Real Estates Greatest Dangers

CONTENTS HIRING THE WRONG AGENT

3

THE TWO LIES

4

PAYING BEFORE SALE

5

BUYING BEFORE SELLING

6

PRICING ABOVE THE MARKET

7

FLAWED PRICING STRATEGIES

8

PROFESSIONAL DISTORTION

9

AUCTION

10

KNOWLEDGE IS POWER

12

METHOD OF INSPECTION

13

REJECTING EARLY OFFERS

14

POOR FIRST IMPRESSION

18

OVER-CAPITALISING

19

STUCK WITH THE WRONG AGENT

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SHORT OF FULL DISCLOSURE

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THE ENDOWMENT EFFECT

25

WAITING FOR THE MARKET TO IMPROVE

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SELLING WITH A TENANT

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ABOUT THE AUTHOR

29

SELL SMART GUARANTEE

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HIRING THE WRONG AGENT Hiring the right agent to sell your property is crucial

Hiring the right agent to sell your property is crucial. Hiring a bad agent costs a lot more than just their selling fee. Great care should be taken when deciding which agent to trust.

Moreover, be careful about hiring an agent based on sale price estimate and fee – this rarely works out well.

Interview agents to discover if they have demonstrable systems and skills.

In Australia, thousands of property owner dollars vanish every day through unnecessary and expensive advertising, poor pricing tactics, even poorer negotiation skills of their agent, and the wrong method of sale.

Ask the agent to provide written evidence of strong negotiation skills. An agent should be able to demonstrate negotiation skills with proof, not just by ‘talking a good game’.

Sign a listing agreement with a bad agent and you may be stuck with them for what can seem like an eternity. Many agents promise much and deliver little.

Get real reviews from current and previous sellers of the agent. Arrange to speak to them where possible.

Ensure an agent offers a dismissal guarantee.

If you don’t trust an agent, definitely don’t hire them!

Under an exclusive listing agreement, terminating the services of an agent is to say the least, extremely difficult. In the wrong hands, an exclusive agreement is indeed a dangerous document to sign.

If you are unhappy with the agent, allow them seven days to resolve the problem.

If it remains unresolved, dismiss the agent immediately. Please refer to the back of this booklet for an example guarantee.

Avoiding a bad agreement can often simply come down to trust. If you don’t trust an agent, definitely don’t hire them.

Above all, great agents will charge nothing until a property is sold and settled and you are happy with the outcome.

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REAL ESTATE’S GREATEST DANGERS

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THE TWO LIES The real estate world is littered with stories of property sellers being harassed by agents who promised a high price and who then spent the next three months ‘educating’ the seller.

When asked to price a property, a real estate agent has the opportunity to impress the owner and obtain a listing. Listings are the lifeblood of any real estate career.

The two most common lies in the real estate industry involve the estimate price quoted to potential sellers.

One is the lie real estate agents are most known and disliked for – the intentional over-inflation of a homeowner’s potential selling price. The second and subtler of the two lies is one of omission. Both have the capacity to hurt a property seller financially and emotionally.

Why is an agent prone to using the two lies?

For an untrained agent, one who lacks high-level marketing and negotiation skills, the only way to impress and subsequently obtain the listing is to promise the most inflated price they can get away with. Quite simply, they inflate or omit the truth to get business.

As property owners, we want to believe.

That’s why the two lies are so powerful.

It allows people to plan their future and move on with their lives, comfortable in the belief that the property is worth at least what they expected and possibly more.

agents who indicated or promised a high price and then spent the next three months ‘educating’ the seller down to a lower price.

Property owners should be aware that when agents price a house for potential sale, it is not a quote system. There is no fixed price. An agent’s opinion is just that: an opinion. An agent’s job is to report on the market, then provide a clear selling strategy on achieving the best price within that market.

What is the market? It is simply the price that buyers are willing to pay today for that particular property.

When assessing market value, it is essential for property owners to compare similar properties that have been sold, rather than properties currently listed for sale. Frequently there are wild variations between the listing price and the final sale price.

Additionally, an agent should guarantee the price they recommend. A simple guarantee suffices, stating that if a property sells below the agent’s recommended range, they need not be paid.

Please find an example guarantee at the back of this booklet.

Unfortunately, it rarely works out that way.

The real estate world is littered with stories of property sellers being harassed by

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PAYING BEFORE SALE If an agent is so confident this will result in a sale, they should be happy to pay upfront.

The real estate industry has convinced itself and the marketplace that the more exposure a property gets during the sales process, the better the outcome.

This is dangerous and costly thinking. Once the dominion of print newspapers, expensive exposurebased advertising has shifted to the Internet. Nevertheless, newspapers and Internet portals often have the same ownership.

A fixed cost to market all of an agency’s properties for sale on an Internet portal (for example, realestate.com.au) is the most common billing practice. Upgrades are offered at an increased cost, justified by increased traffic, or hits.

