The cost of advertising a home is rising and beginning to resemble the newspaper era. Owners are being offered or sold advertising campaigns up to and above $10,000. The cost of the campaign is paid upfront by the seller regardless of the success of the campaign.

VPA stands for Vendor Paid Advertising. Agents will also charge a commission in addition to the VPA. As one observer noted, VPA is for profile, the commission is for profit.

Sellers need to establish the true cost of advertising their home and avoid inadvertently paying to promote the agent.

Before the internet changed the world, newspaper classifieds were known as the Rivers of Gold. Cars, employment and real estate advertising created an absolute bonanza for the publishers.

As consumers migrated from print to digital, previously non-existent companies/websites such as carsales.com.au, seek.com.au and realestate.com.au stole the classified market from their print rivals.

The move into digital classifieds was a win for everyone that moved into that space. Consumers enjoyed a better experience with search functions and more photographs being available. Those placing the ads such as agents, direct vendors and third party operators were exposed to a larger market on the internet. At a lower cost too. And the owners of the websites enjoyed a healthy profit margin in comparison to print rivals.

Suddenly the cost of advertising a property has done a full circle. The costs are similar to what home sellers previously paid in expensive print campaigns. Maybe the agents know where the home sellers, pain threshold for VPA is from back in the the glory days of print?!?!

A real estate trainer recently cautioned his clientele that ‘Australia was now the world’s most expensive market to run an internet campaign’.Essentially, agents are so busy trying to out-promote each other with vendors’ money that they are driving the cost of advertising up.
As the ads become more expensive, the agents aim to convince the next vendor to spend more.

The good news for home sellers is that buyers are interested in buying your house not the size of the advertisement. Just because an agent asks you to spend $10,000 on a VPA campaign, it does not mean you have to agree.

One home seller recently challenged an agent that asked for an excessive sum for advertising. The agent very quickly slashed the advertising in the hope of being granted the listing.

The agent’s lack of belief in the proposed campaign was apparent very rapidly. Understandably the owner wanted to know why the agent asked for $10,000 in VPA if $3000 was sufficient, after a few tough questions.

Some agents have adjusted positively to the benefits of the internet and slashed operating and marketing costs in the process. Others are aiming to replicate the print and vendor pays model from a bygone era.

When employing an agent, negotiate a package that involves them selling your house rather than you buying advertising. Bundle the advertising and commission into one fee, only payable on settlement of the sale. You will find the agent is suddenly economical and thrifty with the amount of advertising required to sell a property. The savings is yours to keep.

Just like a public auction, there are times when a silent auction works better than a standard private treaty and vice versa.

The success of a silent auction is equally dependent on the right agent and the right circumstance.

A public auction sells to the highest bidder above the reserve price. It is common for the highest bidder to win an auction merely by beating the second highest bidder by $1000. The tragedy, from the seller’s point of view, is that the person who just bought the property often has $50,000 or $100,000 left in their budget that they did not need to spend to win the public auction. They did not need to go to their maximum price because the process did not demand it of them.

The objective of the silent auction is to elicit each and every buyer’s maximum price for the subject property.

Market conditions – In May 2009, real estate veteran Bill Malouf chastised his industry colleagues at a national conference. Malouf was critical of agents that persisted with auctioning properties in market conditions that were clearly a non-auction environment. The market was suffering a crisis in confidence after the banking crisis, yet real estate agents were still listing properties for public auction as the clearance rate floundered below 50%.

Whether it be a public or silent auction, the market conditions need to be conducive to run a sales campaign that needs multiple bidders. If the market conditions are extremely flat, it’s advisable to run a normal private treaty campaign rather than a silent auction.

Marketing – The marketing campaign to promote the silent auction is the same as if it were listed as a public auction or private treaty. It is crucial that you remember buyers are interested in your property first, and the process of sale second. Regardless of the sales process you employ, provided your agent runs a competent marketing campaign, the same prospective buyers will emerge.

