Monthly Archives: November 2014

Coming, ready or not!

When you first list your property on the market, your greatest desire is also your greatest fear. It’s the early offer. Waiting for the agent to provide feedback after the first inspection is a nerve wracking time. Is the home presented correctly? Is the pricing strategy in line with the market? Will people like it?

If the response to those questions is favourable and a buyer makes an early offer, suddenly the nervous energy shifts. Is it too quick? How long should it stay on the market? It’s only early, we are in no rush.

Many home sellers have learnt that when you list your property in the digital age, the buyers are coming, ready or not. The internet has caused real estate marketing to become close to instant. Within days of it being listed online, literally thousands of potential buyers have run their eye over it.

In most campaigns, 75% of the enquiries and inspections will occur in the first 21 days. If you decline the highest offer that comes from this period, you are essentially working in the belief that the best buyer will be in the 25% that enquire and inspect after day 21 of the campaign. In fairness, that could easily be the case too.

It’s imperative that you know the probability that you are relying on when you decline an early offer though. As a general rule, its safe declining an early offer because it does not meet yours or the agents price expectations. Declining a strong offer just because it’s early in the campaign can and often backfires.

Even in the strong market of the past two years, nearly 30% of auction sales have been made prior to the big day. This is because the best buyers turn up early, bid strongly and move on if their offer is declined.

In putting a case forward as to why the early offer should be judged on the price rather than the timing, of the offer, there is one aspect that cannot be written about. That aspect is context. Every sale has a different dynamic. Knowing the rules of poker is different to being able to play poker.

Ensuring the early offer is played to the seller’s best advantage is best judged in context. A skilled agent that can actually negotiate will ensure the best decision is made in the client’s interests.

An early from the seller’s perspective is often an offer made after months of arduous searching on the buyer’s behalf. This disconnect in timing is where many campaigns derail because the best buyer is sent packing.

The buyers are coming, ready or not, once you go on market and online.

Print doesn’t add up.

The real estate industry’s greatest fear is that home sellers will work out how easy it is to find a buyer for their property without using a real estate agent.
Companies that help home sellers to market their properties without agents by listing their homes privately are emerging in larger numbers each year precisely because sellers are discovering
this principle. How do you find a buyer without using a real estate agent?

Just do what an agent would do. Put an ad on the Internet and a small inexpensive one in the paper, put a ‘For Sale’ sign on your property and list it with a fair asking price. These three marketing strategies will have buyers beating a path to your door. It really is
that simple.
Real estate agents have two primary roles when employed by a home seller. The first is to find interested buyers. Different agents use a variety of strategies to achieve this objective. Some will focus on newspaper ads while others rely mainly on the Internet, ‘For Sale’ signs and agency databases.
The second objective of the agent is to negotiate the highest possible price with the best terms for the home seller. Some agents can achieve this objective but many can’t. Too many homes are undersold by agents across Australia each week by agents. All private home sellers are capable of underselling their property but it is very difficult to tell how many actually achieved the best possible price in the market once their homes were sold.
If a home seller feels they could competently negotiate the highest possible price their best buyer is willing to offer, the only real value a real estate agent can offer is convenience. A competent agent may save the home seller valuable time and effort.

Underselling a property

Most agents spend excessive amounts of money finding buyers and then use selling methods such as a public auction
which undersells properties. Unfortunately, the massive amount of money spent by agents looking for buyers is the home seller’s money, not the agents’.
So, if the home seller is paying upfront for advertising and carrying the risk to find a buyer (all of which they could do without an agent) what is the home seller really paying an agent for? The answer is this: they are buying the agent’s negotiation skills (or lack thereof) and strategic knowledge of the market. If you feel an agent does not possess a high enough level of
negotiation skill to sell your home or sufficient experience in the market either find another agent or sell the home yourself.

By placing your property on the Internet at a fair market price you will quickly find plenty of interested buyers. It will then be up to your negotiation skills to conclude the sale at the highest
possible price the best buyer is prepared to pay.

