Irrespective of whether it is shortly after you have signed a listing agreement, or your property has remained unsold for a lengthy period of time, you are always susceptible to being conditioned. Protecting yourself from being conditioned should start before you employ an agent. If you are mid campaign and your agent begins to condition you, it can be hard to extricate yourself from that agent, particularly if you have signed a lengthy agreement.

Conditioning is most easily identified in circumstances where the agent bombards you with negative news about your home, usually disguised as buyer feedback. You know you are being conditioned when the agent offers few solutions other than to ‘drop the price’.

To protect yourself from being conditioned by the agent, adopt the following strategies before you sign an agreement:

Only sign a short agency agreement – One of the most powerful elements agents adopt to set up the conditioning of ‘overpriced vendors,’ is trapping them into signing a lengthy listing agreement to begin with. If your motivation to sell is high and the listing agreement is long, the agent has all but secured a sale. If the agent has overpriced the home, they will spend the next couple of months whittling the owner’s price expectations down by giving them negative feedback about the property.

By only signing an agency agreement with a short ‘exclusivity period’, you can deliver the ultimate response to an agent who begins to condition you – you can fire them. It is your home and you are the boss. If you sign a short agency agreement, you maintain the power. If the agent insists on an agency agreement longer than 60 days, don’t hire them. There is no such thing as a ‘standard agreement’!

Ask for a list of both positive and negative features on your home –A hallmark of conditioning is when an agent praises the property in pursuit of the listing and then highlights every known/possible ‘negative’ once it’s on the market. The agent will act as though the negative feedback from buyers is a complete shock to them too.

Prior to listing with any agent, ask for a list of the positive and negative features of your home, in writing. Then the agent cannot use any negatives listed against your property later as seemingly new information, to get you to lower the price they originally gave you. Ask the agent, ‘How do you propose to overcome those negatives during the sale?’ It may be prudent to shortlist agents with the best responses to this question.

Select your agent based on strategy not price – If your property is priced correctly, the agent won’t have to condition you – they will be too busy negotiating with buyers. The reason agents have ‘overpriced vendors’ is because they ‘overpriced the listing’ to begin with.

Unfortunately, many home sellers select their agent based on the selling price they quote. They inadvertently turn the ‘agent selection process’ into a bidding war. The big problem here is that it won’t be an agent who buys your property. If you select the agent with the best selling strategy as opposed to the highest selling price quote, your chosen agent avoids being caught in a nonsensical bidding war.

Many people become angry when they learn that conditioning is a low rank premeditated sales tactic. They are surprised and disappointed that their agent of choice has taken the conditioning path. The key to success is to insure yourself against conditioning before you employ an agent, rather being left surprised and despondent after giving them the listing.

When a property sells for $1 million and later resells for $1.5 million, many people jump to the conclusion that the owners made about $500,000 profit. You often see this type of commentary in the property pages of newspapers about the real estate transactions of sports stars, celebrities and socialites. We know that there are some expenses in there, but it’s still a good earn; right? Well yes, but it’s maybe not as good an ‘earn’ as we might originally have been led to believe.

Before passing judgement on whether a transaction was as profitable as it seems, doing some back of the envelope arithmetic can be insightful. In real estate, the difference between gross and net profit is usually significant. Transaction costs, for example, are one of those significant costs often overlooked when buying.

There are many factors to consider when working out gross vs. net profit. By being aware of all the factors that can dilute profit, you can more easily set your sights on a realistic net profit, rather than a gross profit. Also, because there may be variances in the types of costs which apply to different properties, using a set formula such as ‘transactions costs are 8%’ does not quite paint an accurate picture. Some of the main costs to consider are listed below.

Stamp duty is a large unavoidable cost when buying real estate. The percentage payable increases as the property becomes more expensive. Given the average house price in the Inner West is over $1 million, most people are at least 4% behind on the day they settle their purchase. Land tax may also apply in some cases, so do your due diligence before you buy.

Renovation and improvement costs is an area that is not captured by the data in any way.  If you overspend on a renovation, your net profit will quickly be diluted, even if the transaction looks good on paper. With the construction boom still occurring across Sydney, building costs continue to remain at record high levels. Disciplined spending and good project planning is crucial to ensuring that your renovation will create a true profit, rather than merely pumping up the price for a zero net profit.