Price guide – A mistake that many home owners make with private treaty (for sale) is they set their asking price too high. To overprice with the intention of reducing down to the market price will cause your property to languish on the market and look stale. Conversely, many home buyers will attest to the reverse with public auctions, where they often see properties advertised 10 to 15% below the vendor’s reserve.

The good news is you only need to quote an accurate market price to attract multiple bidders. ‘Market price’ is different to ‘best & highest price’. It is completely legal, fair and reasonable that a home owner lists their home to be sold at the ‘best & highest price’ above the market price. In doing so, the owner (and agent) is not misleading anyone into bidding on a property they have not a chance of winning.  Equally, they are making the understandable commercial decision to accept the highest offer.

Deadline – Public auctions put a public deadline on the sale from the get go. As the auction deadline looms, the pressure that was meant to be on the buyers to act begins to mount on the vendors, particularly if the market is disengaged with the price guide the agent is quoting. Unless forced to do so by a court order or trustee, it is best to avoid putting a public deadline on the silent auction at the beginning of the campaign. Keep the use of a deadline open and only put a firm deadline on the sale once you are near certain that you have sufficient bidders/buyers. Deadlines in a negotiation are classic brinkmanship. To set out on day one of the campaign with a deadline brings a high stakes pressure situation on oneself. The Sydney and Melbourne property markets kicked off the first weekend of Spring 2016 with clearance rates of 80% and 78% respectively. This is as good as the public auction market gets. Yet 1 in 5 still failed in a most public fashion. In normal markets, the fall-out rate is even higher. If the owners allowed themselves more time, they could have saved themselves the public humiliation of failing to sell in front of the neighbourhood.

Lower the barriers to entry – Many buyers refuse to bid at auctions because they have previously lost thousands of dollars on due diligence. To maximise the number of bidders in your silent auction, provide easy access to due diligence. Have pre-prepared strata reports, building reports and a straightforward contract so that the buyer can draw on communal due diligence reports at a lower cost. The agent will garner more respect and trust if they advise those buyers that are highly unlikely to win the silent auction of this fact before they spend money on due diligence. It is unconscionable how agents often watch buyers spend thousands of dollars on due diligence knowing their budget won’t buy the property.

Structure/bidders guide – Once the agent has established the field of bidders, it is crucial that everyone is working on the same structure. In order for this to happen, the agent and vendor must first agree on the bidders guide. The bidders guide contains pertinent information that the buyers need to factor in to their offer and the practicalities of the process. Issues such as:

• Undertaking that all buyers offers will be kept strictly confidential and only disclosed to the vendors and agent
• Deadline for final offers to be submitted to the seller’s agent or lawyer
• Only offers on signed contracts with deposit will be considered
• Required deposit on exchange of contracts
• Settlement period of the sale
• The price at which offers ‘at and above will be considered’.
• The vendor and agent reserve the right to sell to the highest offer without first informing the under bidders
• Any special conditions outside the normal.

As the vendor, if you negotiate a compromise with one buyer, ensure that the same concession is then offered to all bidders. For example, a buyer may ask for 5 months to settle, so they have more time to pull the necessary funds together. Other buyers may also be prepared to pay a higher price if offered the same concession that you just agreed to.

Agents that have been working in sluggish markets are often caught by surprise when a boom rolls in. In 2013, the monster of all housing booms moved through Western Sydney after several tough years for vendors and agents. Agents started selling everything for full price after 3 days on market, thinking they were doing their respective clients justice. Homes were being listed on a Monday and sold by Friday, without a weekend on the market.

In these situations, it is crucial that a structured bidding process is employed. When multiple buyers want to buy the one house, it is a tactical error to exclusively negotiate with individual buyers, rather than offer the open marketplace bidding terms.

Furthermore, if the agent distributes the silent auction bidding terms without the consent and full support of the vendor, the process will fall apart. The power in the bidders guide is that the buyers, the seller, the lawyers and the agent are all acting on the terms and conditions outlined in the bidders guide.