Right now it costs a real estate agent a little over $1500 per month to list every property they have for sale and for rent on a major real estate website.
For example, if an agent lists 20 rental properties and 20 properties for sale on domain.com.au that works out at a cost of just under $40 per listing per month.

A private seller can list their home for under $500 on domain. com.au and access the same buyers as the agent. This is a saving of $4500 if the home seller is asked to part with $5000 for a print
advertising campaign. So when selling your home, your options are these:
• Pay for the most cost-effective marketing via an agent’s database while paying for their negotiation expertise and market knowledge.
• Market your property and negotiate the sale yourself.
• Or, if you are unaware of how to play the game, pay for expensive and useless mass print advertising. It’s your choice.

The right person for the job.

Even in a heated market it takes a cool head to see an offerthrough to a sale. This is why experienced real estate agents who have been selling property for years will often turn to another agent to handle the sale of their own home. They know what is involved in the sale of a property and they desperately need a person who is not emotionally attached to the sale to act on their behalf.

Agents look for experienced, cool-headed negotiators to act on their behalf.

Negotiating the sale

Assume that a buyer decides that your home is the one they want, so they make you an offer. However, unlike the past, today’s buyer is quite savvy. They understand the negotiating stage to a

far greater extent than ever before and they start haggling with you from the moment they make their first offer. Most likely their first offer will not be their best offer but a low offer just to get the negotiation process started.

You should not be disappointed with their first offer because at least it tells you someone likes your home and wants to buy it. This is good market feedback.

However, a homeowner selling their own property or telling an agent how to negotiate can often react the wrong way. They may take the offer of a lower price as an insult. Instead of trying to negotiate, they inadvertently put the buyer in a position where they have no alternative but to walk away from the sale. A trained, unemotional professional, on the other hand, would see the situation as an opportunity to begin a fair and reasonable negotiation process with the buyer. An experienced agent knows this is just part of the process and acts appropriately. They talk to the buyer about why the property is worth the asking price and point out all the positive features of your home. They patiently explain that similar properties in the area have recently sold for similar prices to your asking price.

This type of approach can put your agent in a strong negotiating position. It makes the buyer re-think their offer because they believe they are likely to lose the property to an alternate buyer who is prepared to pay the market price. A good agent can easily handle these situations because they know the buyer is simply using a ploy to negotiate a better price.

The value of experience

We all know the more you do something the better you become at it. We don’t try to mend our best pair of shoes because we know we are likely to do more damage than good. We just don’t have the experience in boot repair, so we take our best set of shoes to a bootmaker.

A similar philosophy applies to selling a home. Lots of agents all over Australia could tell you stories about people that have walked into their office, frustrated about the fact that they did everything they could to sell their home without an agent. Unfortunately, they just could not close the sale. They advertised their property on the Internet, placed ads in the local paper and put up ‘For Sale’ signs in the front yard. They had people interested in buying but still they could not get the deal done.

When speaking with these people they’ll also tell you that as soon as they turned their property over to a professional real estate agent it sold fast. But why did the agent get a result when the

homeowner could not? Experience is the answer. When a buyer negotiates, a good agent knows exactly what to do. They have been down the selling path so many times before they instinctively know how to turn an offer into a sale. What’s more, the agent may even get the seller a better price, making their commission cheque a worthwhile investment.

The silent auction

Does it deliver sellers the best result?

As a seller determined to achieve the highest possible price in the market, one thing you should never do is let your interested buyers know what other offers you have received.

When buyers’ competing offers are disclosed at an auction, bidders will never focus on offering the highest price they are willing to pay. Their focus is on beating the competition and winning the auction.

When you line up all your interested buyers next to each other and shout at them with a pointed hammer (as happens at a public auction), you invariably end up with a series of $500 or $1000 bids to close out the sale. But what happens if the final bidder was prepared to pay $50,000 more than the second highest bidder? In that case, as often happens at public auctions, the seller loses $49,000 they could have pocketed if they hadn’t chosen that selling method.

