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COVER FEATURE: The List Issue 2007
“I know the price of success: dedication, hard work, and an unremitting devotion to the things you want to see happen.”
—Frank Lloyd Wright
SELLING
10 reasons top producers get the listing
Ever wonder why that other practitioner gets more listings than you? Steve Stewart, a writer and speaker on real estate sales and marketing and the principal of Steve Stewart Seminars
(www.steve-stewart.com) in Claremont, Calif., explains why top producers are so successful.
1. They treat real estate like a real job. “They’re always in control of their job,” says Stewart. “And they’re confident enough to say no to clients they think are too demanding or unreasonable.”
2. They’re masterful presenters. “They have a planned listing presentation they could give in a howling windstorm without being distracted,” he says. “They know what they’re going to say and where in the presentation the decision points for sellers are. It’s all because they practice, practice, practice.”
3. They’re terrific at getting others to make decisions. “They never pressure sellers during the listing presentation,” Stewart says, “but every time there’s a decision to be made, they say, ‘Do you want to do this or not?’ They get people in the habit of making decisions.”
4. They’re big thinkers. Top producers think beyond the task in front of them. For instance, one top producer Stewart worked with decided he’d be more likely to get listings if he scheduled more than one presentation for each evening. “The fact that he had several presentations a night made it more likely that he’d get every listing agreement signed, because he was in great demand,” says Stewart.
5. They’re excellent at delegating to their team members. “Top producers make artful use of their assistant teams,” Stewart says, “which helps in marketing, too, because salespeople with teams can market themselves as being able to handle the sale from top to bottom.”
6. They get sellers to understand why pricing is so important. For instance, they keep emphasizing that sellers can price the home to own it or to sell it, Stewart says. They might say, “If you price this home too high, you’ll keep owning this house. Here’s the price that’ll get results.”
7.They look like sellers but slightly better. “People like and trust people who are like them,” says Stewart. “You want sellers to identify with you, but you should dress one notch above them. However, never go in way overdressed.”
8. Their confidence markets them. “You’re your own walking visual aid,” Stewart says. During listing presentations, sellers scrutinize not only what you say but also how you carry yourself. Do you know what you’re talking about? Can sellers trust you to sell their home? Do you appear confident about what you’re doing? Can you think on your feet?
9. They have professional marketing materials. “Thousands of salespeople don’t go to the appointment with presentation materials,” says Stewart. “They think they can wing a listing presentation.” Have visuals that sellers can easily see, whether in a printed presentation book or on a laptop screen.
10. They invest in themselves. The best salespeople spend the money they need to be successful. “If they need new computer equipment, they upgrade,” Stewart says. “If they need more advertising, they get it. They go to conventions and seminars all the time. They’re always looking for new ideas.”
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Set the stage
Some of the best staging techniques are free. Getting rid of clutter and rearranging furniture can go a long way toward improving the way potential buyers view a room or home. Sometimes, however, you might need to invest a little cash to achieve the desired look. But you won’t bust your budget with these ideas under $25.
- Plants and bowls of fruit: They add warmth and a splash of color to a room.
- Lighting: Replacing heavy, dark shades with sleeker, lighter versions can add more light to a room. Lighting should blend in and complement a room, not dominate it. And make sure hallway fixtures aren’t too dated.
- Excess fabric: A versatile tool for any stager, fabric can be used in a variety of ways. For example, pin it around pillows for makeshift shams, use it to cover a dirty seat cushion, or hang it as temporary window treatments.
- Artwork: Look for oil paintings, watercolors, and posters at flea markets, secondhand stores, or discount retailers or have a photo enlarged at an office services center to add just the right finishing touch to a room. If you do a lot of staging, keep such artwork on hand to use as needed.
Source:Lori Matzke, president of Center Stage Home Inc. and author of Home Staging: Creating Buyer Friendly Rooms to Sell Your House(Center Stage Home, 2004)
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Terms of negotiation
Understanding these concepts is key to a successful negotiation.