Someone has to pay for these advertisements and so real estate agents have reassigned that expense to the seller. They pay for the advertising, prior to the sale, and the agent gains many benefits.

A seller who pays for advertising increases their commitment to the sale.

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They now have a financial stake. The larger the stake, the more committed the seller. ‘Motivated sellers’ are more likely to meet the current market price, and consequently the agent is more likely to get their commission.

Furthermore, the seller is paying for the agency’s marketing. Why do so many property advertisements have the name of the agency prominently displayed along with photos of the real estate agents? Marketing a business is not cheap, and so the underlying principle is, if it can be subtly subsidised by others, why not? The house is being advertised; however, the agency is also marketing itself to other potential sellers.

By charging advertising costs upfront, agents achieve the ultimate trifecta: minimising their exposure to financial loss, gaining a more motivated seller, and promoting themselves in a crowded marketplace. All this for free – well, free for the agent.

If an agent suggests that an advertising upgrade is necessary to sell the property – resulting of course

in additional costs – ask them to pay for it. This applies to both Internet and newspaper campaigns. If they are so confident this will result in a sale, the agent should be happy to pay upfront.

A good agency keeps comprehensive records of buyer enquiry received from all marketing activity. In this way, potential buyers can be matched immediately to recently listed properties.

The seller can always pay marketing costs after the sale is completed. This avoids the risk of financial loss and can be agreed when the property is listed.

BEWARE: avoid the danger of an agent who is only happy to pay the advertising upfront because their listing agreement states: ‘the seller is liable for all marketing costs if the property is taken off the market or the seller decides to change agents.’

To avoid the danger of paying before sale, remember the golden rule of selling –‘Pay no money until the property is sold and you are happy with the outcome.’

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BUYING BEFORE SELLING

Home sellers are often confronted by an uncomfortable question. What if they sell quickly and have nowhere to live?

The traditional solution goes like this. Find another home you love. Buy it, subject to sale of your existing property or by using bridging finance, and then sell the current property.

This common ‘solution’ presents a danger that more than any other leads home sellers to financial loss.

‘educate’ the seller down from the improbable lie to a selling price far below the original estimate. The homeowner ends up selling their original home for less than expected and paying too much for their new home, losing on both sides of the transaction.

Following four simple steps can easily avoid this financial danger.

1.

Find a buyer for your existing property. Agree to price and terms with the buyer and ask them to hold. Most genuine buyers will agree to a short wait, especially if they love your property. You now have a firm budget with which to work, and a buyer in place, providing a good solid negotiating position for buying.

More importantly, you are safe from the danger of overcommitting based on false information.

2.

You intensify the search for a new property. People often find their perfect home within days of starting a serious search.

3.

The changeover cost is considered. Can your new home be purchased within the budget allowed for by the sale of the previous home? Finances are assessed and organised at this point.

4.

Finally, the new property is purchased subject to the simultaneous settlement of the old home.

Agents love it; they obtain a truly motivated seller.

Banks love it; they gain or keep a client and get double the interest until the property sells.

However, properties don’t always sell quickly, or at the expected market price. Financial loss when selling can be hard and fast, or so subtle that the seller doesn’t even realise it’s happened.

The most common scenario ends up looking like this: Concerned about being homeless, people begin searching for properties to buy, often finding the perfect home. The dream of the new home plus a fear of missing out prompts them to pay a premium when purchasing. They then ask the purchasing agent to price their existing home. The improbable lie rolls out and the sellers do their figures and decide it’s a perfectly affordable move. They may even finance it immediately, using bridging finance.

Don’t risk your financial security. This will only benefit others. Use a safe and proven strategy when selling.

Their property is listed at an inflated price but doesn’t sell. As the clock ticks by, financial and emotional pressure on the seller increases. This helps the agent

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PRICING ABOVE THE MARKET Before the Internet, properties were mainly marketed via newspaper advertisements, fl yers and signs. These mediums had a remarkable and often overlooked advantage. The property left no easily traceable marketing or sales history.

passed in at auction? Why hasn’t it sold? Why have so many people looked at this property and not bought it? Why did it get withdrawn from sale? The answers to these questions increase a buyer’s negotiating position.

The Internet does. And, it never forgets.

As Peter O’Malley (2013) describes in his book Real Estate Uncovered, “All this public information is forming a ‘pseudo credit rating’ for your property.”

Most properties advertised in Australia appear on one of two major websites, realestate.com.au or domain.com.au. All property information from these two sites is stored in perpetuity, and is easily accessible.

Expensive digital marketing campaigns justify their cost on increased views. However, generally, the more people who see a property and don’t buy it, the more the price drops. Exposure to a property is like sunburn to skin; more exposure equals pain. With property, the pain is often a lower selling price.

Why should this be a concern for property owners?