Negative gearing is a fancy phrase for making a loss. Even though you share some of the loss with the government through your tax return, a loss is a loss. Therefore, before getting too excited about the house you paid $1 million for and sold for $1.5 million, you should consider the amount of money you spent propping up the investment over the years you owned it. Negative gearing means that the accumulated amount spent on the shortfall between rental income and costs, has to be added to the base price as a holding cost, before you calculate your profit. Many people who achieve a good paper trade would be frightened to know what their true net position really was, if they subtracted all the ‘prop up costs’ from their gross profit.

Rates can come in a multitude of disguises. Strata rates, water rates, council rates and special levies on strata buildings all need to be taken into account.

Vacancy rates and agent’s fees are applicable costs for investors to consider. One of the realities of owning an investment property is that the bank still wants their mortgage payment, even when the investment property is vacant.  You should allow for at least two vacant weeks each year.

Selling fees are the amount that you pay the agent for selling your property, along with conveyancing costs. Let’s remember that you also paid the conveyancer on the purchase too! These costs are avoidable by going the DIY route. You just need to decide if you want yourself as a client!

Property can be profitable. But it’s crucial that property is not seen as an easy ticket to financial freedom. In recent years, the boom has seen many investors turn a handsome profit. But this boom was unprecedented and came on the back of record low interest rates.

Investors should take note that net profit needs to be your ‘true north’ when investing. Too many people make tax deductions their ‘true north’ when buying an investment property. If you make tax deductions a priority over profit, that’s exactly what you will get.

Over the past decade, real estate agents have replaced expensive newspaper ads with expensive Internet ads.

Agents strongly recommend expensive Internet ads to vendors, but vendors are asked to foot the bill.For agents – It is easy to be passionate about an expensive product that they are not paying for. Any expense during your sales campaign must be linked to a higher price.

Real estate agents love a motivated vendor. One of the easiest ways to get the home sellers motivated is have them invest in a multitude of products before the campaign begins.Agents are acutely aware that the vendor is more likely to ‘meet the market’ if they can convince the vendor to spend thousands of dollars upfront on expensive web ads.

Before committing to expensive Internet ads that simply increases the agent’s corporate profile, ask yourself and the agent, what justifiable benefit do expensive web ads bring to your campaign?

Home buyers are attracted to nice homes not expensive ads.

Once you decide to sell a property any money that you put into the property should be deemed as an investment. This applies even if you have bought an un-renovated property that you intend to sell.

The purpose of investing is to make profit. Therefore, each dollar that is invested into the property should be linked to profit. Many people make the unfortunate error of putting a brand new kitchen with high quality appointments into the home just before they go to market.

The brand new kitchen may improve the sales price, but if a $50,000 kitchen adds $60,000 in value, is the effort, cost and stress worth it? Often the $50,000 kitchen only adds $30,000 or $40,000 to the end price, making the investment of the kitchen a loss.

Television shows are full of people making renovations look fun. To prove the point that renovations are not all high times and high profits, take the results from The Block over the past 5 years. Whenever the properties have a commercial reserve price set, the auction often fails to meet the reserve. Only when they have an artificially low reserve does The Block look fun.

Let’s call a commercial reserve, purchase price & costs + renovation costs = reserve price.

Who will ever forget the devastated contestants in the 2014 series of The Block who gave up 3 months of their lives to win …. nothing. This happens every day in the real world. In the real world, renovators are not given free labour and subsidised product from sponsors either. Keep in mind that good television and renovation profits are separate events.

Profitable renovations fall into two categories. Works that can be done below retail costs and retail priced works that add value beyond cost.

Works below retail costs
Many renovations add around $1 for every dollar that is invested into the property. If you are undergoing a structural renovation, to create true and meaningful profit from the works, you need to be able to get the works completed at a lower price than what a builder would charge a client. The amount you save on the works will flow through as profit on the end product.

This is why many developers/builders do so well out of un-renovated/unlivable properties. There is a huge upside in the dwelling and they can get the works done at a price that produces profit. The disrepair of the property frightens most if not all homebuyers that plan to pay retail costs on the works.

Retail priced works that add value beyond costs

Paying full market price for works and profiting on those works is difficult but possible. If you employ a painter to paint the house for $15,000, it is very common to see the works add $30,000 or $40,000 in value.

As a general rule of thumb, painting, carpeting and landscaping are works that will create profit beyond the costs of works.
Market growth often masks the true impact of renovation costs. If your plan to do profitable renovations works out on paper prior to selling, any market growth in that time is a bonus.

Relying on market growth to fill the hole left by the renovation costs is not a fun space to be in.

Unless you are a builder, most profitable renovations tend to be of a cosmetic nature. Profitable renovations that involve DA’s and structural works are best left to the experts.