- Position vs. interest: Think of position as the factual statement a person makes: “The price of the house is $250,000.” A person’s interest is the reason behind the statement: “That’s the amount of money I need to purchase my new home.”
- Target point: Also known as aspiration level, this is a person’s optimistic goal in a negotiation. A buyer might be willing to pay $250,000 for a house, but his target point might be $200,000.
- Reservation point: Also known as the bottom line, this is a person’s limit. A seller might want to sell her home for $300,000, but her reservation point is $275,000.
- Trade offs: Areas of flexibility or concession whereby one person can trade an item of lesser importance to obtain something of greater importance. For example, a buyer might give up wanting the washer and dryer to be part of the purchase agreement in exchange for the custom made window treatments.
- BATNA: The best alternative to a negotiated agreement refers to a solution a person would pursue if negotiations prove unsuccessful. For example, if a buyer and seller can’t agree on the sales terms, the buyer could decide to continue living where he’s at for another year or purchase another home. Each party should know its BATNA before negotiations begin.
Source:Michelle L. Buck, associate professor, Kellogg School of Management, Northwestern University, Evanston, Ill.
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Negotiating solutions
Perhaps the most important part of any negotiation is getting past stated positions and understanding each party’s true interests, says Michelle L. Buck, an associate professor with the Kellogg School of Management at Northwestern University in Evanston, Ill.
Position is a person’s stated, factual stance, whereas interest is the reason behind the position. “If you stay with people’s positions, you get stuck. But if you look to interests, you can get creative in finding a solution,” says Buck.
She also suggests discussing multiple issues simultaneously rather than sequentially. Often the solution to an impasse can be found if one side offers a concession on another item, Buck says.
Below are three common bones of contention that might come up during a real estate transaction. For each, we’ve provided the positions and interests of both buyer and seller and offered some possible solutions. Use this exercise in your own negotiations and see how quickly your negotiating skills improve.
SCENARIO 1: POSSESSION DATE
Positions: The seller wants to close at the end of the month, but the buyer wants to take possession sooner.
Interests: The seller’s new home isn’t ready yet, so she needs more time. The buyer wants his decorators and contractors to start working on the house so that they’ll be finished before his lease runs out.
Possible solutions: The seller could offer to give the buyer’s workers access to the house on predetermined days so that they could begin taking measurements and ordering supplies. The buyer could offer to compensate the seller for the cost of temporary housing.
SCENARIO 2: CONVEYANCES
Positions: The sellers want to take all window treatments, but the buyers want them to stay with the house.
Interests: The selling couple searched for months to find the perfect window treatments they even had them custom-made so they’ve developed an emotional attachment to them. The buyers have stretched financially to buy the house and don’t think they can afford new window treatments.
Possible solutions: The sellers could offer a concession, such as leaving air conditioning units behind or lowering the purchase price to offset the cost of replacing the window treatments.
SCENARIO 3: REPAIRS
Positions: The seller doesn’t want to make a lot of small repairs, but the buyer thinks it’s the seller’s responsibility.
Interests: The seller is being transferred and doesn’t have time to do the work herself or to hire the appropriate contractor. The buyer isn’t very handy and can’t afford contractors on top of his down payment.
Possible solutions: The seller could offer to pay for up to a set amount competent contractors to do the work after she’s gone. The buyer could ask for a reduction in the purchase price and recommendations for capable repair service providers.
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Field 7 tough consumer questions
1. Why should I list with an agent?
Having a third party negotiate on sellers’ behalf saves them money, says Floyd Wickman, a speaker, trainer, and founder of the Floyd Wickman Team LLC
(www.starmakerteam.com) in Easton, Mass. Tell sellers you’re trained to negotiate, you’re not emotionally involved, and although you’ll always keep their interests foremost, you’re skilled at negotiating in a way that makes the other party feel comfortable with the outcome.
