An Agent’s guide tobeating the marketTony Morrison( When selling a house)
Definition of market value• The first step to beating the market is understanding what is fair marketvalue?• The standard definition of fair market value is• ‘Market value is the estimated amount for which an asset should exchangeon the date of valuation between a willing seller and a willing buyer in anarms length transaction after proper marketing wherein the parties eachacted knowingly, prudently and without compulsion.’• (Spencer vs. Commonwealth 1910)
My definition of Fair market value -FMV• Fair market value is a price that• Most banks will lend• Most people money on• Most of the time• to purchase a house
What are sellers paying for?The second step is to understand the mindset of someone selling ahome. They are not paying agents to get market value. They arepaying agents to get more than market value, in reality to ‘beat themarket’. If market value was all that they wanted they would do itthemselves, because at least in their mind, getting market value is notthat hard.
Lets stop the game playingA lot of game playing goes on between home sellers and agents whenit comes to selling a house. Owners are reluctant to tell the agent theirbottom dollar fearing that if they do then that will be all the agent tries toachieve.Agents are very reluctant to tell the seller what they really think thehouse is worth for fear that their honest opinion will put the owner offlisting with them as some other agent will undoubtedly tell the owner avery convincing story as to how they can achieve much more.
Total trust is the ideal situationTo have the best chance of beating market value the agent and homeowner need to work together in a relationship of total trust.A relationship of total trust is not easy to achieve if there is no existingrelationship between the seller and the agent but that is what’s needed.If the appraisal is a cold prospect the best the agent can usually hopeto achieve is trust with a mild level of suspicion.The higher the level of trust the greater the chance that the owner willlet down their guard which can at times prevent them from seeing andunderstanding the best marketing strategy and restrict them from beingopen minded in the negotiation process.
Elements needed to beat the marketAs mentioned on the previous slide, trust is the most important elementrequired to ‘beat the market’. Great marketing is also obvious tohopefully foster competition between more than one buyer.A network of potential buyers and a great negotiator will also help ‘beatthe market’ but behind ‘trust’ the next most important element to getright when selling (an element which so often is messed up) is thecorrect pricing structure or marketing method.E.g. – Set Price, Price range, Auction ,Tender, Best offers over, ByNegotiation etc;
1 Trust If you have trust everything else just falls into placeAbility to win trust will have a lot to do with length of relationship,your reputation and your integrity2 Correct Pricing/Method of MarketingYour marketing can be average, you can be a weak negotiator butif you can create more than one buyer, then the buyers will do thenegotiating for youThe correct pricing/method is the easiest way to create more thanone buyer, (make the phone ring, create fear of loss and sense ofurgency).3 Great Marketing Great negotiation skills won’t necessarily create more than onebuyer but great marketing might?4 A network of buyers The bigger the pool of potential buyers the better chance thatcompetition will see buyer pitted against buyer instead of buyeragainst seller5 Contract NegotiationskillsIt is very hard to sell a house for maximum price unless you havethe majority of the points 1-4 in place. If points 1-4 are in place theneed to negotiate will not be as strong.Elements in order of importance
The process to work out the bestmethod of selling / PriceBefore you work out what the best pricing structure or method ofmarketing you need to work out what fair market value (FMV) is.Knowing FMV is the first step towards beating market value. It is hardto choose the correct marketing method or pricing structure unless youknow what this is.More often than not though FMV will be less than what the owner wantsor needs and if this situation is not handled carefully then the agent cancome across as negative to the owner.And no one wants to list with a negative agent
The Process to work out the bestmethod of selling/PriceThe more traditional way of handling this situation is that the agent tellsthe owner more than what the house is worth to win the business andthen gradually over time talks the owner down to market value.Putting the wrong price on the house when the house is fresh to themarket means that the majority of buyers see the house when thehome is priced at it’s worst. This does not bode well for creatingcompetition which is what you need to beat the market.
