This listing presentation will show you how to list at 8% commission virtually every single time! Oh, I know that statement sounds incredible, but it’s true! There’s no reason that you can’t list for 8% or even more. The secret is in this presentation.
Ethics and Listing at 8% Commission
Okay, before we dive into the presentation, it’s important that we first mention ethics. In other words, “How can I better serve my clients while charging them more?”
Simply by having that thought, you’ve confirmed that you’re an ethical real estate professional who’s trying to put your clients’ interests first. That’s a good thing. Having said it, though, I need to underscore the fallacy in such a line of thinking. The question we’ve asked seems to imply that you cannot earn good money by doing the right thing. But the truth is that it’s possible to serve your clients, your fellow real estate professionals, and yourself; and with this presentation it’s also easy! Let me explain.
We’ll begin by discussing agency – specifically, seller agency. As a listing agent, your client is the seller in any transaction. You’re the seller’s agent, though, and you have a fiduciary obligation to represent him or her to the best of your ability. As a rule, you should be trying to get your client the most money in the shortest amount of time, since that’s the goal with most sellers. And when I mention “money,” I specifically mean net dollars. Ultimately it doesn’t matter how large or small the commission is: what counts is the total taken away from the closing table.
Clients Come First
So if you knew about a strategy that would net your client more money while selling his home in only about half the usual time, wouldn’t it be in his interest to use it? Of course it would! Well, that’s what this listing presentation will do for you. As compared with traditional listings of homes in the same market, my presentation will give you a strategy that has traditionally netted my clients 2.7% more money while selling their homes in only 55% of the average DOM (number of days on the market).
More money in half the time! Think of it! Your clients (and the other agents in the market) will love you, you’ll be paid better in the process, and you’ll begin to acquire a reputation for being the agent with the high-paying listings.
But I’m getting ahead of myself. Let’s take this thing one step at a time.
So…on the flip side, if you knew that selling a house by the traditional method would double your client’s waiting time and, in the process, net him less money, would that be good for him? Of course not! Not even if you saved him some money in commissions! Your job as a listing agent is to represent the seller and to place his needs first, and that’s what we’re going to do.
Becoming the Market Authority
Before we get into the listing presentation, it’s important for you to do an honest assessment of your ability as an agent. Can you look into the mirror and feel, deep down, that you are the very best person to represent your seller client? If you can’t do that (regardless of the listing approach you use), it would be unethical to offer your services to this client in the first place. In fact, you’d have a fiduciary obligation to recommend your fellow agent, Mr. or Ms. So-and-So, as the best agent to help him.
So how do you go about creating in yourself the best agent to represent your client? Do your homework! Study your market. Know the market statistics.Have clear-cut marketing strategies. And have a specific marketing plan that will yield results superior to those of the competition. Otherwise, you have nothing to offer the client! Doesn’t that make sense? Why should your client list his most valuable asset with you if you don’t know what you’re doing? Would you list with yourself? And if your answer to my last question isn’t a resounding “Yes!” – then you need to become that ideal agent before you read another word in this article.
Know Your Numbers
Prior to listing the first house, I knew our market statistics cold. I pulled the raw data from our local MLS and crunched the numbers. Was it fun? Of course not! Nevertheless, I needed to know what I was talking about.
Trust me about this: your client will recognize whether or not you know what you’re talking about. If you’re bluffing, he’ll sense it. You can’t “fake the funk,” as they say. I can’t tell you how many times a listing client has quoted an agent on something that I’ve known to be incorrect. Because I was completely familiar with my market, though, I would be able to explain that the agent, while very likely a nice person, had his facts wrong. Then I would lay the statistics on the client, and it was quite obvious to both of us that I knew what I was doing.
Here’s the basic market data you need to know before you go to your first listing appointment:
1) Days on Market (DOM).
Average days on market is critical to your seller client for several reasons: it’s important in setting realistic expectations about the time needed to sell a home; it will help you evaluate any offers that come in and make an educated decision about whether it’s advisable for the client to wait for another offer or take what’s on the table; and, if you know the DOM for your market (or, better, yet, for the client’s neighborhood), you’ll be able to guide him or her through the process like a professional – which is exactly what you are!