2. Can you charge a flat fee to sell my property?
Danielle Kennedy, a trainer and owner of Danielle Kennedy Productions (www.daniellekennedy.com) in Pacific Palisades, Calif., coaches salespeople to tell sellers: “You need to remember that you pay nothing until the transaction closes. You’re signing an employment agreement for a certain percentage, and the risk is on my shoulders to provide full service to you in exchange for the full fee. Here’s a list of the services I provide. By law, the fee is negotiable, so if at any time you feel you’re not getting the full bang for your buck, let me know, and we’ll discuss it.”
3. Why shouldn’t I just post my home on some Internet sites?
“Sellers think all they have to do is place their home on the Internet, and some nameless, faceless person” completes the sale, says Carla Cross, CRB, GRI, president of Carla Cross Seminars Inc. (www.carlacross.com) in Issaquah, Wash. “They assume practitioners are of little importance, and what’s important is technology.”
Your retort to Internet savvy sellers: "I and the other associates within my company work with buyers every day. Listing with me, then, is the equivalent of target marketing versus a shot in the dark. By listing with me, you also receive exposure, through the MLS, to all the other real estate brokerages in the market, whose agents are also working with buyers every day."
4. What’s wrong with the price I want to list for?
If sellers are just testing the market and don’t really have to move, you have to decide whether you’ll take an overpriced listing, says Kennedy. The solution might be to compromise. If sellers won’t agree to list at market price, get them to agree that you’ll return in a month to discuss the feedback you’re getting and reconsider the price. Once sellers experience the inconvenience of having their house shown, they may be more willing to budge on price, says Kennedy.
5. What’s wrong with lowballing the seller?
“When buyers want to lowball, I do everything in my power, using comps and market statistics, to show them that if they intend to stay in the property for at least five years, they’d be foolish not to offer something fair to both parties based on the appreciation they’ll most likely receive,” says Kennedy.
“I say, ‘We can make the offer [you suggest], but we’re not dealing with sellers who are desperate. They understand the market and want to sell, but if they don’t sell for a price they know is possible and they have to move, they’ll probably rent out their property until the market adjusts. If you pay what’s reasonable and fair, you’re going to reap the benefits of home ownership and financial gain.’”
6. Why should I even respond to a buyer’s lowball offer?
Some sellers believe low offers are insults, says Kennedy. Not true. They’re a sign of interest. Tell sellers there’s a low offer, stress that the buyers want to negotiate, and say that you might be able to increase the offer through negotiation. When sellers respond, they should be gracious, say the offer doesn’t fit their needs, and make a counteroffer, she says.
7.Why shouldn’t I stretch to buy the most expensive property?
Sometimes when you’re working with buyers, you learn they plan to squeak into a new home with financing that may keep their initial payments low but balloon later to an amount they probably can’t afford. When that happens, stop selling and put them in touch with a lender you respect who’ll explain the pitfalls of such a stretch and explain options that may be better for them.
“We must have ethics and integrity, and our focus can’t be on making the deal,” says Kennedy. “Lenders need to see whether there’s something that would be more financially stable for the buyers,” she says. “If that’s not the case, I say to buyers, ‘I’m concerned. You can afford your current home. I don’t read crystal balls, but on the basis of historical statistics, you’re going to earn X amount on that investment over the next five years. However, if you buy this new home, you’re putting yourself and your family in jeopardy.’”
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The word on investing and development
Before you take the plunge into real estate investing, familiarize yourself with the vocabulary.
Capitalization rate: A percentage that relates the value of an income producing property to its future income, expressed as net operating income divided by purchase price. Also referred to as cap rate.
Exchange: Under Section 1031 of the Internal Revenue Code, like kind property used in a trade or business or held as an investment can be exchanged tax deferred. Under a fully qualified Section 1031 exchange, real estate is traded for other like kind property. All capital gains taxes are deferred until the newly acquired real estate is disposed of in a taxable transaction. The underlying philosophy behind the deferral of capital gains taxes is that taxation shouldn’t occur as long as the original investment remains intact in the form of like kind real estate. Like kind doesn’t mean the properties exchanged have to be of the same type or number.