Confidential bidding – If there is clear upward pressure on the price from the original advertised price guide, be sure to telegraph this to the market. Do so for two reasons. Firstly, it is the right thing to do to those buyers that are priced out of the running. Secondly, it shows the remaining bidders that the property is in high demand. If you list a property with a price guide at $1 million yet the feedback quickly comes in that the buyers are thinking beyond $1.2 million, you are missing an opportunity to increase market expectations if you don’t increase the price guide. In some states, it would also be illegal for the agent to persist with a price guide of $1 million when the feedback is $1.2 million.

The essence of a silent auction is to keep all specific offers confidential. Just as you would not give an opposition player a little peek of your cards in a hand of poker, don’t give the buyers a peek at the offers they are competing against.

Understand unique, generic and in demand – A unique property requires a unique buyer. ‘Unique anything’ does not translate into ‘abundant demand’. Many a vendor has felt that their property ‘must be auctioned because it is unique’. Don’t mistake unique for in demand. Auctions require multiple bidders to fuel the process. Putting a $20 million waterfront property to auction in a recession will almost certainly end up in no bidders or only one bidder being present on auction day.

If you attempt to run a silent auction on a generic two-bedroom apartment, when there are 200 similar apartments on the market in the same suburb, you are doomed to fail.

It is crucial that you ensure the environment and product is right before running a silent auction.

Emotion – While this article articulates the clinical structure of a silent auction, rest assured the execution of it is an emotion-charged event. Many people feel that public auctions are the right selling path because of the emotion an auction generates. The buyers’ emotion exists because the buyers love the property and they know it won’t be available tomorrow; it will be sold today. It is crucial to the success of the silent auction that the buyers are aware the property will be sold and the sale is competitive. The same intense buyer emotion that exists in a public auction will be in play with the silent auction.

Binding contract – It is crucial that the winning bidder submits their offer on a signed contract. You cannot have a circumstance where buyers are able to submit non-binding written offers against contract offers. It is the agent’s responsibility to get all interested buyers in a position to sign a contract by the deadline. If you accept a non-binding offer in favour of a signed contract, you are taking a gamble on that buyer, given your under bidders are unlikely to return to the bidding in two or three weeks’ time.

Passing in – It is an inevitability that some auctions, both silent and public, will fail to meet the owner’s reserve price. If you do have to pass the property in at a public auction, you are doing so in front of a large crowd. The price at which you passed in at becomes public knowledge. This price will probably turn up in the Sunday morning auction results published across your city. It will more than likely be recorded by data houses, such as Core Logic RP Data, forevermore. This becomes powerful information for a buyer and haunts the seller’s campaign post auction.

If you publicly pass in for a low price, you have no chance of getting a high price.

In a silent auction, if the price fails to meet the reserve, there is no public failure for the property, the vendor or the agent. The only people who know what the property passed in for are the buyers, the owners and the agent. The owner and the agent can continue to sell the property without the stigma of a public failure hovering above the campaign.

The first step to successfully executing a strategy is to ensure it works on paper. If the plan does not work on paper, it won’t work in reality.

A silent auction is the right sales strategy to adopt in a multi-bidder situation provided the agent and vendor are working as a team.

 