There’s a problem with DOM statistics, however. Most MLS databases have a much-manipulated DOM number which is invariably skewed low. So how can you know what the real number is? Is it possible to determine the actual DOM for your market even if you’re not a rocket scientist? Absolutely! Just use the absorption rate to calculate the true DOM for your area. Let me explain.
Your MLS is Wrong on DOM
Here’s how you get the real DOM. Find out how many homes sold in your market last year and how many are currently on the market. For example, if 10,000 homes sold last year, and there are currently 5000 on the market, what those numbers indicate is that the inventory turned twice last year (10,000/5000 = 2.0). Now, there are twelve months in a year, and 12/2.0 = 6.0, which is the absorption rate, meaning that the average time actually on market is 6.0 months. So to convert the absorption rate to days on market, you simply multiply this last number by 30 (6.0 x 30 = 180). And if you figure DOM this way, you’ll eliminate all manipulation in your market by builders and agents who re-list stigmatized homes, which of course are those homes that have picked up a negative image due to their excessive time on market.
2) DOM Standard Deviation (STDEV).
What?! By now you’re thinking, “Matt Jones has lost his mind!” Before you dismiss this concept (and me) as crazy, though, let me point out that it will be an easy statistic to calculate and a powerful advantage for you once you know it.
So how do you calculate it? The easiest way to calculate DOM STDEV is by using a spreadsheet such as Microsoft Excel. On your computer, pull up all the closed residential properties for your community from the last year. You’ll want to pull them up in your MLS, using a one-liner format. Then copy and paste that data onto a spreadsheet.
Next you’ll want to delete all but three of the columns: list price, sale price, and DOM. At the bottom of each of these columns, calculate the average and the standard deviation. If you’re using Excel, the function will look like this: =average(b1:b20000) and =stdev(b1:b20000). Both of these examples assume that you’re calculating the average and the standard deviation for column B and that there are numbers in the rows from 1 through 20,000.
Okay, you have the numbers, so let’s assume that the standard deviation of the DOM is 53 days. Let’s further assume your calculation of the absorption method indicates that the true DOM is 186 days. Now comes the fun part! Add one standard deviation (53 days) to your average of 186, and you have 239 days. Add another standard deviation, and you have 292 days. Here’s what that means for your listing client:
You have a 50% chance of selling his home in the average DOM. If you add one standard deviation, you take the probabilities to 84%, and if you add another standard deviation, it’s 93%. Another standard deviation would elevate the probabilities to 96%, then to 98%, and so on. Now let’s say that a competing real estate professional tries to convince your client that his home can sell in a matter of days and that he should list for ninety days.
Prepare Your Client for Reality
You can tell your client with complete certainty that the statistical probability of selling his home in a few days is nil, and that in reality he should expect the process to take the average amount of time plus at least one standard deviation. Using the illustration above, you should inform him that he has a 93% probability of selling his home in 292 days, using the typical approach. If that’s how long, statistically, it’ll take to sell his house, then listing it for ninety days will clearly be a waste of everyone’s time.
Now, your immediate reaction may be that your clients will never go for this system – yet they will! In all but one of my listings I received one-year terms, and in the remaining listing I got a six-month term, knowing that I would sell the house even sooner. When you tell a client, with authority, how long it will take to sell his home, he’ll inevitably respect your honesty and the fact that you know exactly what it takes to sell a home in your market. You’re not guessing, like most agents, and in fact you’re speaking with the voice of authority. Knowing your market better than any other agent will impress your clients while also giving your own confidence level a boost.
3) Average Markdown (List to Sale Ratio).
Now let’s go back to the statistics that we worked on earlier. Remember my asking you to calculate the average for list price and sale price? Here’s the reason: you need to be able to advise your client as to the “typical” discount in your market. Let’s assume that the average listing price is $175,000, and the average sale price is $169,000. Now, subtract the average sale price from the average listing price, and then divide the difference by the average listing price.
You Don’t Have to Do the Math!
Now that you know the background, let me give you a quick shortcut to a tool that does the math for you. We built some FREE calculators that allow you to generate the real Days on Market, Absorption Rate and Even Sale Probability without making your head hurt.
Check it out here– ReCalculators.com
Now that we have talked about your becoming the best agent for the job. I mentioned the importance of learning your market statistics and told you exactly how to do that. I discussed how you could increase your credibility and power by arming yourself with some very specific knowledge. I’ll assume that you’ve done your homework now and are ready to learn the actual listing presentation that made me one of the top listing agents in the country.
