv have a horrible reputation. Quite often this reputation is rightly deserved. There’s even a Facebook group called ‘rieltory – zlo’ (‘realtors are evil’) for Ukrainians who wish to find or let out an apartment and bypass brokers. However, if you don’t speak Russian or Ukrainian and don’t want or own a lower-end flat, this group won’t be very helpful for you. For better or for worse, Kyiv’s brokers are not going away any time soon. Picking and sticking with one good real estate agency can often be the best approach in this topsy-turvy market.

 

About the author: Tim Louzonis (This email address is being protected from spambots. You need JavaScript enabled to view it.) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate for foreign expats. Tim is a long-time expat with Ukrainian roots; he first came to Ukraine as an exchange student in 1993 and returned in 2008

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