real estates greatest dangersPaying Before Sale – An excerpt from“Real Estates Greatest Dangers”

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 exposure-based 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. 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 subsided 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.’

 

For a free copy of “Real Estate’s Greatest Dangers” please contact our office.