I want you to notice that I haven’t referred to myself as one of the smartest agents in the country because there are plenty of agents who are smarter than me. I haven’t claimed that I’m the hardest-working agent in the country because there are lots of hard-working agents. But I do maintain that I’m one of the top listing agents because there are very, very few agents who have listed as many homes in a single year as I have, and even fewer who have listed all of their homes for 8% or more. And there are fewer yet who have netted their clients 2.7% more money at closing while selling their homes twice as fast as most of the agents in their markets.
So how do I do it? I use a unique system that I call “the traffic approach.” In a few minutes we’ll get into this approach to listing, but first we need to examine how I go about doing a CMA (comparative market analysis).
The Ultimate CMA
Anyone who knows numbers can tell you that, as a listing agent using the traditional method of doing a CMA, you can make the numbers say anything you want. Here’s what I mean.
With the traditional CMA method, the agent selects three recently-sold properties that closely represent the subject home (or the home being valued). In most markets, it’s easy to find three properties that sold high, three that sold average, and three that sold low and still have many other comparables from which to choose.
What many agents do (and what they teach) is to use the least expensive set of comps for the CMA. This method makes the case for listing the home as inexpensively as possible and allows it to sell quickly. However, as a seller’s agent you should be getting your client the most money for his property, not co-conspiring in a giveaway.
Zig When Everyone Else Zags
What I do in preparing a CMA is to take data from three sources: tax records (sale and assessment data), the closed comparable listings in the MLS, and the active comparable listings in the MLS. Let me explain.
1) Tax Records “Adjusted”
First I look at the tax records to determine what I feel to be the “adjusted” current value of the home. For example, if it sold three years ago for $150,000, and there’s been an appreciation rate in that area of 12-14% per year, I calculate the appreciation (3 x 13% = 39%, or $58,500), and then I add that figure to the purchase price. If the home hasn’t been on the market for a long time, I’ll use the most recent assessment value and adjust it the same way. Certainly this particular method is rather subjective, but an experienced agent who knows his market can get close to a realistic number by using it. However, this is only one part of my valuation.
2) Closed Comparables
Next I pull up all the closed comparables in the area or subdivision, going back a reasonable period of time, and I can usually find between ten and twenty of these. (In extremely hot markets where homes appreciate at double-digit rates, you shouldn’t go back farther than a few months or so in order to prevent the CMA from being skewed downward.) Don’t forget that the amenities and how nice a home looks will affect the curb appeal and saleability of the property but have very little impact on appraised value, so it’s best to use as many comparables as possible. In selecting my comps, I use the subdivision, the square footage (with a range of plus or minus 10%), and the number of bedrooms and baths. I then calculate the average sale price of the group, eliminating any outliers up or down (e.g. homes that were foreclosures or distress sales).
3) Active Comparables
Finally, I pull up all the active comparable listings. Again, I use the subdivision, the square footage, and the number of bedrooms and baths, but your market may be a little different in how the appraisers select comps. The point is to get as much data as possible!
Using the Numbers Together
Now we put it all together. Take the adjusted value from the tax records, add the average price from the closed comps, and then add the average price from the active comps. Now take that number and divide by three, and you’ll have the true average value for the subject property. Write down this new number somewhere, add 5% and subtract 5% from it, and you’ll have a “reasonable range” for the value of the home, which tends to be plus or minus 5% from the average. In most markets it’s reasonably easy to support a value within 5%; so once the property sells, getting the appraisal shouldn’t be an issue.
I know this is an out-of-the-box way of doing a CMA, but it will absolutely stand any amount of scrutiny by clients, other agents, or – most importantly – appraisers. Moreover, using this method will protect you from accidentally over-pricing or under-pricing a property. Most importantly, it will reinforce the fact that you’re a market authority and know what you’re talking about. If a seller client should be harboring a suspicion that you’re trying to skew the numbers, his or her fears will quickly be allayed because you’ve considered every possible comparable in the current value of the home. Nothing except a pre-appraisal could be fairer.
Putting the Pieces Together
Now let’s take the pieces and put them together into a “lethal” listing presentation. For quick review, what are the pieces?