Because a property’s history, or digital footprint, is telling. Attempting to beat the market with a high price can devastate a property’s digital footprint.

Testing the property market at a higher price is no longer feasible without leaving a damaging digital footprint.

When the decision to sell is made, the asking price must be close to the market price.

Has it sold in the past? For how much? Did it get

How to discover market price:

1

2

3

Pick an agent you trust.

If you don’t trust them, don’t employ them.

When researching property prices, use comparable properties that have recently sold rather than those for sale. The difference between listing price and sale price is often ten percent or even higher.

If in doubt, get an independent valuation.

Independent valuers have no agenda. They have nothing to gain by bumping up or reducing a valuation. They provide an honest assessment of a property value.

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FLAWED PRICING STRATEGIES Most buyers simply won’t enquire about a product without a price. In relation to property, this figure can be as high as 92%.

Flawed pricing strategies when selling property include ‘no price’, ‘price ranges’ and ‘offers above’.

All three have a common inception point. An agent recommending any one of these strategies avoids having to discuss a likely selling price with an owner. They simply trot out the classic real estate line: ‘We can let the market decide’. Furthermore, it provides scope to increase the ‘improbable lie’ as high as possible, giving the agent the best opportunity to win the listing.

Agents often hold out these flawed price strategies as a way of beating the market. But the danger significantly outweighs the potential gain.

‘No price’ strategies include ‘for sale by negotiation’, ‘for sale by tender’ and ‘auction’. Products without a price are assumed to be expensive; property is no different. Consider your own reaction. Do you assume products with no price to be expensive?

price or quoting a lower price, sellers are giving away power to potential buyers. To avoid lower selling prices, all negotiations should be started from a position of strength. A genuine asking price close to or at market value allows the seller to hold the power.

Setting an appropriate asking price attracts genuine buyers willing to pay a fair price. With a willing buyer aware of the seller’s expected price, a sale at or slightly above market value is the likely outcome.

The last word belongs to Shaun Di Gregorio, ex-General Manager of realestate.com.au: “Be honest about the price you are seeking. In a recent survey by realestate.com.au, 92 per cent of people said they would be unlikely to enquire about a property with no price indication…

Similarly, avoid using broad price ranges…”

Most buyers simply won’t enquire about a product without a price. In relation to property, this figure can be as high as 92%.

A property marketed with ‘offers above’ or a large ‘price range’, permits the agent to quote a low price to the buyer and simultaneously hold out the notion of a high price to the seller. It’s deceptive on both sides.

Buyers invest time, money and energy into a property they can’t afford, and the lowest price quoted in the marketing is often far below what the seller will accept.

A potential buyer can make an under-value offer, legitimised by the marketing strategies of ‘no price’ or low price indicators. This helps the agent ‘educate’ the seller, reducing their price expectations and thus creating a sale, albeit at a lower price than the owner was originally told and the property was initially listed at.

A key negotiation principle is power. By having no

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PROFESSIONAL DISTORTION Buyers may look at photos and think ‘this looks good’, but by the time they reach the front door, they should be thinking ‘this feels good’.

Properties should be marketed with sufficient quality photos and information to attract interested buyers, but not to the point of overexposure or disappointment.

In marketing, there is a principle known as ‘less is more’.

Good photos are essential to the sale of a property. However, many sellers spend thousands of dollars on unnecessary images, doing more harm to the sale than good. It is possible to attract buyers with affordable, good quality photos.

The aim of real estate marketing is to initiate an enquiry from a buyer interested in a particular property. Not, as it seems so often, to sell the house from the photos.

Most property buyers will still personally inspect a property prior to purchase. Property sales without inspections are rare. Yes, buyers do research online, but more often than

Property photos should always be a true representation of reality; they should never be altered to correct property or positional flaws.

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not, the final purchasing decision is made after personally viewing the property. Buyers like to get a feel for the place.

Photos on the Internet generate interest. When it comes to commitment, first impressions when walking in the front door are what really count. Buyers may look at photos and think ‘this looks good’, but by the time they reach the front door, they should be thinking ‘this feels good’.

When inspecting a property, it is far better for buyers to be pleasantly surprised, than to have the impression of ‘gee, it’s smaller than the photos suggest’.

Countless buyers have been let down by the size of the kitchen after seeing distorted photos in marketing.

Professional photographers and agents can easily make properties look larger and more attractive than reality, all pointless in the end. This practice loses more sales than it attracts. Property photos should always be a true representation of reality; they should never be altered to correct property or positional flaws.

Overexposure of a property – too many photos and too much detail – can have a detrimental effect on buyer enquiry. The more photos and detail released, the higher the chance a potential buyer sees something they don’t like. Once a buyer sees a negative, the chance of them enquiring about the property is reduced significantly, even though it may be perfect in every other way.

Buyers should be pleasantly surprised when they arrive at a property, not disappointed. People buy on emotion.