Every Saturday across Australia, sellers sell their homes for less than the buyer was prepared to pay for it. It amounts to silent pain for the seller and silent gain for the buyer. Never allow your interested buyers to know what other offers you have received, whether it be by public auction or Dutch auction.

A Dutch auction is where agents personally negotiate the sale but continually disclose competing offers to each of the interested parties. It is done in a futile and incompetent attempt to force buyers to leapfrog the competing bids. A Dutch auction is worse for a seller than a public auction because buyers usually refuse to partake in the process given its grubby nature.

As a seller, never have your agent put buyers through a Dutch auction process because you will probably lose your best buyer on principle.

Competition

Negotiation experts (and card players) all agree that you should never let the other side know what your position is. During a hand of poker, have you ever seen a card player turn their cards up for

everyone at the table to witness and ask the competitors for advice? As a property seller, why let the buyers see your cards? Agents often talk homeowners into an auction as the best way to

‘create competition’. What is often overlooked is that buyers are competing for the property and are not bothered by the process used to sell the property. Interested buyers will compete for the home, regardless of which sale process is used. Bidding at a public auction is not competitive — it is

comparative. If a bid of $1,000,000 is made at an auction, the next bid will likely be $1,005,000, or $1,010,000. It won’t be $1,200,000.

Many buyers who are the under-bidders at an auction make an off-hand comment that they stopped bidding because the other party was just going to keep going. What the bidders are actually saying is: ‘I let the other buyer have it cheaper by dropping out. If we cannot compete with that buyer, why make them pay more for it?’ This regularly happens at public auctions but would never happen using the silent auction process.

Campaign

Public auction campaigns focus mainly on maximising the number of interested buyers and setting a deadline for those buyers to act. Yet this is what all agents should do regardless of the

sale process chosen by the vendor. Having a publicly known deadline creates just as much pressure for the seller as it does for the buyer. Agents orchestrate this scenario to ensure that a sale is made. Remember that at a public auction, getting a sale on the day in front of the crowd is the agent’s main priority.

Silence is golden

In Scotland, when agents are ready to close out a real estate transaction all the interested buyers submit their best and final offer in a sealed envelope for the seller’s consideration. Some call this a ‘silent auction’. In most, if not all cases, the owner sells the property to the party with the highest offer.

Scottish people do enjoy a quid. The Scottish know that if you let a $1 million dollar buyer know that the next best offer you have received is only $900,000, you will only be offered $910,00 from the buyer who was prepared to pay $1 million. How could the seller justify asking for that extra $90,000?

One real estate firm which regularly conducts silent auctions in Australia explains below how the sale of a prestige family home in Sydney achieved the highest possible price using a silent auction. Not only did it achieve the highest possible price, it achieved a price that would have been mathematically impossible using a public auction where bidding is transparent.

This is how it worked:

The property generated enormous interest in a short period of time so a deadline was set. This date was not advertised because it may have pressured the buyers, and this also saved the seller from a public failure should the best offer fail to meet the reserve price

The homeowner set their private reserve at $2 million. All four interested buyers submitted their best, highest and final offer on or before the deadline. Each offer was submitted on a binding contract with a deposit cheque. The offers came in at $1,950,000, $2,050,000, $2,150,000 and $2,210,000 respectively. Contracts were exchanged for $2,210,000 providing the owners with a $55,000 windfall that a public auction would have failed to achieve.

If the property had sold at public auction, many people would have understandably left the auction mightily impressed. The newspapers would have reported how the property sold for a whopping $155,000 above the reserve price. The $55,000 left in the buyer’s pocket would be a silent victory for them when it would have appeared to everyone that the owners had a public victory.

Most of the positive marketing components in play at a public auction work equally well for a silent auction. It is the silent auction method’s ability to determine the highest price in the market without pressuring sellers or producing spectacular public failures that makes it an elegant solution.