- Knowing your market statistics so that you’re truly the best person for the job.
- Knowing the value of the subject property so that you can get the top dollar for your seller client.
Beginning the process without laying this foundation simply won’t work. It’s absolutely critical that you go through the first two steps before you learn the listing presentation, simply because the presentation builds on this foundation! Without a suitable foundation on solid ground, you’ll be building your presentation on quicksand and won’t be able to list properties using my unique method. Why? Because you won’t have the most important element of any sale: the believability factor. This approach is counter-intuitive, and, as such, it demands that you have credibility. If you don’t have credibility, the listing approach will never sell because you’re asking the client to place his faith in an approach that, in all likelihood, he’s never heard of before.
Two Ways to Sell the House
There are more than 1.1 million REALTORS® in America , and I guess you could say that there are 1.1 million ways to sell a house. But the truth is that there are really only two ways to sell a house: you can sell it by price, or you can sell it by traffic. Every other sales method is a subsidiary of one of these two. We’ll explore the two different approaches at length and discuss how they differ and how one of them will yield far better results for your client while making you more money.
The Traditional or Price Approach.
I’ve read dozens of books – probably hundreds of books – on the subject of real estate. Many of these books speak of the importance of listing real estate, and all of them describe nearly identical listing approaches, with only slight differences. Now, the reason for all this sameness is obvious: it’s the way listings have been done since the beginning of real estate. It’s the old “if it ain’t broke, don’t fix it” thing. Well, I’m here to tell you that it’s broke! If you expect to make a lot of money in real estate, you need to determine what everybody else is doing and then do the opposite.
Okay, here’s the basic formula for the “traditional” or “price” approach. As you’ll recall, we talked earlier about building a CMA, or comparative market analysis, for your client. The traditional approach teaches us to find the “reasonable range” of value and then try to list the property on the low end of that range.
If the home doesn’t sell within a month or so, we’re all taught to…what? You got it! To ask for a reduction in price. Then if the property still doesn’t sell, we lower the price again, and again, and again, until eventually we find a buyer for the place. Think about it: we’re selling the house by price. We’re using the price as our marketing tool. That’s why we continue to lower the price, or wait for appreciation in the market to lower the price for us, until the house eventually sells.
Why Agents Use It
One of the reasons this approach works well for the agent is that it places the entire burden of selling the home on the seller! Another reason for using the traditional approach is that the agent doesn’t have to spend a lot of money marketing the house. He doesn’t have to spend a lot of time or effort devising a marketing plan or promoting the property because the price is doing the selling for him. There’s no doubt that this approach will work, of course: it’s been working for decades with good and bad agents alike. However, there are a few drawbacks to the traditional approach that are seldom mentioned.
It’s Your Job
First and foremost is the agency issue. It’s your job as the listing agent to represent the seller’s interests, which include getting the absolute top dollar for the property. However, most agents don’t get top dollar when they use this approach, and the reason is as simple as supply-and-demand. When there are fewer buyers competing for a home, the sale price may need to be discounted substantially in order to attract interest. In economics-speak, “with a fixed supply and a scarce demand (i.e. fewer buyers), prices drop.”
Another drawback to using this approach is lack of speed: several months may pass before the traditional approach begins to have an effect. In the process, the home often becomes stigmatized. After several reductions, it’s not even shown to potential buyers because it’s been on the market “too long” and is now assumed to have something wrong with it. If the agent starts the process too high and then reduces the price too slowly, the home becomes very difficult to sell at any price.
Many times, listing agents unwittingly become de-facto buyer sub-agents; and even though I don’t know a single listing agent who would intentionally sell out his client, it’s entirely too easy with the traditional listing approach to help the buyer rather than the seller. And, yes, I realize that my judgment may sound harsh, but if you’ll honestly examine this method, you’ll have to agree that, very often, it doesn’t yield the best results for the seller.
The Traffic Approach.
To understand the traffic approach, we need to turn our attention again to the “reasonable range.” Real estate is entirely different from liquid investments with absolute values. For instance, anybody can look up a share of stock and immediately see its current price. But because values are subjective in real estate, there tends to be about 10% flexibility in the price range. Consider a home that’s valued at $100,000. It’s not worth exactly $100,000! It’s really worth between $95,000 and $105,000. If the price drops below $95,000, nearly everyone will agree that the house is a good deal; and if the price goes above $105,000, nearly everyone will agree that the property is priced a little too high. However, within the “reasonable range” there is little price resistance.
