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Why Would They …?

House for SaleBe wary of the agent who suggests a large print advertising campaign.

Given the dominant reach of the internet and the cost effectiveness of its service, it begs the question:

‘Why would real estate agents continue to persevere with expensive print campaigns?’

One real estate agent in Melbourne recently reported how a developer client insisted on a large newspaper campaign. The client spent $30,000 over a three week period. The response was one direct phone call as a result of the entire print advertising campaign!

The saving grace for the agent in this instance was that the developer insisted on spending the money on print against the agent’s emphatic advice not to do so.  If the paying client insists on using antiquated marketing methods, they cannot blame the agent when it does not work.

However, what can be painful is if an agent you trust insists on the need to ‘invest’ $5,000 House on suburban street with 'For Sale' sign in foregroundor $10,000 on a print advertising campaign. You may be fed lines such as: ‘we don’t know where the buyers will come from’ or ‘you cannot sell a secret’ or ‘it only takes one extra bid at the auction to pay for the campaign.’ These are all cheap lines that don’t stand up logically.

Agents know that print advertising is not a cost effective way to attract buyers. Even if a newspaper ad does attract a buyer, that same buyer could easily have been found through cheaper more cost effective mediums such as the internet. Low cost mediums such as the internet, a signboard, the agent’s database or even a referral from a friend, are far more likely to attract the buyer you need without blowing your budget.

Three Important Reasons

There are three important reasons why agents persevere with expensive (and needless) print campaigns in the modern era. Unfortunately, all three reasons are only important to the agent and not to you as the seller. But you should at least be aware of them.

First: Rebates

In-house magazines, volume discount arrangements with certain publications and administration fees are all ways in which agents skim client revenue off the top and turn it into a profit source for their agency. If any of these services rendered actually added value for the seller, that would be great. However, in most cases the seller winds up paying for needless print advertising while the agent profits from selling the advertising as a ‘supposedly’ wise investment.

Second: Vendor Motivation

The real estate industry proudly points to some research which shows that vendors who invest in upfront Vendor Paid Advertising (VPA) campaigns are more likely to achieve a sale than those who don’t. But the problem with raw statistics is that people rush into making incorrect assumptions about what those statistics mean. The assumption that the real estate industry makes in this case is that newspaper advertising assists in achieving the sale of a property. But this does not make any sense when you begin to join the dots.

Most agents freely acknowledge that eighty to ninety percent of enquiry comes from internet advertising. Therefore it seems highly improbable that the chances of a sale are increased by very much if you spend thousands of dollars on a medium which generates less than ten percent of all enquiries.

The real reason agents like to see owners ‘invest’ in upfront advertising, is because it increases the owner’s desire to sell. Owners are forced to ‘meet the market,’ as they say, because it is harder to walk away from an offer that is $20,000 or $30,000 below your reserve price if you have already spent $10,000 on an advertising campaign. Many sellers have their backs against the wall at this stage of the negotiation, which is just what the agent wants. It is far more difficult to reject a buyer’s low offer for $20,000 less than they want, when it will cost them $10,000 to do so.

This is where the owner gets caught up in the agent’s web.

In today’s digital age, an agent does not need upfront money from a vendor to find buyers. But in some cases, they do need it to increase the owner’s motivation to ‘meet the market’ or agree to a sale.

When selling, if you are not under duress to reclaim the money you spent on advertising, you are in a much stronger position when negotiating on price. It becomes far easier to walk away from a poor deal and put the pressure straight back onto the buyer to pay your price. You are more likely to get a higher price if you have not invested in a needless print campaign.

If you are unsure about any of this, just ask any seller who has succumbed to the pressure of VPA advertising on auction day.

Third: Print Advertising Attracts Sellers, not Buyers

The real estate industry has long touted to its members that the more ads you place, the more successful you will appear. Not more successful to buyers but more successful to other sellers in the marketplace.

Yes, the industry is convinced that if they run lots of ads showing lots of houses for sale, that they will attract more sellers. Agents proudly tell each other in seminars that they aim to dominate print media in their respective marketplace. Not because it attracts more buyers but because it attracts more sellers.

It works like this. The agent tells the seller that they need to invest in print because it will attract more buyers. And then when the sellers invest in print, future sellers waiting to decide which agent to list with, are more likely to contact the agent who has lots of ads. The original seller thinks that they have invested their money to find a buyer for their home, but the reality is that they have simply helped their agent to fill their pipeline with new listings.

If you are ever asked to invest in an aggressive marketing campaign, ask yourself ‘what am I really investing in?’ and ‘who really stands to benefit the most from my investment?’ Then you will be in a better position to make correct choices..

Source: Harris Partners’ “Property News”

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