The Leopard’s New Spots – Expensive Internet Ads

By Peter O’Malley

Real estate agents love a ‘motivated vendor’. Why? Because a motivated vendor is far more likely to sell, even if the price is below their expectations. Unmotivated vendors are more likely to reject lower than expected offers. You may have heard the saying, ‘the best time to sell is when you don’t need to.’ It’s this lack of motivation in the seller that causes indifference, inadvertently creating an advantage of sorts for themselves, over the buyer. The buyer and/or agent need to pander to the seller’s demands when the vendor’s motivation to sell is low. Unmotivated vendors can be a nightmare for many real estate agents if they are ambivalent about selling, but the agent only gets paid if they do sell, which creates conflicting motives for the seller and their agent.

Sometimes, strong market conditions deliver agents easy negotiations, resulting in both the vendors and buyers being happy with the end result. In normal trading conditions, real estate agents are often left to deal with a gap between the vendor’s ‘sell price’ and the buyers ‘buy price’. If the buyer is focused on a fair market price and the vendor wants an above market price, then the agent will usually work on the party they can exert the most pressure on, the seller.

When a vendor signs with an agent, they are exclusively signed to that agent’s firm for the duration of the agreed listing period. This arrangement provides the real estate agent with a degree of control, particularly if they have a motivated vendor. A buyer is free to wander in and out of as many real estate agent’s offices as they choose to, during their search for a new home. Therefore during negotiations, real estate agents have a lot less influence on buyers than they do on sellers.

Two types of motivated vendors There are two types of motivated vendors. The first is the ‘pragmatically’ motivated vendor. They may have bought elsewhere, be in control of a deceased estate or be selling a long held, yet profitable investment. Pragmatically motivated vendors accept the best market price and sell. They are motivated enough to sell so that the agent does not have a particularly difficult time ‘controlling the vendor’. This allows the agent to focus more on attaining each buyer’s best price, confident that the vendor will accept the highest offer. The second type of vendor is an ‘artificially’ motivated one. They ‘were’ only motivated to sell if the price was right. Strangely enough, they find themselves having moved the tenants out of their investment property, committed thousands of dollars towards hiring furniture and spent several thousand more on internet ads. Internet ads which cost several thousand dollars! When did that happen? How did that happen? And most importantly, why is that happening?

Real estate agents may have been weaned off newspaper ads (very, very reluctantly), but they are now embracing a new form of advertising like there is no tomorrow, expensive internet advertising. Expensive Internet ads ‘Bigger photos equal more buyers’, sellers are assured. ‘Make your property standout amongst the crowd. You cannot sell a secret’. The cheap lines that agents used to sell needless newspaper ads are now being used to sell unnecessarily expensive internet campaigns.

‘Vendors…If you are not on page 1 of the buyers search you have erected a signboard in the forest’ screams the real estate trainer hired to increase the amount of ‘Vendor Paid Advertising’ (VPA) sold by agents. Negotiators call it the ‘sunk cost syndrome’. If you can get someone to invest upfront – emotionally or financially – in an outcome, they are substantially more motivated to want a return on their investment. The sunk cost syndrome allows agents to sell unmotivated vendors a poison pill in the form of increased exposure. Once the vendor swallows that pill, they have unwittingly increased their motivation to sell, tenfold. Agents therefore now love expensive internet ads for exactly the same reason they loved expensive newspaper ads. The real estate industry still proudly spruiks the idea that campaigns which utilise print marketing have higher clearance rates than those that don’t. That’s a really weird conclusion to draw when you consider that home buyers rarely look at print ads now!

What is not said by the industry, is the fact that vendors cajoled into spending money on a print campaign have needlessly spent good money on bad advertising. While their agent has caused them to become more motivated to sell, they have also caused them to pay for advertising in a medium where buyers don’t look anymore! To ascertain whether expensive internet ads work, let’s look at them from the perspective of a buyer. As a buyer, would you accept or reject homes based on the size of the home’s respective ads or photographs? Do you like homes that are on page 1, more than homes listed on page 3? Are you more or less likely to inspect a home because the internet site allows you to go on a video tour? If you are like most buyers, and the answer is less likely to inspect the home because you have now seen inside, then why would you pay to run a video tour ad in the first place? A few probing questions uncover some surprising answers! Agents now buy subscription packages from advertisers, which force them to run expensive web campaigns. The rules are simple. Either the consumer or the agent pays upfront for these ads, but pay upfront they must, regardless of the outcome of the sales campaign. It is easy to see then, where an agent’s passion for selling vendors this type of expensive internet advertising is derived from.

Stockbrokers love big real estate websites – they are ‘high margin businesses’. That is, they have low costs and high incomes. Their cost base has barely risen as their volume of business and income has exploded in recent years. ‘Rightmove’ the premier real estate site in the UK, has seen its share price rise four times in the past five years based on this very same model. Rightmove’s defacto sales people are real estate agents in the field talking to homeowners about the benefits of Rightmove. ‘Zillow’, the number 1 real estate portal in the US, is attempting to replicate elements of the Australian model of VPA, amongst other strategies. Many of the major shareholders in Zillow are Australian. They appreciate the profitability of a dominant real estate portal where real estate agents act as unofficial advertising salespeople for the portal. In Australia, the real estate industry’s greatest fear is ‘digital disruption’.

Industry forums are full of agents who fear their ‘Uber’ moment is imminent. And it may well be if they continue to unnecessarily charge home sellers thousands of dollars for expensive internet campaigns, when inexpensive internet campaigns work just as well, if not better. The leopard may have changed his spots from newspaper ads to internet ads, but vendors should be aware, he is still a leopard.

Article written by Peter O’Malley and sourced from Real Estate Uncovered.