Agents need to be closely managed. They are your direct link to the income you need to generate and that will determine how profitable your project will ultimately be. Many lone real estate agents are not the best at organisation and structure — the ‘salesman gene’ often in conflict with the ‘organisation gene’. They can be more difficult to manage. Agents who have project teams with a mix of sales gurus and organised administrators experienced in selling projects (as opposed to one-off houses) will typically have good systems in place that allow them to be more easily managed.
You should have regular weekly meetings with your agents, and get to know all the agents in the team that will be involved in selling, as well as the administrators in the background (whom you will depend on to get deliverables such as marketing feedback and produce advertisements).
Think of it as the developer’s job to keep your agent motivated throughout quiet periods and especially after the initial excitement of launch dissipates. Keep the agent focused on your project — they will have other listings as well if they are any good with equally demanding clients. Great rapport and communication is critical. Make sure you are talking to your agent on the phone, texting, email, having lunch, coffee – whatever, but you should be communicating almost every day. Not only are you following up on their performance but you are communicating your performance at delivering the project. So the conversation is as much about how their sales are going as it is about how your planning approval or construction is progressing. In a standard listing the agent only gets paid when the sale is unconditional and/or settled. That can be 12, 18 or even more months from launching the project. It’s a long wait for the agent to get paid, so you need to keep them focused on the riches at the end and how relatively close that is. Otherwise they may start to think about cutting their losses, especially if issues start to arise that potentially put the project in jeopardy. Whilst few will terminate the listing (as presumably they have made some commission payable sales) their motivation will wane and they will look for other projects to work on where the commission comes quicker. This is also one reason for using agents who have a dedicated project sales team, as the agents are experienced and used to the longer term nature of the project sale.
Sales management will follow one of two different directions depending how sales are progressing.
Sales Going Well
When sales are meeting or exceeding expectations then sales management is all about maximising your sales prices and making sure you don’t sell too cheaply or do suboptimal deals. Mainly you can let your agent do their thing since it is obviously working. However, when signed sales contracts are coming in thick and fast, regularly sit down with your agent to make sure you are not under-pricing your product. Where possible push your prices higher. As tempting as it is to raise prices to increase your profit make sure you don’t push beyond what the market will bear. If you push too hard you run the risk that your product sits around a lot longer and goes stale with your sales programme losing momentum.
This is a good time to look at trends and sales velocity and to keep ahead of the competition. Measure the number of leads that are being generated, the conversion rate and look at improving it even more. Obtain the records of everyone the agent has been in contact with (the agent may be reluctant, but it is your project, your money and your leads). Question the agent on who the potential buyers are and what motivations the agent has uncovered — this could provide valuable details that help you make tweaks that further maximise profit. It is also the time to reconsider releasing further stages earlier to take advantage of good sales. Further, make sure the agent is still working the project hard. With the pressure off they may get complacent and expect contracts to just happen, rather than hunt down the best deals.
Obviously the key output of sales management is to help make sales. How do we make sure that happens in the first place? Well some reasons are within your control and others, unfortunately, are at the whim of the market. Reasons why sales are going well:
- You are priced right, offering more value compared to your competition.
- Your research paid off and you found a product type demand gap in the market.
- You are not forced to raise your prices above the market — such as caused by delays or rising construction costs or paying too much for the land in the first place.
- Your project is underway, and the objection to when you are going to start construction has disappeared.
- Your design is attractive to your target market.
- Your location is better than your competitors’.
- The market is on an accelerating cyclic upswing.
- Your agent’s team is well organised and knows how to sell.
- You are marketing the right message to the right targets in the right way.
- New competition hasn’t eventuated.
- Supply in your effective real estate neighbourhood is decreasing (and demand is stable or increasing).
- Expected positive externalities have come to fruition, or new ones have opened up — such as a new shopping centre down the road, a new school opening or a new park.
Sales Not Going Well
If sales are slower than planned then sales management is all about fixing the problem as quickly as possible. Property development is a constant process of evaluation and decision. You must decide and move forward otherwise your sunk costs and debt will eventually catch up with you and could sink the project — and maybe your solvency. Therefore if sales are slow and you cannot legitimately adjust your expected timeline (delay construction for example) without onerous costs impacts (and there typically are) then you need to make new decisions.