Why it Works
Here’s how the traffic approach works. Instead of listing the home at the low end of the range, you raise its price to the high end. The problem? Now there’s no compelling reason for anyone to show it or buy it. Okay, here’s the secret weapon: you raise the commission by 2%! What you’re doing, effectively, is “bribing” agents to include your listing on their show lists. What I do is raise my commission from 6% to 8%, and then I raise the price about 10%. The client then nets about 8% more money before any negotiations!
Sometimes, not often, the appraisal knocks the price down a bit. When that happens, it’s usually a minor adjustment, and then the seller has the option of lowering the price to match the appraisal, or else the deal, as written, falls apart. The buyer also has the option of paying, out of pocket, the shortfall in the appraisal or canceling the deal if there’s an appraisal contingency. When that happens, the client knows that he got the absolute top dollar for his home.
Sure You Don’t
Now, I know that almost any agent will immediately say, “I never look at the commission when I’m working for a buyer.” But I don’t believe that noble-sounding claim because statistics clearly indicate that it’s not true. I don’t know any agent who would willfully sell a buyer client a home that wasn’t right for him; but if there are sixty homes in the market that generally match the client’s criteria, and if three of those homes pay higher commissions than the rest, it’s certainly not unethical to make sure that those three properties end up on every show list. In addition, there’s nothing wrong with hoping that your client chooses to buy one of the three. If he doesn’t, no big deal; but if he does, you just got a big bonus!
Why a Bonus Doesn’t Work the Same Way
One of the questions I’m often asked is why I don’t just offer a bonus to the selling agent. Once again, the answer is simple. Every buyer’s agent knows that if he doesn’t present a full offer, the first money to come off the table will be the selling bonus. Since most homes don’t sell for full offers, the selling bonus doesn’t happen very often, so the buyer’s agent can find himself torn between not getting the bonus and not representing his client. If he advises his client to offer less than the listing price, he knows that his bonus is most likely gone. On the other hand, if he encourages the buyer to pay the listing price, he’s probably not fully representing the buyer’s interests. For that reason, the selling bonus is often a disincentive rather than a legitimate incentive.
Presenting Your Approach to a Customer
We mentioned the necessity of learning market statistics, and how and where to find them. We discussed how you can increase your credibility and power by arming yourself with this basic and relevant knowledge. Next we determined the best way to build an accurate CMA, or comparative market analysis, and then we touched on the theory behind my listing presentation. If you’ve been studying the information, you know how and why this presentation works.
What to Say and How to Say It
I want you to pretend that you’re the listing agent in this story. It may not be a true story for you yet, but it could be. It’s worked for me countless times.
Imagine that it’s a Thursday morning. You’ve just come into the office and noticed a CMA request that arrived from your website overnight. If you’re like most agents, that kind of good news doesn’t happen often; but, in my case, not a day goes by that I don’t receive one or two CMA requests from potential sellers – and all because of the technology that I use to capture traffic from my website.
But once again I’m getting ahead of myself. We’ll discuss how to have an unending supply of listing leads at the end of this guide. For now, let’s stick with the listing presentation.
Where it Starts
Okay. So it’s Thursday morning, and you have a new CMA request in your inbox. The first things you do are to pull up the tax value and print out the tax sheet, which will tell you a lot about the property and the CMA request. Using the tax records and the appreciation rates for that area, you determine the approximate value of the home.
Next you log into your MLS database and pull up all the closed comparables for the seller’s subdivision, with the approximate size and number of bedrooms and baths. There are twenty-one comparables to use and only one obvious distressed sale, so you eliminate that one from the average. After finding an average for the other twenty, you print out the comps in a one-liner format and note the “average” price on the page.
Next you pull up all the active comparables listed in the MLS (three, in this case), average them, print out the query, and write down the average price.
Now add the three prices that you’ve written down, and divide by three. Obviously, this is your average sale price. Multiply it by 5%, and add the amount to the average for the high end of your reasonable range. Then subtract 5% from the average to give you the low end of the range. In a matter of minutes, you’ve completed a very thorough CMA that’s beyond scrutiny. That’s a good first step.
