Kick the tenant out and hire some furniture
Real estate agents love a ‘motivated vendor’. A motivated vendor could be defined as a property seller that really needs to sell and/or really wants to sell.
Agents know only too well, the higher the vendor’s motivation, the more likely it is that the vendor will ‘meet the market’.
There are three categories of vendors, each at differing levels of motivation to sell.
The first category of vendor is the ‘must sell’ vendor. Their circumstances and reasons for selling may include financial hardship, committed elsewhere, job transfer or a deceased estate situation with multiple beneficiaries. Vendors that fall into this category are most likely to sell, even if the price is poor. External circumstances rule their decision making in regards to the sale.
The second category of vendor is the ‘will sell’ vendor. Their circumstances and reasons for selling may include upgrading to accommodate a growing family, downgrading to unlock equity, liquidating an investment property or a lifestyle change. Vendors that fall into this category will sell if they are offered a fair price or better. They would like an above market price, but will willingly settle for a fair market price if that’s the best price on offer.
The third category of vendor frustrates real estate agents. It is the ‘may sell’ vendor that states “I will sell if I can get…” This vendor states their indifference to a sale but still offers the agent a chance to sell it at or above a certain price point – as long as it’s ‘at the right price’. These types of vendors are also labeled as ‘price dependent vendors’.
In a strong real estate market, you won’t find too many more optimistic people than a real estate agent after a listing. The agent often needs and wants the listing knowing that they cannot sell a property that is not on the books. So they tell the owner that the desired price is attainable provided the vendor follows the agent’s advice. That’s Act 1.
Act 2 is to increase the client’s motivation. The agent needs to go from having a “price dependent vendor” to a “motivated vendor”.
Agents have twigged to an interesting correlation. The more money, time, emotion and energy a vendor invests into a marketing campaign, the more likely it is that motivation to sell will increase. And as the vendor’s motivation increases, the price often decreases to meet the market.
Kick the tenants out!
In the days of print, agents would use expensive newspaper campaigns to increase vendor motivation. The price dependent vendor would be told, “yes we can get you that price but you would need to run a campaign with lots of exposure to get it”.
The owner unwittingly bought a lot of needless advertising that ultimately increased their desire to sell more than their ability to sell.
Now that internet marketing has decimated print campaigns, agents are coming up with new ways to increase vendor motivation.
The most common suggestion for landlords who are selling is to advise them to kick the tenants out. The landlord will be told that the property’s value and appeal is hampered by the presentation and presence of the tenant.
The agent advises, “If you moved the tenants out and furnished the property with some designer (hired of course) furniture, you will potentially add tens of thousands to the sale price. Maybe you could repaint and re-carpet whilst you are at it.”
Before the owner realises it, they have forgone a couple of months in rent, hired furniture that increases pressure to sell within a tight deadline and paid out further monies on repairs “for the campaign.”
The agent is subtly moving the vendor from a ‘price dependent vendor’ to a ‘motivated vendor’. As the motivation creeps up, the seller’s reserve price edges down. The owner is sub-consciously looking to make good on the outlay of getting to market. They don’t want all the costs and effort to go to waste.
In some situations, it would be unfair to suggest that the advice to move a tenant out and hire furniture would not be successful, however it does need to be weighed up against the true value of all this effort and expense. Does it add to the final selling price? Quite often, not much, particularly in a strong market where buyers are aplenty and sellers are in command.
Act 3 is where the owner chases their ‘investment’ like a bad day at the races. The agent may have originally said “$1 million is possible in this market, you never know with the way things are going, but you will need to present it right.”
Now that the owner has forgone thousands in rent, spent a few thousand on marketing and advertising, hired furniture at a cost of $5,000 for six weeks and spent $10,000 on cleaning the place, their upfront exposure to the outcome of the campaign is easily $20,000.
It takes a strong vendor to knock back the highest bid of $950,000 on auction day. Why? The owner is wedged. They can accept the offer and drop $50,000 on the original desired price point or decline the offers and waste the $20,000 on the cost of running the campaign.
In a weak market, the agent hopes to get a buyer there on the day to wedge the owner in such a manner. In the current market, with so many buyers and so few sellers around, the agent is only too aware that buyers will turn up on the day and make a bid or offer. This is why agents are so optimistic to get sellers onto the market.
Before signing up with an agent, the owner needs to get a written guarantee in place around the expected selling price – a guarantee that states the agent gets a lower, or no commission, unless the desired price is achieved. This will ensure that the owner can counter-wedge the agent if they need to, should the expected price expectation not be attained.
Rest assured, booting the tenants out is just one of many tricks agents have at their disposal to increase vendor motivation.