Investors entering the property market need to protect themselves against overzealous rental quotes. Often the agent spruiking the proposed rental return is a sales agent and not a property manager.
To protect yourself against an unwanted and unexpected shortfall in the income on your new investment, disregard a selling agent’s rental assessment.
That’s not to say that every agent will inflate the rental estimate to make a sale. The reality is that there is an incentive to do so, though.
To get a true read on the market, have an experienced independent local property manager assess the property’s respective rental value, before you buy it.
Property investors often make purchasing decisions and value assessments on the return a property produces. This is particularly relevant in the commercial property market and a common theme in the residential market.
Any time a real estate agent can inflate the good news in order to make a sale, there is a risk for the consumer on the receiving end of that promise.
In the commercial property market, the lease arrangement has a huge bearing on the likely sale price of the property.
A vacant property will often sell for 10% less than fair value. A leased property to a quality tenant on a secure fixed tenancy with lease extensions will sell for 10% or more above fair market value.
Commercial tenants are much harder to secure than residential tenants. The upside being that commercial tenants tend to stay a lot longer than residential tenants.
The impact of the rental return on the asset’s value is not as extreme with residential property, but it is still a component of the value offering.
Given finding a return on cash is so difficult in the modern world, many investors will and are taking cash out of the bank to invest in property. Investors are likely to play a crucial role in supporting the market against a severe price drop as the market eventually cools in the years ahead.
The most common trick used to dupe investors in the market is developers offering fixed guaranteed rental returns. Investors are reassured about the merits of the apartment in the high rise due to the developer’s promises to lease it back for 2 years, at a very generous price.
The apparent security of a high rental return compels the investor to pay a purchase price relative to the inflated rental income.
Two years after completion of the apartment block, all the rental guarantees expire, leaving the investors exposed to the open market.
Unsurprisingly, the open market is significantly lower than where the developer’s price guarantee was set at.
While this happens in the world of off plan apartment sales, investors looking to buy in the open property market also fall victim to rental over quotes. It is common for properties to lease for $100 to $150 per week, less than what the sales agent told the buyer.
The loss goes beyond the weekly shortfall though. If you buy a property believing that it will lease for $800 p/w and its true value, unbeknown to you, is $650 p/w, it takes time for you to discover the disconnect.
The property will undoubtedly sit vacant for whatever period you leave it priced at $800 p/w. This vacancy period can quickly run into thousands of dollars in lost rent if you wait a month or two looking for that $800 p/w tenant.
At a time that feels as though everyone is making pots of money from property, it pays to remain clear headed and prudent.

The selection of the selling agent is usually decided upon from an interview and/or a sales proposal process.  Whether it’s an interview or a sales proposal that you are using to determine your agent, neither actually shows the agent in action. Agents are fully rehearsed with scripts and dialogues to ensure a slick presentation when they are being interviewed by sellers.

Given you are employing an agent to market, sell and negotiate the sale of your home, it is worth seeing them in action.

To gain a true perspective of the agents you are considering, mystery shop them as a buyer.

When you mystery shop the agent, ask a few probing questions. You will quickly gain an insight into whether you want that agent representing you.

Questions such as ‘why hasn’t the property sold yet?’ or ‘do you have sales evidence to justify the price guide?’ can garner surprising answers.

Every agent will find it easy to hold the line with a new listing that has a lot of interest in it. But you will get a better perspective of the agent’s ability if you mystery shop them on one of their failed auctions or struggling campaigns. Look for clues as to whether the agent is protecting their client’s interests or breaching confidence.

The best agents are the best at protecting their clients, even when the campaign is not going to script. A dangerous agent for the seller is one that becomes desperate when the campaign does not go as expected.

All agents look good when there are 3 buyers trying to buy 1 house. How does that same agent look when the property has failed at auction, the advertising money has been spent (wasted) and the crowds have stopped turning up to the open inspection?

What you want to see when you mystery shop an agent

Available and follow up – in order to mystery shop an agent, you first want one that is available. Does the agent respond to messages? It is a phenomenon in real estate that the stronger the market, the worse the service buyers receive from agents. Essentially, in a boom, service to buyers goes down as agents advertising for buyers goes up!!

Does the agent follow up and follow through. If you asked for information, did they get it to you. Were you followed up after the inspection for feedback and a second inspection? Were you informed of similar properties being listed the week after you inspected? Is a senior or listing agent handling your enquiry or was it the office junior that started in real estate last week? Once you mystery shop an agent, what happens from that point can offer all of the information you need to make a listing decision.

Enthusiasm – Was the agent enthusiastic about the property and you as a buyer?

