The best agents will always be able to introduce buyers to your property without asking for money. If an agent claims to have a buyer, as most real estate agents will, that should negate the need to spend money upfront on advertising.
This runs contrary to the well-known agency business model in which they profit from two things: they leverage your advertising budget to market their business, not your home, and they use your ‘sunk cost’ to pressure you to lower your price for a quick sale.
Here’s how the model works:
- The agent quotes a high price to the seller, who likes the figure and says, ‘Great, how do we go about this?’
- The agent claims this attractive outcome is only possible with a heavy advertising campaign and an auction. At this stage, a set advertising spend for a $1 million house seems like a sound investment.
- When the auction fails to meet the seller’s reserve, the seller either accepts less or passes the property in, wasting the $5,000 spent on advertising.
Heads the agent wins, tails the client loses.
The agent doesn’t want or need your $5,000 to find buyers. They want your money to increase your motivation to sell – that is, to meet the mark on auction day. Your $5,000 is also a handy advertising investment in promoting their brand.
Make no mistake, whether or not you spend that $5,000, buyers will come, ready or not, once your home hits the market. If an agent cannot introduce a buyer without cost or risk to you, the problem is theirs, not yours.
When market conditions are healthy, there are some buyers who will always make themselves known to most of the agents in the area they wish to buy into. They are the ‘best buyers’, who are keen to pay a good price to secure a property now.
An agent who can introduce buyers without cost or risk to you protects your position in the event that you decide against selling or you don’t accept the offers that are submitted.
Exhausting your agent’s database before committing to needless advertising provides the option of spending that money later if you feel that the campaign lacks exposure. Few people need to take this path, though. Once they hit the market, they realise very quickly that the internet does the heavy lifting at a minimal cost – a cost the agent should be able to carry.
If you spend big dollars upfront on advertising, it will probably go towards advertising to a buyer already known to the agent. The best agents have large databases full of current and active buyers. The cost of sending an email to a database of 15,000 buyers is almost nothing.
An agent who confidently claims and can demonstrate they have potential buyers needs to be scrutinised on another level. Can the agent negotiate well? You don’t want the best buyer negotiating with the worst agent. In reality, that could end up costing a lot more than a dud advertising campaign.
As a seller, you should only pay for advertising once an agent has delivered the sale at or above the promised price.
If an agent cannot introduce buyers without cost or risk to you, the problem is theirs, not yours.
This is an excerpt from Peter O’Malley’s book, “Inside Real Estate”. If you would like a free copy, contact us today. Note: Peter is based in Sydney, and while the figures used here may seem high for Warrnambool & District, the principles and concepts are the same.