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AUCTION

Auction bidding is comparative, not competitive.

Once a property is sold, the chance for the owner to profit is irrevocably gone. Surely then, the aim of any sale is to maximise the final sale price.

Sellers can fall victim to auction in two ways.

1. Initially told they will achieve a high price, sellers are then educated down to a far lower price during the auction period.

This price, the ‘reserve’, becomes the seller’s lowest acceptable price. Identified by the agent, the reserve often converts to the sale price at auction. If the property doesn’t reach the reserve price at auction, it doesn’t sell. The reserve price is then repeatedly lowered to a final sale price during subsequent negotiations.

2. Achieving a sale at auction often leads sellers to mistakenly believe they have received a good price, the highest price. This, however, is seldom the case. Auction bidding is comparative, not competitive. The auctioneer calls on each buyer to compare their bid to the other buyers, and then raise their bid slightly above the others. The last buyer to make a bid wins at a price marginally above the under bidder.

During this process, no consideration is given to the maximum price the successful bidder would have paid. In real estate vernacular, there

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is not even a word for the ‘buyer’s highest price’.

Buyers should never be aware of another party’s offer. All buyers should be given the opportunity to privately make their highest offer, in writing to the seller. As they are unable to compare offers, buyers are assured of a fair process, all having an equal opportunity to purchase. The sellers are assured of the buyer’s best price; unable to compare offers the buyer must submit their maximum.

An often-overlooked component of auction is the terms required for a buyer to bid successfully. An unconditional contract with a 10% deposit is ideal for the seller, but how many buyers are in a position to meet these criteria? Certainly not the majority.

Avoiding the dangers of auction and using the private treaty method, that is, a set asking price, doesn’t automatically prevent competitive bidding.

The aim of all agents should be to find a buyer’s highest price. Auctions are great for finding the second best price, rarely the best. With a single buyer or multiple buyers, the skill of the agent is paramount. Yelling at buyers with hammer in hand certainly doesn’t pass the skilful negotiator test.

Private treaty allows all buyers to compete fairly for the property, and enables the skilful agent to fulfil their obligations and obtain the buyer’s highest price for the seller, often above the asking price. This is what agents get paid for.

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Buyers should never be aware of another party’s offer.

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KNOWLEDGE IS POWER The danger involved in disclosing vital personal information far outweighs the dubious benefits of such advertising.

A dangerous trend has emerged in real estate advertising, with both privacy and price implications.

Too much personal information is being revealed during marketing campaigns. Circumstances such as divorce or illness are often featured in advertisements as agents try to use bad and distressing situations to attract buyers.

The sale of a property should have no connection to the motivations of the seller.

The price of a property should reflect its features and benefits in relation to its competition in the marketplace, not the seller’s reason for selling.

A property is a stand-alone entity. It has no emotions or feelings, and this is how it should be marketed. The features and benefits of a property, and how these relate to the wants and needs of the buyer, are the key marketing and negotiation points in a property sale, not why the property is being sold.

Notwithstanding, sellers and their agent need to have a full and frank discussion regarding the sale. Nothing should be hidden from the agent or from the seller.

Trust is the key to personal relationships. The relationship between agent and seller is personal and private. If you can’t trust your agent with full disclosure, find another agent.

In negotiation, as with all things, knowledge is power.

The more knowledge the buyer has regarding the seller and their personal circumstances, the more power they have and the stronger their negotiating position becomes.

A professional real estate agent will never disclose personal information. It is neither necessary nor appropriate.

Agents and sellers constantly give away negotiation power when marketing properties. Look at any real estate advertising with headlines screaming: • • • •

‘Marriage bust-up’ ‘Owners bought elsewhere’ ‘Deceased estate’ ‘Urgent sale – sharks circling!’

Such headlines attract bargain hunters. Get-rich-quick seminars are notorious for recommending that investors target properties with headlines like these.

A Sydney buyer’s agent recently said, ‘Why is the vendor selling? You need to ask.’ She goes on to say that knowing about a divorce, a deceased estate or a property purchase can save a buyer thousands of dollars.

The sale of a property should have no connection to the motivations of the seller.

The danger involved in disclosing vital personal information far outweighs the dubious benefits of such advertising.

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METHOD OF INSPECTION The way a buyer is introduced to your property affects both the potential sale and the subsequent negotiation for the best price.

The two most common variations on property inspections are open homes and inspection by appointment.

Open Homes – An open home inspection is when interested buyers have an opportunity to view the house at a pre-set advertised time. Agents encouraging potential buyers to go direct to the property with very little contact prior to inspection.

This has dangers for subsequent price negotiations if not handled correctly.