 

The key indicators to watch during your campaign

During the sales campaign of your property, the agent will more than likely have to make some recommendations. Whether these recommendations relate to the marketing, the price or whether to accept or reject an offer, their significance cannot be understated. On average most people sell real estate every 7 or 8 years.

Being so relatively inexperienced in such an important transaction can be daunting. If you are aware of the key indicators that govern every transaction, it will assist you in determining the merit of your agent’s recommendation. Agents are not always in the luxurious position of being able to tell their clients what they want to hear. However, by schooling yourself on the key ‘on market’ indicators, you can objectively assess any recommendations as opposed to emotionally reacting. If you can remain calm and objective during the campaign, it will be of great assistance to you and your agent in delivering the best possible result.

There are four indicators that interlock with most campaigns:

Internet Hits/Traffic

Enquiries

Inspections

Offers

Every vendor wants to be at the point where offers are coming in, as quickly as possible in the campaign. But offers are less likely to be made by buyers if the preceding 3 indicators are not aligning.

Internet Hits/Traffic

In the days of newspapers, home owners would spend excessive amounts of money and have little to no idea of the impact of the expenditure.

Now, with websites being the dominant marketing tool, web traffic on each property on every day can be tracked in finite detail. Trends emerge to assist the agent and the seller as to the progress of the sale. Ensuring that your property is well presented and priced accurately will ensure web traffic is strong from the start.

Ensuring that your property is photographed well and priced to appeal to fair minded buyers is far more important than an expensive web ad on ‘page 1’. Effective use of database mining, the Internet and email alerts will see website traffic on your home peak in the first 14 to 21 days of the campaign.

There is an old advertising maxim that says, ‘good advertising kills a bad product, faster’. This statement predates the Internet but it certainly applies to advertising a house on the Internet. It is crucial that your home is priced accurately and presented well online on day 1 of the campaign.

You don’t get a second chance to make a first impression with buyers. Given the web traffic peaks early in the campaign it’s a preference and desire that enquiries, inspections and offers follow whilst the property is still fresh to market and in play. If you are on the market for 21 days or more, you will notice that your web traffic begins to tail off. This is not a preferred outcome but it certainly does not spell disaster either, particularly if you have a unique property or it’s a slowing market.

Enquiries

Good web marketing will instantly lead to further interest and questions from prospective buyers. It is crucial that all of these enquiries are recorded in date order to compare with the web traffic and inspection numbers for the same period. Attempting to send buyers straight from the web marketing to the ‘open for inspection’, can create disengagement from buyers.

One of buyers’ greatest gripes is being unable to speak with an agent about a respective property prior or just after the inspection. Ensure your agent is speaking with prospective buyers who enquire before and after inspections. An agent who says ‘just come along to the inspection’ is likely to have too many questions from too many buyers at one time. People that pick up the phone and enquire with the agent are serious.

Inspections

It is easy to fill a house that is on the market with a lot of people. But unless those people are active buyers in the market, their presence and feedback may not be worthwhile.

A good indicator that you are reaching the target market is a buyer that has just bid on other properties or is about too. This tells you and the agent that they are genuine and serious about buying. The buyer’s feedback is plausible too. You may not necessarily agree with it, but you can concede they have a plausible point of view. The genuine feedback from fair minded buyers should not be mistaken for the bargain hunter. The bargain hunter highlights every minor fault yet has reluctantly decided to make an offer, 40% below the list price! In summary, don’t judge the quantity of buyers at inspections, judge the quality.

Ignore all feedback from non-buyers and neighbours. Look for trends in buyer feedback. What do buyers like and what are they resisting? If the only feedback you are getting from your agent is negative, you are probably being conditioned, rather than receiving feedback. If you have priced accurately, the agent has engaged and followed up on all enquiries and the best buyers have inspected your home within the first few weeks, you are likely to move to the offer stage.

Offers

The more buyers that engage with your home and submit offers, the stronger your position in the ensuing negotiation. And vice versa. The key to getting a lot of strong offers early is to ensure that all of the preceding three market indicators are leading the sale towards a natural conclusion. Once the offers begin rolling in, it is in the agent’s hands to deliver the best possible result.

Disconnect

If any of the above indicators falls away, it suggests that something may need to be reviewed. The key areas to look into are marketing, agent, price, market conditions and the presentation of the home. The agent has some control of these keys areas, and so does the seller. When the sale does not unfold as hoped, this is where trust comes into play between seller and agent. The seller may feel the marketing is not effective and the agent feels the price is deterring buyers.

As the seller, if you methodically and pragmatically review the campaign through the prism of the 4 on market indicators, the answer will emerge.