An Agent’s guide tobeating the market

Tony Morrison

( When selling a house)

Definition of market value

• The first step to beating the market is understanding what is fair market value?

• The standard definition of fair market value is

• ‘Market value is the estimated amount for which an asset should exchange on the date of valuation between a willing seller and a willing buyer in an arms length transaction after proper marketing wherein the parties each acted 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 a home. They are not paying agents to get market value. They are paying agents to get more than market value, in reality to ‘beat the market’. If market value was all that they wanted they would do it themselves, because at least in their mind, getting market value is not that hard.

Lets stop the game playing

A lot of game playing goes on between home sellers and agents when it comes to selling a house. Owners are reluctant to tell the agent their bottom dollar fearing that if they do then that will be all the agent tries to achieve.

Agents are very reluctant to tell the seller what they really think the house is worth for fear that their honest opinion will put the owner off listing with them as some other agent will undoubtedly tell the owner a very convincing story as to how they can achieve much more.

Total trust is the ideal situation

To have the best chance of beating market value the agent and home owner need to work together in a relationship of total trust.

A relationship of total trust is not easy to achieve if there is no existing relationship 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 hope to achieve is trust with a mild level of suspicion.

The higher the level of trust the greater the chance that the owner will let down their guard which can at times prevent them from seeing and understanding the best marketing strategy and restrict them from being open minded in the negotiation process.

Elements needed to beat the market

As mentioned on the previous slide, trust is the most important element required to ‘beat the market’. Great marketing is also obvious to hopefully foster competition between more than one buyer.

A network of potential buyers and a great negotiator will also help ‘beat the market’ but behind ‘trust’ the next most important element to get right when selling (an element which so often is messed up) is the correct pricing structure or marketing method.

E.g. – Set Price, Price range, Auction ,Tender, Best offers over, By Negotiation 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 integrity

2 Correct Pricing/Method of Marketing

Your marketing can be average, you can be a weak negotiator but if you can create more than one buyer, then the buyers will do the negotiating for youThe correct pricing/method is the easiest way to create more than one buyer, (make the phone ring, create fear of loss and sense of urgency).

3 Great Marketing Great negotiation skills won’t necessarily create more than one buyer but great marketing might?

4 A network of buyers The bigger the pool of potential buyers the better chance that competition will see buyer pitted against buyer instead of buyer against seller

5 Contract Negotiation skills

It is very hard to sell a house for maximum price unless you have the majority of the points 1-4 in place. If points 1-4 are in place the need to negotiate will not be as strong.

Elements in order of importance

The process to work out the best method of selling / Price

Before you work out what the best pricing structure or method of marketing you need to work out what fair market value (FMV) is. Knowing FMV is the first step towards beating market value. It is hard to choose the correct marketing method or pricing structure unless you know what this is.

More often than not though FMV will be less than what the owner wants or needs and if this situation is not handled carefully then the agent can come across as negative to the owner.

And no one wants to list with a negative agent

The Process to work out the best method of selling/Price

The more traditional way of handling this situation is that the agent tells the owner more than what the house is worth to win the business and then gradually over time talks the owner down to market value.

Putting the wrong price on the house when the house is fresh to the market means that the majority of buyers see the house when the home is priced at it’s worst. This does not bode well for creating competition which is what you need to beat the market.

The normal method of Pricing

Buyer Interest

Seller Power

Priced to createinterest

Weeks on market

1 2 3 4 5 6 7 8 9 10 11 12

Hig

hLo

w Priced to Scare off buyers

It is not the price you set but the strategy you adopt

Confirming fair market value

To beat the market you have to capitalise on buyer interest and therefore seller power by having the price or method of marketing working for the desired outcome instead of against it.

Whilst there are lots of things that can be done to research fair market value (FMV) the two most important are the comparative analysis of recent sales of similar properties and a summation of the property.

Comparative market Analysis

Calculator: Size (m2) Rate ($) Sub Total

House Main Level 0 -$ -$ Instructions:House 2nd Level/Downstairs 0 -$ -$ You are limited to entering information in the Yellow squares and the orange [Other] fields

Price 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 2 rateDecks 0 -$ -$ [Other] 0 -$ -$

EXTERNAL IMPROVEMENTSExternal Improvements -$ Garage[Other] -$ -$ Under Roofline 1/2 - 2/3 Main House Value

CB Detached - Single $5,000 - $6,000Land Value -$ -$ CB Detached - Double $10,000 - $12,500

BV Detached - Single $7,000 - $10,000BV Detached - Double $15,000 - $20,000

TOTALCarportMetal Frame Good Cond. Single $3,000Metal Frame Good Cond. Double $7,000

HOUSE 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 - $1,050

Decks(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 < $10,000

Units 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 footprint

Landscaping** Weatherboard Minimal Landscaping $5,000High End $1,400 - $1,700 Driveway, Paving etc $5,000 - $25,000Quality Character $1,050 - $1,250 ** I ncludes good quality fencing 3 sides +

Standard $850 - $1,050Poor- Average Condition $650 - $850

SUMMATION METHOD CALULATOR

-$

Summation

Strategy to beat fair market value

Once Fair market value is understood there are six questions that need to be answered to confirm that the correct marketing strategy or pricing structure has been chosen to maximise the sellers opportunity to beat fair market value.

The six questions

1. Will the chosen disclosure or non disclosure of the price open the house 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 of urgency?

4. Will the price help the seller, or the opposition find a buyer? It can only 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 1

Will the price or marketing method open the house up to all segments of the market?

yes No

Will the price/marketing method make the phone ring?

A lot Very little

Will the price/marketing method create fear of loss, competition, sense of urgency?

Yes No

Will the price/marketing method help the seller or the opposition find a buyer?

You Opposition

Will the price strategy create cash buyers?

Yes No

Will the pricing strategy put a ceiling on the price?

No Yes

/30

The solution will appear

If the agent puts those six questions to a

A)Range of prices that they could market the home at,

B)Different pricing structures (e.g. Best offers over, Price range) and

C)Various methods of marketing where price is not disclosed (e.g. Auction, Tender or By Negotiation)

it will become very obvious which is the correct pricing structure or non disclosure of price to maximise the absolute 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 the

market at that time• With little or no hassles• The result that all sellers want. (Beating the market)