Knowledge – The best agents have thorough knowledge of the property and the local area. If there is a question the agent cannot answer on the spot, the agent chases the answer and responds.

Assertiveness – Look for agents that are pleasant but assertive. When you ask probing questions to test the agents, they confidently and assertively protect their clients. A pleasant pleaser won’t help you when the negotiating gets down to the pointy end of proceedings.

What you don’t want to see when you mystery shop an agent

Personal details disclosed – if you walk into an inspection and leave feeling as though you know the owners life story, because the agent divulged all, that’s not a good thing. It is a terrible betrayal actually. When you are mystery shopping agents, ask probing questions of the agent to see how they handle them.

If you find out that the owners are selling because ‘the job loss caused financial difficulties that led to stress in the marriage, that saw one of the owners begin an affair which was the cause of the divorce’ then don’t hire the agent.

Short, rude or unavailable – the best sales people know that the next enquiry could be the best buyer. Conversley, if the agent is abrasive and pre-judges buyers, they are likely to turn buyers off the home.

What other buyers have offered – some agents will freely disclose the offers that have been made by other buyers. This breeds instant mistrust in buyers. If offers are disclosed to you, expect yours to be disclosed to others. An agent that freely discloses offers during the campaign is effectively running a ‘Dutch auction’. The property will be ‘sold to the buyer that offers the best price’ is a simple and assertive response that negates a messy Dutch auction.

There are many elements to selecting the right agent. The most dangerous (and lazy) selection method is to request 3 agents inspect your home and send a written sales proposal through. Given $50,000 or a $100,000 can be easily made, won or lost by the agent during the campaign, it is worth finding the right agent.

Real estate agents across the country are increasingly moving toward off market transactions. An off market transaction is defined as one where the agent only markets the property to their database and known buyers rather than listing on prominent media websites.

Given the sophistication of industry Customer Relationship Managers (CRMs), it is plausible that an estate agent can expose a property to the vast majority of active buyers in the market. But these CRMs have existed for quite some time. Whilst they facilitate the effectiveness in off market sales, they are not the cause of the recent spike in transactions.

Off market transactions have spiked because agents and consumers are looking to avoid the high cost of real estate websites. Start up companies that were started in a garage less than 20 years ago are now billion dollar companies on the back of real estate advertising. The price that agents and home sellers have been asked to pay for a web listing has increased nearly every year for the past 2 decades.

Agents happily went along with the price increases because they simply passed the increase onto the vendor. Now, the vendor does not want to pay!

We are now at a stage where the market is beginning to reach a price resistance point. Private sale companies promising to save the consumer commission flank agents to the left whilst excessive advertising fees flank them to the right. The real estate agent is being squeezed by a cheaper competitor on one side and an unjustified expense on the other. Agents need to innovate to survive.

Agents that have signed lengthy contracts committing to put every listing as an upgraded prestige or premiere listing are feeling the price pressure the most. Consumers inherently know that you don’t need to spend $5000 or $10,000 on web advertising to find buyers.  Particularly in a boom.

The vast majority of the money spent on web promotion is about building the agents profile or brand. There is absolutely no research to suggest that home buyers respond more favourably to a property because it is or isn’t a large expensive advertisement.

Home buyers buy homes not real estate advertisements. Sellers are well advised to keep this in mind.

If an agent asks you to fork out huge amounts of money on a expensive web campaign, tell them you want to sell your home not buy advertising. If the agent passionately believes in the product, they can pay.

It is this push back from consumers that is inadvertently driving off market transactions.

The consumer refuses to pay for expensive web ads and increasingly, so too are the agents. Off market transactions are increasingly becoming the happy medium between agent and consumer.

It is understandable that consumers will need to weigh up the potential benefit of listing on the open market vs trading off market.

Agents are increasingly building real and perceived benefits into their pitch when it comes to off market selling.

The consumer needs to ascertain whether the agent is simply looking to avoid the excessive advertising costs they have committed too.