The following article written by Matt Jones was originally published in Broker Agent News on October 25, 2005. It is presented here in its entirety as it was originally published. While non-commercial use of this copyrighted material is encouraged, unauthorized, commercial use is strictly prohibited.
INSIDE PART ONE
- ETHICS AND LISTING AT 8%
- BECOMING THE MARKET AUTHORITY
- THE CREDIBILITY FACTOR
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.
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? You need to do your homework! You need to study your market. You need to know the market statistics. You need to have clear-cut marketing strategies. You need to 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.
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.
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.
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.