Chapter 5: Unit 7 - Marketing Property (Notes)
Advertising Plan
Another important piece of information to share with your sellers is your advertising plan. Sellers need to know the "schedule" of when their property will be advertised and the methods you'll use to do that advertising. Make sure your sellers know that every home your firm lists is not advertised every day or even every week. Explain that the idea of advertising is to create interest in homes with certain amenities. Even if someone calls the firm expressing interest in a home other than your sellers', once the agent talks with the buyers, it may become clear that your sellers' property is a better fit. So an ad for one property can and does create interest in others.
Preparing for Offers
As a culmination to your meeting with the sellers, share a blank copy of the purchase agreement with them. Go over each of the paragraphs of the form, so that the sellers will be prepared and know what they are looking at when they receive an offer. It will help reduce the stress that comes when an offer is presented and the sellers are under a time constraint to make a decision. Also let the sellers know that sometimes new listings get quick offers. When this happens, sellers tend to think that they have set their listing price too low. While this could be the case, it most often is not. Sellers may want to reject offers that they perceive as coming in too quickly and they may later regret the decision, if other offers are not forthcoming.
How Much Profit?
In order to lay the ground work for determining a realistic listing price, the licensee should share a Comparative Market Analysis (CMA) with the seller. Often, a seller's reaction is surprise - thinking that the homes shown on the CMA sold at prices that were too low. The licensee needs to explain to the sellers that those homes listed with a price above the market value are the ones that have been on the market for a considerable length of time. Conversely, those homes that were listed close to their actual selling price or market value sold quickly. The seller certainly has the right to establish the listing price for the property. However, an unrealistic inflated price will make it difficult for the brokerage to market the property. In some cases, the sponsoring broker may even refuse to accept the listing at all.
Accurate Pricing
It is critical for a property to be priced accurately. The most common reason a property fails to sell is because it was overpriced. The practice of listing a property a little higher than the determined market value to allow room for negotiation is perfectly acceptable and a common real estate practice. When comparing the sellers' property to the CMA properties, factors such as proximity, physical similarity, and date of sale need to weigh into the discussion. Even though technically a property can be listed at any price, deliberately misleading a client as to the market value of the property to guarantee a listing could be a license law violation. This practice is commonly referred to as "buying" a listing. If a seller is looking for a quick sale to be concluded within a 60 day time period, this heightens the necessity of pricing the property accurately.
Estimating a Seller's Net
Jim and Karen Grand have listed their home at $240,000. Figures: Title Insurance Policy $600 Transfer Taxes $250 Inspections $450 Brokerage Fee (6%) $14,400 Current Loan Balance $75,000 Calculation Title Insurance Policy $600 Transfer Taxes $250 Inspections $450 Brokerage Fee (6%) $14,400 Total Estimated Costs $15,700 Current Loan Balance $75,000 Total Loan Repayment $75,000 Estimated Selling Price $240,000 Less Total Estimated Costs -$15,700 Less Loan Repayment - $75,000 Estimate Seller's Net $149,300
Weekly Reports
Let your sellers know that your weekly report will include, as applicable: Number of inquiries on the property that week Number of showings Advertising done that week Open houses held Number of open house visitors Comments made by other agents or prospective buyers You can also send along copies of any ads you placed that week, a copy of the MLS pages, copies of pages from any websites where the property has been listed and information about any e-mails that you sent to promote the home. Note: It's critically important to maintain communication with your sellers, even during weeks when there has been little or no interest in the property.
Market Analysis
Since market conditions play a large role in setting a realistic selling price, one of the most important tasks a licensee needs to perform with the seller-client is to give a market analysis of what the property is worth. It is the job of the licensee to make sure that the owner understands how much can be obtained in the sale of the property. A market analysis falls under the category of opinion. Brokers train their licensees on how to create a market analysis so that the client can make a more informed decision about what to offer or what to accept for a property. If the broker and his or her affiliated licensees are members of the MLS, there is usually a training class on how to use that information to know what similar properties are selling for. A market analysis falls under the category of opinion. Brokers train their licensees on how to create a market analysis so that the client can make a more informed decision about what to offer or what to accept for a property. If the broker and his or her affiliated licensees are members of the MLS, there is usually a training class on how to use that information to know what similar properties are selling for.
Computing Seller's Net
To determine a seller's net on a property sale: Step 1: Subtract the commission percentage from 100% to obtain the aggregate (opposite) of the commission and put that result below the line on the right in the T-formula shown above. Step 2: Put the sale price below the line on the left in the T-formula above. Step 3: Multiply the sale price (number on the left) by the commission aggregate (number on the right). Example: Bob's home sold for $227,000 and he owes his broker 8% commission on the sale. 100% - 8% = 92% $227,000 X .92 = $208,840 Bob's net on the sale is $208, 840.
Computing Sale Price
To determine what a property must sell for in order for the owner to net a certain amount, do the following: Step 1: Start with the amount that the seller wants to net, add any expenses (including a mortgage that needs to be paid off), and subtract any refunds that the seller may be receiving in the transaction. The result goes above the line in the T-formula above. Step 2: Subtract the commission percentage from 100% to obtain the aggregate (opposite) of the commission and place that number on the right below the line of the T-formula. Step 3: Divide the result of your calculation in Step 1 (number above the line) by the aggregate that you obtained in Step 2 (number on the right below the line). Example: Tim wants to net $65,000 from the sale of his home. He owes $75,000 on the mortgage, will pay about $9,000 in expenses on the sale. He will owe his broker 7.5% commission on the sale. $65,000 + $75,000 + $9,000= $149,000 100% - 7.5% = 92.5% $149,000 ÷ .925 = $161, 081 Tim needs to sell his home for approximately $161,000.
Percentage of Profit
When computing percentage of profit, divide the amount of profit by the original purchase price. Example 1: Greg purchased a lot for $10,500 and then sold it for a profit of $3,000. What was the percentage of profit? $3,000 ÷ $10,500 = .285 Percentage of Profit = 28% Example 2: Greg purchased a lot for $10,500 and then sold it for $15,000. What was the percentage of profit? (In this case, you'll have to compute the amount of profit first by subtracting the original price from the selling price.) $15,000 - $10,500 = $4,500 (amount of profit) $4,500 ÷ $10,500 = .428 Percentage of Profit = 43%
Percentage of Profit and Loss
When figuring percentage of loss, subtract the selling price of the property from the original purchase price. Using the T formula shown above, place the result of the subtraction above the line and then divide by the original purchase price. Example: Greg purchased a lot for $10,500. After a zoning dispute, it is sold for $7,025. What was percentage of loss? $10,500 - $7,025 = $3,475 $3,475 ÷ $10,500 = .33 Percentage of Loss = 33%