When an agent meets genuine buyers at an open home, it’s often the first time either party has met, or even spoken. The agent has neither a relationship with, nor knowledge of, the buyer. When negotiating with buyers, a key consideration is agent’s knowledge of the potential buyer. Limited knowledge of a buyers motive, needs or budget make it hard for the agent to assess the situation before making recommendations to the seller.

Professional agents using open homes will always collect buyers’ information at the door and record the information. Effective follow-up, post open home will allow the agent to properly understand an interested buyer, their motives and budget. All factors that are necessary to negotiate the best price for the seller.

Along with scheduled open homes your agent should be available to have inspections at a time that suits every buyer.

Inspection by Appointment – Inspection by appointment should always be available, when a buyer wants to buy, an agent should have the time for them to do so.

Inspection by appointment affords an agent additional contact with a buyer before inspection.

This opportunity to assess the buyers’ situation, their needs and budget provides an agent with information that significantly aids any future negotiation The ideal inspection occurs when there is nobody home.

Sellers should vacate for inspections whenever possible.

By vacating, the buyer has the necessary privacy to get an intuitive feel for the house and carry out an unhurried inspection. Nothing is more off-putting to a buyer than an owner explaining the kitchen cupboards.

Properties sell using both open homes and inspection by appointment, as long as these key points are covered: 1.

All buyers viewing a property should be accompanied by, and be known to, the agent.

2. The agent confirms any potential buyer is genuine.

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3.

The agent has the buyer’s contact details before inspection.

4.

They have sufficient time to sell the property if required.

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REJECTING EARLY OFFERS The location is ideal, it has the right number of bedrooms and living spaces, the yard is great – it feels like the perfect home. Occasionally, a buyer matches a property to perfection.

This buyer is going to live in the property. It will become their home. There is an instant and strong emotional connection.

This is the ‘heart buyer’. Heart buyers are seen early in marketing campaigns and only want that specific property. There are generally two types of heart buyer: 1.

2.

They want to believe. This belief destroys any chance of the seller beating the market price.

The best offers repeatedly come early, and it is dangerous to reject them.

When faced with an early offer, sellers tend to compare it to the asking price, or to the price suggested by the agent.

Offers should be checked against the following price indicators: •

Instruct your agent to confirm that this offer is in fact the final and highest price the buyer is willing to pay. Then, if you trust your agent, and the offer is within their advised selling range, consider it seriously.

•

Look again at comparable properties that have recently sold. Compare the offered price to these.

Ask your agent’s advice. If you don’t trust your agent, terminate their services immediately.

•

If still in doubt, get the opinion of an independent valuer.

They have been looking for a long time.

They have not been looking at all.

Some buyers are searching for a particular property.

Constantly scouring the Internet, they know the area they want and drive around regularly looking for new signs. They get every new listing alert and when that perfect property comes on the market, they move to purchase quickly.

Others buy a property even though they are not actively looking to purchase. Often they have not looked at any property advertisements. Then, they see a sign on their perfect property, or someone mentions it has come onto the market. These buyers also move quickly.

This situation produces the following disconnect. The heart buyer makes a fair or even an above-market offer on a property, only to see it rejected.

Keep in mind when selling that many of the best sale prices happen very early in the selling process. Never dismiss an offer without first carefully analysing and measuring it against the correct indicators mentioned above. Then give the offer careful consideration before acceptance or rejection.

Why? Because the property is early in the selling process and hope is high for a great price. The improbable lie of the agent is still fresh in the seller’s mind.

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The best offers repeatedly come early, and it is dangerous to reject them.

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How a property is presented for sale affects

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both price and time on the market.

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POOR FIRST IMPRESSION How a property is presented for sale affects both price and time on the market.

Alan Pease, body language expert, suggests individuals form up to 80% of an opinion during the first four minutes of meeting a new person. Much of a future relationship with this person is based on those first impressions.

Pease states that these first impressions are based on what is seen. The first impression is visual.

Poor first impressions can take an extraordinary length of time to reassess and change.

People judge properties the same way. How does the property look at first glance? How does it feel the first time they go in?

will most likely do the job. Firstly, stand back and look at the property with fresh eyes. Imagine this is the first time you have seen the property. What stands out?

Long lawns need to be mowed twice over two weeks; they look better the second time around. Trim the edges; this makes all the difference to a first impression.

Clean the outside. Use a high-pressure hose to remove small stains, cobwebs, etc. Clean the windows; sparkling windows reinforce the feeling of space and cleanliness.

De-clutter the inside; it will make the house seem bigger.

How a property is presented for sale affects both price and time on the market.

Do your best to keep the inside clean. Buyers don’t like dirty houses. Cleanliness is paramount to a successful sale.

Unmown lawns, untidy edges, and cluttered, dirty and messy houses are the most common causes of a poor first impression. When living in a property, it is easy to overlook the small, easily fixed faults.

Attend to small repairs. Loose door handles or doorstops, holes in screen doors, simple repairs like these are inexpensive.