Internal rate of return (IRR): Used to evaluate the profitability of investments after expenses and taxes. It’s expressed as the percentage rate earned on actual dollars invested. Because of inflation, IRR is calculated by discounting future cash flows to reflect their total sum and timing. To calculate an IRR, investors discount future cash flows to equal total operating expenses and outlays. A real estate project is a good investment if, after factoring in risk premiums, the IRR is greater than the rate of interest that could be earned by other investments (stocks, bonds, etc.).
Net operating income (NOI): The potential rental income, plus other income, less vacancy, credit losses, and operating expenses.
Net present value (NPV): The sum of all future cash flows discounted to present value and netted against the initial investment.
Sale-leaseback: A leasing and financing strategy in which a property owner sells the property to an investor, then leases it back. This strategy frees capital that would otherwise be frozen in equity.
Securitization: The phenomenon of indirectly investing in real estate markets in ways that minimize risk (for example, investments made collectively with pooled money or the use of investment packages or funds, such as mortgage-backed securities sold on the secondary financial market), as opposed to direct investments whereby investors own property or hold mortgages.
Vacancy rate: The percentage of the total supply of units or space of a specific commercial type that’s available for occupancy at a particular point in time within a given market. While you’re learning investment lingo, you may also want to add some common development terms to your lexicon.
Absorption: The amount of inventory or units of a specific commercial property type that become occupied during a specified time period (usually a year) in a given market. Typically reported as the absorption rate.
Gross leasable area (GLA): The total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors. It’s measured from the center line of joint partitions to the outside wall faces. GLA is the area for which tenants pay rent.
Highest, best use: The reasonably probable and legal use of vacant land or property, which is physically possible, appropriately supported, and financially feasible and results in the highest value.
Tax increment financing (TIF): A tool that uses future gains in tax revenues to pay for economic development or redevelopment projects in a specific geographic area or district.
Zoning: The designation by a local planning authority of legal land use or land use categories for specific areas within a given jurisdiction.
Sources:REALTORS® Commercial Alliance’s Glossary of Commercial Real Estate Terms and NAR’s Guide to Tax Increment Financing (TIF)
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Make an impression
Holly Janney, ABR®, E-PRO®, a sales associate with Keller Williams Realty Cityside in Atlanta, knows how important incentives are for snagging buyers when inventory is up. In her market, townhomes and condos are widely available. “We need incentives to get them sold and to compete with new construction,” she says. Buyer incentives that Janney has tried or heard of:
- A decorating allowance of up to $5,000
- Paying six months’ worth of home owner association dues
- A $1,000 gift certificate to a furniture store
- Frequent-flier miles or other reward points
- Offering the buyer’s agent a higher commission
- A gym or club membership
- Paying the buyer’s closing costs
- Paying $1,000 toward the buyer’s moving expenses
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Avoiding foreclosure
A pending foreclosure is stressful and confusing. If you can help owners through this difficult time, you could earn their gratitude and loyalty for years to come. Encourage owners to contact their lender to see whether a loan workout option is available.
If the problem is temporary, options include Forbearance. A lender may allow a borrower to reduce or suspend payments for a short period of time, after which another option must be agreed on to bring the loan current within a specified time period. A forbearance option is often combined with a reinstatement, especially if the borrowers know they’ll have enough money to bring the account current. The money might come from a hiring bonus, an investment, an insurance settlement, or a tax refund.
Reinstatement. Lenders may be willing to discuss accepting the total amount owed to them in a lump sum by a specific date.
Repayment plan. A borrower might be able to forge an agreement with the lender to resume making regular monthly payments, in addition to a portion of the past due payments each month, until the loan is current.
If the problem is long-term, options include Mortgage modification. If the borrower can make at least some of the payment on the loan but doesn’t have enough money to bring the account current, the lender might be willing to permanently change one or more terms of the original loan to make the payments more affordable. Examples include:
- Adding the missed payments to the existing loan balance
- Changing the interest rate, including making an adjustable rate loan into a fixed-rate loan
- Extending the number of years to repay the loan
Claim advance. If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of the loan may not start for several years.