Firstly, identify what advertising plainly isn’t working and what is working. This is where measuring how your advertising is working becomes more important. Look at the advertising channels you are using and the message you are trying to convey. If something is working then do more of it and change or stop what isn’t working. If you can’t figure out why something isn’t working then change it anyway. How many leads are being generated and how many of these leads are being converted? What specifically can be done to increase more leads of the type that have a higher chance of being converted?
Secondly, review the objections to your product. There must be some as you are not selling! This is when it becomes important that your agent keeps diligent records and asks potential buyers all the right questions. If you don’t know the objections then you are flying blind. Get your agent to question everyone to solicit the real objections and form a database of responses. Be wary of the last anecdote the agent heard an hour before your meeting. Analyse this information so to form a picture of what the problem is. Uncovering the real objection is a challenge, but you must try. Of course there is always a price that solves all objections.
Thirdly, see the agent (and their display suite staff) in action and use a secret shopper to visit the display suite during open homes. Make contact via the website, phone and email using friends or aliases. Is your agent doing your product justice and can they actually close sales? Are they working the market or just turning up to meet and greet? Meet other agents to garner their opinion (acknowledging they will likely say almost anything to get your listing, but some will point out big issues with your product or sales approach as they see it). You need to determine if the problem is how you are selling as opposed to what you are selling. If it turns out you just have selected an incompetent or lazy agent, then make the quick decision to use someone else. This is why having a performance clause in your listing agreement is useful.
Fourthly, canvas wide opinion and relook at all your research in light of the current market. From what you have identified from everything above figure out the reasons why you are not selling, these could be:
- You are forced to price your product too high (therefore offering less value than your competitors) because you paid too much for the land, construction costs were underestimated or are rising and/or are having delays with consents.
- Your research has been poor and you have not identified the correct surplus demand capacity or the right product.
- Advertising is not reaching your target market (you are doing too little advertising, in the wrong publications or not creating a high enough profile and buzz in your effective real estate neighbourhood).
- Advertising is not conveying the right marketing message to describe your products value to the target market
- Marketing messages not aligned to the target buyer’s criteria. You might have assumed the target market is already looking for your product, when in fact they may need to be educated in your product in the first place (for example, three bedroom homes in a larger home suburb may go unnoticed until you educate buyers interested in this location of your smaller homes’ superior value).
- Your functional design is lacklustre compared to your competitors (for example, the second living area should really be another bedroom, or everyone needs double car garaging in this location).
- Architectural aesthetics have missed the mark — it doesn’t look good to your target buyer profiles.
- Your agent and sales team are not performing.
- The project has lost momentum and gone stale in the market. People now gloss over it and ask ‘why should I buy if no one else is?’ Or other negative perceptions persist such as the product now appears cheap and low value.
- The market has flattened and the media have turned negative on housing — you have missed the market upswing, or caught at an inflexion point.
- Affordability and available funding for your purchasers has decreased.
- Investors have left the market — investment yields are too low or banks are tightening up lending criteria.
- Your target market has left the effective real estate neighbourhood (foreign investor restrictions, immigration issues or the location is overtaken by a new type of gentrification or has entered a decline).
Finally, recalibrate your sales and marketing strategy to fix the problem. If the problem is minor (perhaps you haven’t been sending out a strong enough call to action, or advertising is slightly off target), then you may only have to tweak what you are doing. If your product is simply overpriced and you have no room to move on construction costs then you will need to make some big changes such as redesign or, worse case, cancel the project.
It can be demoralising to have to make significant changes, especially with all the hard work done to date. Unfortunately that is the reality of property development whether you are first time or experienced. There are so many variables difficult to control, or completely outside of your control that rarely does a project proceed without issue and some degree of change and rework. In a rising market, these issues are easily covered by the flow of money; in a down market the lack of money exposes and amplifies the problem.
Price solves most problems, even in the worst of markets and underlies many of the reasons above (someone will pay if the issue is appropriately discounted). Everything has a price and the quickest way to recalibrate your marketing is to leave everything else in place and lower the price. However, reducing your price should be a last resort even if your project can afford it. Throwing incentives (such as free holidays or reduced first year interest rates) to potential buyers is a half way measure, perceived by many as simply avoiding lowering the price. Including upgrades is a more discrete version of throwing incentives at buyers, but you have to get them in the door in the first place.
To maximise your profit, make sure you are comfortable and capitalised to enable new decisions and make potentially significant changes as part of your sales (income) management.
Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com