Making the Call
So now you call the seller and thank him for visiting your website. You tell him that you received his home-valuation request and that you’re in the process of compiling data to determine the home’s value. I generally tell the seller that I’ve seen nice homes and bad homes, as well as some in the middle, and I’d like to know where, really, his home is. I ask him to pretend that I’m Stevie Wonder and to give me a verbal tour of the place, since I’m not actually there to view it.
I allow him to take me from room to room, all the while asking him for specifics about the home’s curb appeal and other possible attractions. After touring the house, we next “go” outside, where I have him talk me through the yard, the exterior paint, the roof, the overall condition, the immediate neighbors’ homes, and the landscaping.
Then I generally say something like, “Gosh, that sounds like a really nice house! Why on earth would you want to sell it?” The response I get is very important because it can provide me with the seller’s motivation and, often, his time frame.
What Are They Thinking?
Trying to determine whether or not the seller has a realistic grasp of the situation, I then ask him if he has any idea what price should go on the house. Sometimes sellers aren’t completely practical about these things (I bet you already knew that!), but generally they are. And if a seller isn’t a realist, he will likely believe that his home is worth much more than the initial CMA would indicate. So then I proceed with something like this: “Wow! You must have a really nice house. I’m looking at every single home that’s been sold in your neighborhood during the past year, and I’m not seeing anything within $15,000 of that price. Can you help me understand what features your home has that make it stand out so much?”
Many times he’ll tell me that the house down the street sold for that much even though it isn’t nearly as nice as his. Generally, however, the seller down the street just didn’t want anyone to know he had to sell his house for much less than he’d been asking. But now that you have the comps in your hand, you can tell the seller exactly what a house sold for, and sometimes that little fact is all you need to introduce some reality into the situation. On the other hand, sometimes your potential client’s home actually is worth more than you would’ve expected, so you also need to be open to what he tells you. On those rare occasions, you should be prepared to tweak your CMA a little.
Setting the Table
Now that you know the seller’s motivation, his time frame, and his opinion of the property’s value (it could even be that he had a recent appraisal, which he’s now using to test you), you can tell him that you’ll complete your research and then call him back with your valuation. Simply set up an appointment, and either call or visit in person.
Taking Listings Over the Phone
Yes, you read it right! In fact, I’ve taken roughly 85% of all my listings over the phone! And you can do the same thing with this approach. Okay, so you have the listing appointment and the information you need going in: the value of the home, the seller’s motivation, his time frame, and his expectations. Now it’s time to nail the presentation. Before we get into the actual interchange, though, let’s talk about what the seller is expecting (and what virtually every other agent is gearing up to give him).
The seller’s expecting you to come in and tell him how great his house looks. He’s expecting you to tell him how terrific your company is (and it may be!). He’s expecting you to tell him how great an agent you are and how many zillion dollars’ worth of property you’ve sold. He’s expecting you to tell him his kids are cute. He’s expecting you to tell him he needs to fix this and that. He’s probably sold a house before, he’s already talked to an agent, and/or he’s talked to friends who’ve been through the process. So let’s assume that he plans to interview several agents, as many sellers are doing nowadays.
Do What Other Agents Won’t
The single most powerful thing you can do is surprise him. Remember: you want to look at what everyone else is doing, and then do the exact opposite. What do I mean? Other agents will talk about themselves. You need to talk about the seller. Other agents will extol the virtues of their companies, and in nebulous terms they’ll explain how they plan to sell the house. You need to talk about different strategies for selling the house and then show the seller exactly what the process will mean to him in terms of DOM and selling price.
But back to the listing presentation. When you arrive at the home, quickly introduce yourself, and then tell the seller that you’re very sorry, but you don’t have a lot of time, and you want to make the most of what you do have. (He’ll be thrilled because he’s been expecting this ordeal to go on for hours!) Now, let’s hope you get lucky, and he says, “I’m talking to ‘Agent X,’ and he says he’ll list the house for 5%. How much do you charge?”
How Much Do You Charge?
At this point I’d tell the seller, without hesitation, “I try to get 100%” – and then I wouldn’t say a word. After about ten seconds (which feels like an eternity!), he’ll usually start laughing. Then I’ll politely say, “Regardless of what anyone may tell you, there are two parts of selling your home that are completely under your control: the commission and the selling price. And what price and what commission you choose will largely depend on the type of strategy you decide to use. Do you know what I mean by that?” (Invariably he’ll say no, which is perfect. What he’s just now done is set me up!)