There is no need to spend thousands of dollars to make a good first impression. Elbow grease and simple changes

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Overall, a property should appear lived in, but clean, tidy and well maintained.

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OVER CAPITALISING There is a danger of spending large amounts of money for very little return.

Works completed on a property rarely if ever increase the value of the property in line with the amount of money spent.

When considering works, owners should first reflect on the motive behind the decision. Two key factors are personal plans and ownership timeframes.

Repairs and maintenance are often needed and are sometimes essential for the sale of a property.

Nevertheless, some larger works are simply an owner’s choice to improve their lifestyle. This lifestyle decision should not be confused with the necessities of a successful sale. There is a danger of spending large amounts of money for very little return.

A pool can provide many years of enjoyment for a growing family. Cooling down on those sweltering summer days, kids’ parties and entertainment provide a sensible and legitimate reason for the expense. However, if the motive is to improve the worth of the property, chances are that the added value will be eclipsed by the expense.

Common examples of lifestyle improvements include a pool installation, adding a deck, or a house extension.

These works require significant capital, as well as time and effort. If the property is sold soon after completion, the likelihood of recouping the full financial cost is low.

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The longer a property is kept, the more likely it is that the full costs of an improvement can be recuperated.

Works will depreciate, while the land value of the property will continue to appreciate over time.

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STUCK WITH THE WRONG AGENT If a seller signs an exclusive listing agreement with an incompetent agent, they are stuck.

Auction, tender and private treaty are all forms of exclusive listing agreements.

These agreements engage an agent to sell a property in exchange for a fee. An exclusive agreement can last three months or even longer. Exclusive listing agreements are part of the real estate landscape.

Many agents fail to fulfil their duty to the seller.

They overprice a property to get the listing, and then disappear. The seller hears little feedback from the agent, sometimes nothing. The property is merely launched onto the Internet and the agent sits back and hopes for a sale. The sellers are simply ignored.

An exclusive listing agreement compels the seller to pay the listing agent when the property sells, regardless of who sells the property.

There is an easy and effective method to avoid the danger of an exclusive listing agreement.

Good agents invest significant amounts of time, energy and financial resources working to sell a property. They need the security of payment upon sale to commit these resources, a reasonable premise upon which to work.

Exclusive agreements provide this security.

However, exclusive agreements often tie up the people they are supposed to be helping. The seller.

If a seller signs an exclusive listing agreement with an incompetent agent, they are stuck.

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Insist any agent you hire provide a dismissal guarantee.

If you are unhappy with the agent, allow them seven days to resolve the problem. If it remains unresolved, you can dismiss the agent immediately. Please refer to the back of this booklet for an example guarantee.

If an agent is not prepared to guarantee their services, you should not employ them.

It is an unfortunate truth that sellers should never accept an agent’s promises at face value.

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Good agents invest significant amounts of time, energy and financial resources working to sell a property.

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SHORT OF FULL DISCLOSURE In 2001, Sef Gonzales murdered his family in their home. In 2004, that family home was sold to buyers oblivious of its gruesome history. Once discovered, the buyers refused to proceed to settlement. After massive bad publicity, the agent, aware of the property’s history from the start, was forced to refund the deposit. The property was eventually sold to a different buyer for a substantially lower price.

into a problem, often significantly larger than the original issue.

Under legislation, sellers are required to disclose any relevant matters that may affect title. But that doesn’t cover a property’s history, such as the above.

However, if a buyer feels they have been misled when purchasing a property, such as non-disclosure of ‘material facts’, a court could certainly set aside any contract and award damages to the purchasers.

A seller asking an agent to conceal facts regarding a property is in essence asking the agent to lie. Yes, agents are employed to act on behalf of the seller, but it is hard to think of a situation where lying on their behalf is in the seller’s or the agent’s interest.

The current test of a ‘material fact’ is whether disclosure would have prevented the buyer from purchasing the property.

Non-disclosure of a known issue is at times very tempting. Hiding it often seems like an easy solution. However, this can quickly grow

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When selling a property, full disclosure of all potential problems prevents the inevitable discovery of the issue, whether major or minor.

For instance, the chances of concealing termite damage from a pest inspector are no better than concealing a history of murder.

If an agent is prepared to lie to others, it’s not hard to imagine the agent will also lie to the seller. Regardless, if the parties involved in a property sale lie, they are most often found out.

A simple rule of thumb: If in doubt – disclose. All issues are easier to negotiate if disclosed up front.

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If an agent is prepared to lie for you, they will be prepared to lie to you.

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The endowment effect can have a significant impact on a seller’s initial asking price.

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THE ENDOWMENT EFFECT Unlike an agent, an independent valuer does not stand to gain financially from an inflated price.

The endowment effect is a well-known economic hypothesis where people ascribe more value to things merely because they own them. The stronger the personal and emotional connection, the higher is the perceived value.

