All Topics / Help Needed! / Development advice: dealing with R/E agents on development projects.

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  • Profile photo of egdegd
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    @egd
    Join Date: 2005
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    Hi Folks

    A while back a few friends and I pooled funds, formed a company, and have since acquired roughly 13,500SQM of land (with around 100SQM beach frontage). We are now in the process of seeking development approval and have engaged town planners and architects. Per planning regulations we should be in a position to develop a combination of 61 townhouses/ apartments. Whilst we're pretty comfortable with the overall development process etc, I have some questions regarding marketing and R/E contracts for a development of this scale. A few facts to contextualise my question:

    1. one of us is a licensed real estate agent (operating for own account) and lives in the area of the development. This person will be available to act as R/E agent for sale of product arising from the development, however, we would also like to leverage the reputability and marketability provided by using a well know R/E brand in the marketplace.
    2. we intend marketing to overseas as well as interstate investors – this aspect can be managed by ourselves as the shareholders are located across Australia and in the Asia Pacific region, and we should have reasonable access to potential property investors.
    3. we are considering some initial house/ land package sales to augment cashflow during development activity.

    Question: anyone have any insight as to how R/E agencies typically like to structure their contracts for developments such as this? Initial discussions with one agency indicated they expect a 4.5% commission (excluding marketing costs) and exclusivity. This was presented as non-negotiable – needless to say we'll be looking elsewhere.

    Profile photo of L.A AussieL.A Aussie
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    @l.a-aussie
    Join Date: 2006
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    I would have thought that a project like yours would be an absolute rubbing the hands together deal for the agents; they get instant listing for 61 properties. How good is that?

    With that in mind, I would expect that they would be sharpening their commission pencil to get it.

    Name your own figure. Someone will accept for sure.

    Or, do the r/e stuff yourself through your colleague, and what you will save on agent's commissions you can put towards more and better marketing.

    At the end of the day, the buyers don't care who the agent is that's selling the development; so why bother with a "high profile" agency. They aren't necessarily better for a start, and all you want is exposure to the market. You can do that yourself.

    Profile photo of Jon ChownJon Chown
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    @jon-chown
    Join Date: 2007
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    While I respect Marc for many of his common sense answers to threads on this forum, we continue to dissagree on the matter of Sales and Marketing.    If property did indeed sell itself then there would be no need to have agents at all.   The truth is, if you pay peanuts as Marc suggests, I can almost guarantee that you will get monkeys.   Just because ther are 61 listings, it doesn't mean that it is necessarily a walk in the park.   It would have been nice to know approximately where this development is situated.   Is it in a Capital City or a Regional area?   Without knowing this I can't give specific advice but here are a few points to consider.

    Setting the List Prices.   Make sure that you don't fall into the trap of believeing that your development is the better than all of the others in the area and hence believe that it is worth more than theirs.  Buyers (even overseas and interstate) are not silly, they will quickly see if the property is 'at market value'.

    Legal Documentation.   As you will be selling 'Off the Plan', you will need to have Contracts, Body Corporate and Disclosure Statements prepared.   These are quite a lengthy and thick document and the better they are prepared the easier it will be to have a buyer sign one after their solicitor has perused it.   Look for a Property Lawyer who has done this before.   Believe me you won't regret it.

    Marketing.   Contrary to the beliefs of some on this site – Build it and they will come – attitude is just horse sxxxt.   In real life you simply can't sell a secret.   In order to get the best result, you need to market the property correctly and to the right audience.   Remember you will be looking for 61 Buyers.   Now if your list price is going to be around $400K and you are in a major City, then the job shouldn't be difficult, provided you employ a good builder who takes attention to detail and provides a good finish.   If however (as I suspect) this is going to be a top end product and prices are going to be around the $1 million mark, then business may well be slow.   Make sure you budget accordingly.   Produce professional brochures and perhaps even look into having a 3D Model made so that people with little vision who perhaps can't read a plan can visualize the finished project.   You may even need to set up a display unit to show the quality of finishes that will be provided.

    Agents.     Again, not knowing where you are and thus not knowing how many agents are around the area, it is difficult to answer this point with accuracy.   I would certainly reccomend that you appoint one agent as the 'Marketing Agent' (This person could be your Licensed Partner).   The reason for this is that you want one person responsible for the security of the site at completion and for the viewing of units during construction.   You also need just one person to act as the contact and go between for other Agents.   It is common practice for Developers to offer 100% commission to outside Agents and an overrider to the Marketing Agent. (around half – which is why the marketing agent asked for 4.5%).   The reason for this, is that you don't want other agents, who don't have the opportunity to sell your product from bagging ot to potential buyers – plant the seed of doubt.