If keeping the home isn’t an option, alternatives include Sale. The lender will usually agree to a specific amount of time to find a purchaser and pay off the total amount owed. The borrower will be expected to obtain the services of a real estate professional to market the property aggressively.
Pre-foreclosure sale or short payoff. If the property’s sales value isn’t enough to pay the loan in full, the lender might accept less than the full amount owed to cut its losses. This option can also include a period of time to allow the borrower’s real estate professional to find a qualified buyer. A pre-foreclosure sale could provide additional funds to pay other lien holders and a few moving costs.
Assumption. The lender might agree to permit a qualified buyer to assume the mortgage payments, even if the original loan documents state that it’s nonassumable.
Deed in lieu. The lender might agree to allow the borrower to voluntarily “give back” the property and forgive the debt. Although this option sounds like the easiest way out, the borrower must generally attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if the borrower has other liens, such as judgments by other creditors, a second mortgage, or IRS or state tax liens.
Source:U.S. Department of Housing and Urban Development (www.hud.gov)
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3 strategies for getting sellers to price right
1. Do what buyers are doing: Shop in a larger area. Today’s buyers are less wedded to one neighborhood, says Monique Walker, a salesperson with Intero Real Estate Services in Scottsdale, Ariz. That’s why she pulls comps from more than just the listing’s immediate area.
“I up the area to a five mile radius because buyers are willing to drive farther for better values,” says Walker. “I ask sellers, ‘If you were the buyer, and you had the choice of your home and a similar home five miles away for $25,000 less, which would you pick?’ That gets sellers to look at things objectively, she says.
If sellers still won’t price at market value, she walks away. “I lost two listings yesterday,” she says. “The sellers weren’t motivated. With the time, energy, and money we invest, we can’t afford to take overpriced listings and end up with unhappy clients. They won’t be clients for life, and that’s what we strive for.”
2. Show sellers the numbers, and don’t fall for the wiggle room line. Sellers need to see detailed market statistics to understand why prices from six months ago are no longer operational, says Michael (Brick) Brickner, a salesperson with Lyon Real Estate in Sacramento, Calif. Brickner uses comps from only the past 30 days. “The message is that the pricing is right now,” he says.
Brickner walks into every listing presentation with detailed statistics showing trends in his market, including the number of units on the market, the number of pending and sold units, the average time on market, and the average list and sales price. “They can’t argue with the numbers,” he says. “It’s very strong stuff.”
If sellers still ask Brickner to leave some wiggle room, he holds firm, saying, “I’m sorry, but if you want me to market your property, you have to offer it at this price.” Brickner says he remains silent and leaves it up to the sellers to decide what to do. Eventually, he says, they agree with him.
3. Don’t blame sellers for not being experts. “Practitioners make a mistake when they think sellers are being stubborn about price,” says Jose Del Rosario, operating principal of Keller Williams Tierra Del Rey in Chula Vista, Calif. “Sellers are choosing the wrong price only because they’re not knowledgeable about the market. Can you really blame them when they don’t have all the information we have?” Del Rosario emphasizes that point to his sales associates, and it helps change their mind-set going into listing presentations.
Del Rosario also tells his sales associates that they have to work hard to develop correct comps. Some pull only sold listings, but Del Rosario says you must also include pending sales because they’re often a sign of where the market is heading. And remember, the MLS doesn’t display information on concessions given to buyers to close the deal. “You need to call listing agents to see whether they’re willing to divulge that information,” says Del Rosario. When you present comps, you need to show sellers how thorough your research has been but that there are unknowns that may affect pricing.
Getting sellers to understand today’s market might take time. Most practitioners are hostage to a single listing appointment, Del Rosario says. “But you have to build a relationship with sellers so that they’ll listen to you. Sometimes it takes five minutes, but sometimes it takes five hours over five meetings.”
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