Owning a home is a very personal and emotional experience. Strong connections can form between individuals and their houses. As a family grows, intensely personal experiences turn a house into a family home and the emotional connection continues to grow.

Harvard professor of business, Dr Max Bazerman (1999), suggests that home sellers may be particularly affected by the endowment effect, which manifests in an increased initial asking price. Dr Bazerman explains that sellers may reject early offers around market value, only to later come to regret that decision as the reality of the true market price sinks in.

Sellers who think they may be prone to the endowment effect should seek out an unbiased assessment from a knowledgeable but disinterested third party.

Unlike an agent, an independent valuer does not stand to gain financially from an inflated price, and unlike the seller, there is no emotional attachment or ownership of the property. They can provide a true disinterested valuation.

A seller can assess the price they receive from a valuer against their trusted agent’s market analysis of recently sold properties. This information can then be used to establish a likely market value, along with a marketing and price strategy.

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WAITING FOR THE MARKET TO IMPROVE Why not sell the house you don’t want and buy the house you do want and wait for it to go up in value.

The real estate market is not a single entity.

It is millions of people making individual decisions based on their personal needs and opinions. Current real estate trends vary wildly from state to state, city to city and even suburb to suburb, making the real estate market virtually impossible to predict with any accuracy.

Price shouldn’t be a seller’s primary consideration if selling and buying in the same market. Changeover cost is the key consideration. If the selling price does rise, most likely the purchase price will also rise.

Why not sell the house you don’t want and buy the house you do want and wait for it to go up in value.

When deciding to sell, many use their personal opinion of the real estate market as the basis for that decision. The chance to make a few thousand dollars more will often keep people in a property they should sell. They wait in the hope their property will rise to a value that the financial gain makes the move worthwhile.

When seeking to reduce debt, consideration must be given to decreased interest bills and the reduction in personal stress associated with the debt. Does waiting for improved market conditions warrant the interest payments and stress involved in hanging on?

The mechanism to pick the top of a market is elusive. How is it known the market has peaked? Because, quite simply, it starts to fall.

By definition, the top of the market has been missed. A rising market can quickly become a falling market.

The danger comes in trying to predict the market. Neither a rising nor a falling market is a bad thing; it is just the market. Based on individual needs, the right time to sell may be in either.

Sometimes a property must be sold to take advantage of other opportunities. By holding out for improved market conditions, the cost of losing the opportunity may be greater than the increase in the value of the property.

Living in the desired house rather than remaining stationary, experiencing less stress thanks to reduced debt, and taking advantages of opportunities rather than missing out are three excellent reasons for selling now rather than waiting and thinking about how life might improve.

The key question that needs to be asked before any sale is, ‘How will my life improve as a result of this sale?’ If there is no definite answer, the move should be reconsidered.

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SELLING WITH A TENANT Property investors are rich!

This is an assumption many people make, and it is frequently wrong. Most property investors are not wealthy.

They often experience hardship in the pursuit of a secure future for themselves and their families.

the field down to a buyer being prepared to inherit the tenancy – most likely, an investor. Any time the buyer field is narrowed, the selling price is liable to be lower.

Through effective negotiation, tenants may agree to move out. Compensation such as moving costs or a cash incentive may help.

The reality of residential property investment is a tale of everyday people having a go. Most property investors are normal people with average salaries.

Sometimes things go wrong, employment or business opportunities change, tenants get in arrears and properties always need maintenance.

A good tenant caring for the property assists when selling. Compensation such as a reduced rent is a gesture of goodwill that is more often than not repaid with a supportive tenant.

If circumstances dictate an owner needs to sell with a tenant in place, certain dangers must be addressed.

A rogue tenant can make a property very difficult to sell. Presentation will be sub-standard and inspections difficult. Buyers often don’t give a property like this the same consideration they would to a vacant property.

Firstly, if a sale is on the horizon and finances are tight most banks are negotiable when it comes to suspension or minimisation of repayments while waiting to sell.

Secondly, check the lease. A periodic lease can be terminated with the correct notice at any time.

A fixed-term lease is more problematic.

Depending on circumstances, it may be best to give notice and wait for the lease to expire or have the rogue tenants removed for breach of tenancy. Once the tenant vacates, the property can be restored to a saleable standard through some hard work and repairs as necessary.

A fixed term entitles the tenant to stay until the end date of the lease, regardless of ownership. This narrows

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ABOUT THE ABOUT THEAUTHOR AUTHOR Andrew Trim, Managing Director of The Johnson Real Estate Group, began his Andrew Trim, Managing Director of The Johnson Real Estate Group, began his real estate estate career career in in1992 1992shortly shortlyafter aftercompeting competingatatthe theBarcelona Barcelona Olympics real Olympics in in the sport of kayaking. the sport of kayaking.