“Mr. Seller, here’s what I mean. There are 1100 agents in our market, and I guess what that translates into is that there are 1100 different ways to sell your house. But the truth is that all those different approaches really boil down to just two different strategies: you can sell your house by price, or you can sell it by traffic. Does that make sense? (At this point, either he’ll say no, or he’ll guess wrong.) Well, here’s what I mean. If you were to go to (name of the biggest local bookstore) and find the real estate section, you could see lots of different books on how to be a top agent. And each of those books would teach you one single way of selling houses. It’s the ‘traditional’ approach, and nearly all the agents have used it for years. I call it ‘the price approach’ because it uses the price to sell your house.”
“Here’s what I mean by that. A house isn’t like a loaf of bread or a share of stock. You can’t go to the computer or call someone on the phone and get a price for it. The price on a house is much more subjective, and it’s somewhere within a ‘reasonable range.’ Let’s say, for example, that some imaginary house is worth $100,000. It’s not actually worth $100,000, though; it’s worth between about $95,000 and $105,000, depending on the motivations of the buyer and the seller. Now, if you start listing the price very much over $105,000, everyone will pretty much agree that it’s too high. And, by the same token, if the price drops down below $95,000, everyone will agree that it’s a great deal.”
“The way we’ve all been taught – what all of us real estate agents have been taught – is to convince you, the seller, to list your house at the low end of that “reasonable range.” That way, the price can be used to motivate a buyer to write an offer. If the home doesn’t sell in a month or so, we’re supposed to go back to you and ask you to reduce the price, telling you that the market has spoken and that your house must not be worth as much as you’d thought. Then you agree to reduce the price, and we wait. In another month, if the house still doesn’t sell, we reduce the price again. Eventually, we’ll suck in some bottom-feeder who’ll be happy to ‘steal’ your house.”
Traffic vs. Price
“Now, there’s nothing wrong with this approach. It will definitely sell your house, but it’s an expensive way to go about it.” This is when I generally pause for effect. Then I say, “But what I’d do if I were you is use another approach, or what I call ‘The Traffic Approach.’ If it were my house, we’d raise the price about 10%, to $105,000! And then we’d set aside about 2% to use as a ‘bribe.’ In other words, I’d raise the price 10% and the commission 2%. But let me explain. If we were to look in the MLS right now, you’d find about 300 or so homes with more or less the same size, features, etc., as your house. Now, when an agent has a buyer customer who’s looking for that type of house, he’s not going to show all 300 of them. Instead, to keep his broker happy, he’ll probably show the client any homes listed by his company that happen to meet the criteria, but after that he’ll probably choose to show only a few others.”
How it Works
“What this strategy will do is ensure that your home gets put on the show list. That’s all it’ll do but it’s enough. Here’s why. I don’t know of any agent who’d try to talk his customer into buying a house that wasn’t right for him, simply to make a higher commission. But, on the other hand, I don’t know of any agent who wouldn’t hope for his client to choose the home that paid the best. Agents are just regular people, and if they can make more money doing the same amount of work representing their clients, you can bet they will.”
Bribe to Survive
“Do you remember Field of Dreams? The famous line from that movie was, ‘If you build it, they will come.’ Well, in real estate, if you bribe them, they will come! The fact is that, in order for your home to stand out in a sea of other homes for sale, there must be something ‘outstanding’ about it. With the traditional approach, it’s the price (if not immediately, then eventually) that makes the house stand out. But with the traffic approach, it’s the abnormally high commission. It’s really very simple.”
Then I’d tell the seller that I’m equally comfortable using either approach (which I am), but I’d be less than honest if I claimed that the two methods had similar results. The fact is that, while using the traffic approach, we have historically sold our clients’ homes in about half the time and netted them more money in the process!
Finally, I’d tell the seller of some cases where I’ve used the traffic approach and had great results. Remember: Jesus taught in parables. Why? Because people love stories. A story can take the vaguest idea and make it imaginable by making it real. Here are a few of my favorite stories that I’ve used countless times in the past.