The normal method of PricingBuyerInterestSeller PowerPriced to createinterestWeeks on market1 2 3 4 5 6 7 8 9 10 11 12HighLowPriced toScare off buyers
It is not the price you set butthe strategy you adopt
Confirming fair market valueTo beat the market you have to capitalise on buyer interest andtherefore seller power by having the price or method of marketingworking for the desired outcome instead of against it.Whilst there are lots of things that can be done to research fair marketvalue (FMV) the two most important are the comparative analysis ofrecent sales of similar properties and a summation of the property.
Calculator: Size (m2) Rate ($) Sub TotalHouse Main Level 0 -$ -$ Instructions:House 2nd Level/Downstairs 0 -$ -$ You are limited to entering information in the Yellow squares and the orange [Other] fieldsPrice ranges are set out below to provide assistanceGarage 0 -$ -$ An approximate guide calculation will appear in the pink fieldVerandah 0 -$ -$ Note: Chattels to be included in m 2rateDecks 0 -$ -$[Other] 0 -$ -$EXTERNAL IMPROVEMENTSExternal Improvements -$ Garage[Other] -$ -$ Under Roofline 1/2 - 2/3 Main House ValueCB Detached - Single $5,000 - $6,000Land Value -$ -$ CB Detached - Double $10,000 - $12,500BV Detached - Single $7,000 - $10,000BV Detached - Double $15,000 - $20,000TOTALCarportMetal Frame Good Cond. Single $3,000Metal Frame Good Cond. Double $7,000HOUSE VALUES Under Main Roof BV Pillars 1/3 - 1/2 Main House ValueNew HouseArchitecturally Designed/Executive $1,400 - $2,000 VerandahsHigh End $1,200 - $1,300 Basic (per m2) $100 - $250Standard $1,050 - $1,150 Character (per m2) $300 - $400Budget $950 - $1,050Decks(per m2) $100 - $200Brick/BV 20-30 Years OldTotally Revamped $950 - $1,050 Pools Above GroundWell Maintained $850 - $950 Minor Deck NilPoor-Average Condition $750 - $850 Substantial Deck + Solar Heat < $10,000Units Pools IngroundTop of the Range Townhouse* $2,500 < Older with average services < $10,000High End-New $1,450 < $2,500 Modern With Good Heat $15,000 - $20,000Standard-New/Good Condition $1,250 - $1,450 Pool House with all services $50,000 - $60,000*Rate inclusive of land value when no footprintLandscaping**Weatherboard Minimal Landscaping $5,000High End $1,400 - $1,700 Driveway, Paving etc $5,000 - $25,000Quality Character $1,050 - $1,250 **Includes good quality fencing 3 sides +Standard $850 - $1,050Poor-Average Condition $650 - $850SUMMATION METHOD CALULATOR-$Summation
Strategy to beat fair market valueOnce Fair market value is understood there are six questions that needto be answered to confirm that the correct marketing strategy or pricingstructure has been chosen to maximise the sellers opportunity to beatfair market value.
The six questions1. Will the chosen disclosure or non disclosure of the price open thehouse up to all segments of the market?2. Will the chosen price make the phone ring?3. Will the chosen price create fear of loss, competition and sense ofurgency?4. Will the price help the seller, or the opposition find a buyer? It canonly be one or the other.5. Will the price create cash buyers?6. Does the pricing strategy put a ceiling on the price?
Pricing Effectiveness Rating 5 4 3 2 1Will the price or marketing methodopen the house up to all segments ofthe market?yes NoWill the price/marketing method makethe phone ring?A lot Very littleWill the price/marketing method createfear of loss, competition, sense ofurgency?Yes NoWill the price/marketing method helpthe seller or the opposition find abuyer?You OppositionWill the price strategy create cashbuyers?Yes NoWill the pricing strategy put a ceiling onthe price?No Yes/30
The solution will appearIf the agent puts those six questions to aA)Range of prices that they could market the home at,B)Different pricing structures (e.g. Best offers over, Pricerange) andC)Various methods of marketing where price is notdisclosed (e.g. Auction, Tender or By Negotiation)it will become very obvious which is the correct pricingstructure or non disclosure of price to maximise theabsolute best price for the seller.
The result (Beating the market)• Competition is created• A sale occurs in a short time frame• The maximum price is achieved that is available in themarket at that time• With little or no hassles• The result that all sellers want. (Beating the market)