Andrew’s Olympic Olympiccareer careercontinued continuedthrough through Atlanta Sydney Games, Andrew’s thethe Atlanta andand Sydney Games, where he won Bronze and Silver Medals respectively.

Throughout this time, where he won Bronze and Silver Medals respectively. Throughout this time, hehe maintained his his involvement involvement and and interest interest in inproperty. property. maintained Combining his his athletic athletictraining trainingwith withstudy studyand andreal real estate coaching in Australia Combining estate coaching in Australia NewZealand, Zealand,Andrew Andrewcontinued continued develop expertise in residential and New to to develop his his expertise in residential property. property.

Andrew purchased after purchased his his first firstreal realestate estatebusiness, business,Johnson JohnsonReal RealEstate, Estate,just just after the Sydney of of five people, oneone of whom Sydney Games.

Games.This Thiscomprised compriseda asmall smallteam team five people, of whom continues win continues as as aa business businesspartner partnertoday. today.InIn2007, 2007,Andrew Andrewled ledhis hisbusiness businesstoto win ‘Office ‘Office of of the the Year’ Year’ at at the the Australasian AustralasianReal RealEstate EstateAwards.

Awards.

Since called TheThe Johnson RealReal Estate Group, Since then, then,Andrew’s Andrew’scompany, company,now now called Johnson Estate Group, has thrived and grown to incorporate multiple sales offices and an exceptional has thrived and grown to incorporate multiple sales offices and an exceptional property property management management business business that that operates operates across across South SouthEast EastQueensland.

Queensland.In In an industry known for its high staff turnover, it is a credit to Andrew’s leadership an industry known for its high staff turnover, it is a credit to Andrew’s leadership that many of his staff have been with him for over ten years. that many of his staff have been with him for over ten years.

With his passion for high performance, Andrew is regularly a key speaker at With his passion for high performance, Andrew is regularly a key speaker at many real estate sales, management, and leadership conferences throughout many real estate sales, management, and leadership conferences throughout Australasia.

Australasia.

REFERENCES REFERENCES

Bazerman, Bazerman, M. M. (1999).

(1999). Smart Smart Money MoneyDecisions.

Decisions.New NewYork: York:John JohnWiley Wiley&&Sons, Sons,Inc. Inc. Jenman, N. (2000).

Real Estate Mistakes.

Castle Hill: Authors First.

Jenman, N. (2000). Real Estate Mistakes. Castle Hill: Authors First.

O’Malley, O’Malley, P. P. (2013).

(2013). Real Real Estate EstateUncovered, Uncovered,Castle CastleHill: Hill:Authors AuthorsFirst.

First.

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REAL ESTATE’S GREATEST DANGERS

REAL ESTATE’S GREATEST DANGERS

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SELL SMART GUARANTEE 1. NO SALE, NO CHARGE The agent guarantees that in the event that the property does not sell, and is withdrawn from sale, the sellers will not be charged any monies/fees/expenses whatsoever by the agent or their agency.

2. PERIOD OF AGREEMENT THE PERIOD OF THE AGENT’S AGREEMENT WILL BE . . . . . . . . . . . . . . . . . . . . DAYS, COMMENCING ON: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note: Generally, the shorter the period, the safer it is for the sellers. A period between 45 and 90 days is safest for the sellers. Any longer and the sellers could find themselves tied to the agent against their wishes. If the sellers wish to extend the agreement at the expiration of the period, they can do so at their discretion.

3. BAIT PRICING The agent will not market or promote the property by use of a lower price than what the sellers are willing to accept. The agent understands that under-quoting the value of the property in order to attract buyers on the basis that these buyers can then be talked up in price, is contrary to the interests of the sellers because it attracts buyers who can only afford the low price, or buyers who only want to pay the low price.

4. QUALIFICATION OF BUYERS All buyers, to the best of our ability will be qualified in terms of finance, time frame and style of property. We guarantee that prospective buyers that inspect the property will be in a position to purchase within a reasonable timeframe.

5. CANCELLATION OF THE AGREEMENT The sellers will have the right to cancel the agent’s agreement if the sellers are not satisfied with the performance of the agent provided that the sellers give the agent seven days to rectify any concerns. If the sellers concerns are rectified, the agreement will continue. Should the sellers decide to withdraw the property from sale, there will be no charges payable by the sellers to the agent.

6. BUYERS FOUND BY THE OWNER The sellers reserve the right to sell or transfer the property to a close relative or partner should the opportunity occur, or if directed by a court. In this case, the sellers will not be liable for the full commission to the agent.

7. SPECIAL REQUESTS OR CONDITIONS If the sellers have any other conditions they wish to impose on the agent, they can notify the agent in writing within 2 business days of signing the Selling Agreement. Such conditions will then form part of this guarantee. If the agent does not agree to the sellers’ extra conditions, the sellers will have the right to immediately cancel the Selling Agreement without penalty or charge.

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