Saving the Day
Through my website, a client who was a licensed broker in Boone, North Carolina, approached me one day last year. His parents had passed away, and because of his real estate experience, his siblings had chosen him to help sell the family home. So he called the largest company in our market, which happened to be Coldwell Banker, and listed the home for $64,900. Over the course of two years, Coldwell systematically reduced the price to $59,900. But even though it was a very nice little house, the seller hadn’t received a single offer on it during the course of the listing contracts.
Broker Signs Off
When I explained my idea to the broker, I could see the lights come on in his mind! As an agent, he intuitively knew that this approach would work, so at my suggestion we raised the price to $70,000 and the commission from 6% to 8%. (The co-op was half.) Well, within a month we had received three offers! The first two we turned down, but the third was a full offer, and we accepted it. Still, we had one more hurdle to get past: the appraisal had to support the sale price. As it turned out, the appraisal came in short, and my client had to sell the home for $69,500 and do some minor repairs that amounted to less than $600 (and probably would’ve had to be done with any sale at any price).
So after raising the price $10,100 and then paying an extra $1390 (the 2% extra commission), my client netted $8210 more money and got the absolute top dollar for his childhood home. Even more importantly, we accomplished in under ninety days what he’d failed to do in two full years: we got offers and were able to command the maximum price because of the traffic generated by the higher commission. Was he happy? He was ecstatic! And so was I.
FSBO No More
Here’s another story you’ll love. Again, I had a client approach me through my website. (Are you noticing a trend here?) This fellow was very frustrated because he’d bought a brand new home, closed on it, and was having to make two mortgage payments every month. He’d tried to sell the home FSBO; and although he’d shown it a lot, no offers had materialized. Then he listed it with a local brokerage, but the home received no offers and had very few showings. After the listing expired, I went to see him and showed him my approach, and he decided to try it. We raised the price from $79,900 to $86,000, immediately had a surge of showing traffic, and, in exactly seven days, sold the home for the full price of $86,000. As in the previous story, we then anxiously waited for the appraisal, but this time it went through without a hitch. To this day, my client thinks that I’m a genius and sends me business every chance he gets.
So let’s do the math on this one: the additional commission cost him $1720, the additional price he was able to command was $6100, and his net benefit was $4380, or over 5% more money! Best of all, the house sold almost immediately!
I could go on and on with these stories, but I’ll share just one more. This client was one of those know-it-all people. I approached him with both options, as I always do. His initial reaction was that he’d never heard of the traffic approach and was skeptical because he had a problem with the high commission. So we initially listed the home at 7% (let me remind you that we’re in a 6%-or-less market), and we waited. We had a slightly-better-than-average number of showings, but nothing outstanding and no offers for about four months. Eventually, though, the client began to get frustrated (not a new thing to many of you listing agents, I’m sure) and called me to ask what I thought he should do. He was in a hurry to sell the home and had a lot of equity, so he’d listed it for $146,000. I asked him if he remembered what I’d suggested when he first listed the house, and he said, “Not really.”
In a Hurry to Sell
Then I suggested that we raise the price to $156,000 and the commission to 8%. He’d been considering reducing the price and was naturally stunned when I told him to raise it. Well, we closed not long afterward! He was very thankful for my getting him top dollar, and I can promise you that he’ll never sell another home the same old way. Quickly looking at the math, you can see that we raised the commission 1%, or $1560, and we commanded $10,000 more for the home and sold it almost immediately.
Now, did I do anything differently in any of those cases? Absolutely not! I advertise all of my listings exactly the same ways and show no preferential treatment, regardless of price, commission rate, or pressure from the client. What sold those homes and many more just like them was the commission.
What if it Doesn’t Work?
But it gets even better! What’s the first thing we’re all taught to do when a home doesn’t sell? That’s right: lower the price. But what I generally do is convince my client to raise the commission. We’ve raised the commission as high as 12% (!) to sell a home that otherwise would’ve sat vacant forever. It’s amazing what a lot of showing traffic will do for even the worst dog of a house.
You Need Customers
So there you have the listing presentation that’s made me one of the top listing agents in the country and earned my clients and me lots of money. And now that you have the “ammo,” I want give you the “gun.” In order for you to be a top listing agent (or buyer’s agent, for that matter), there’s one thing you simply must have: an unending supply of new customers.