    Pre Sales.   Depending on your method of funding this project, if it is through a Bank, I am almost certain that they will demand a number of presales before advancing any finance.   This again is not uncommon, especially as it is your first project.   I have just finished selling 22 units in a development done by a first timer and believe me it was harder than if a reputable Developer like 'Mirvac" had been involved.   They have a proven track record.   Think about this when you choose a Builder as well.

    I could probably go on with a lot more, but you may be better to chew on that for a while.

    Jon

    Profile photo of voyagervoyager
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    @voyager
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    I agree with jon on the most part. remeber that there are usually plenty of developments in your area and agents will take buyers to the ones that they will get paid a full commission on. The devs that don't pay that full commission usually won't get full exposure with buyers.

    I have just been on a business trip to hervey bay where the market is flooded with development stock and second hand stock… guess which product will move first?

    Profile photo of L.A AussieL.A Aussie
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    @l.a-aussie
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    No offence to Jon, but you'll never hear an agent say they aren't worth the money they are paid.

    Anyone with some marketing skills and training (not me) could do a better job than most agencies, and if the project is of the size you are describing, then it would be worth it to employ someone who is a professional; especially if you are considering advertising overseas.

    Agents are not marketing gurus. I used to be one for a time. They are basically salespeople. The best ones are good negotiators, but are they worth twice the going rate to make a sale? No.

    If your property is advertised at the correct price from day one, it will sell quickly, with or without a massive ad campaign, or the better agent.

    The buyers are already out and about, looking in the agent's window, on the internet, driving around the area looking at signs on front fences, looking in the papers.

    Save the money and sell it at the right price from the beginning with a few well-placed and inexpensive ads.

    Agents are simply the place people go to to buy property because they are the only industry that facilitates the sale.

    Like going to Bunnings to buy a hammer.  But Bunnings employ professional marketing consultants.

    Just employ the agent (you already have one as your partner) to handle enquiries and inspections, and Sale Contracts etc.

    If you must employ an outside agent to handle the sales, then so be it, but 4.5% is a total joke.

    You'll get someone for around 2% soon enough, and they will do just as good (or bad) a job as someone who is stiffing you for 4.5%.

    Profile photo of Jon ChownJon Chown
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    @jon-chown
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    No offence to Jon, but you'll never hear an agent say they aren't worth the money they are paid.

    None taken, as I mentioned above, I respect many of your posts and your constant replies to peoples questions shows me that you care enough to take the time to answer.   The problem we all have is that often our replies are governed by our past experiences, and you have obviously had bad experiences in property transactions with agents.   That is not to say that all agents are bad (I admit that there are bad ones out there), however I believe that the reply and advice that I gave to EGD (who by the way has not replied) is not only sound but proven to be true.

    You say that you will never hear an agent say that they aren't worth the money that they are paid is quite correct, however I return the statement to you and please tell me anyone (no matter what business or trade) goes around saying that they are not worth what they are being paid.

    Agents are not marketing gurus. I used to be one for a time. They are basically salespeople. The best ones are good negotiators, but are they worth twice the going rate to make a sale? No.

    Again I agree that most agents are not marketing gurus.   But what is the going rate for a sale?

    If your property is advertised at the correct price from day one, it will sell quickly, with or without a massive ad campaign, or the better agent.

    The buyers are already out and about, looking in the agent's window, on the internet, driving around the area looking at signs on front fences, looking in the papers.

    Straight from the Jenman book of drivel.   I have been an agent for over 30 years and I can't remember when the last Buyer came in off the window.   And one point that you seem to miss is that now days many properties(specifically units) are not permitted to have a sign on them.   The only points that I agree with you on, are 'correct price' (if you know it) and Internet advertising.   The rest is just wishfull thinking.

    Let me just  add that if the property that you are selling is priced between $300k and $400K (on todays market) then I agree that selling it will be a lot easies than say a $600K unit in Brisbane.   The reason for this is a Supply and Demand issue and nothing else.   80 % of enquiry to my office at present is for property under $400K. in an area that has very few under $400K properties.

    Agents are simply the place people go to to buy property because they are the only industry that facilitates the sale.

    Wrong.   –   You can always sell it yourself after all, apparently it's dead easy.

    Like going to Bunnings to buy a hammer.  But Bunnings employ professional marketing consultants.

    Wrong again.   When was the last time that you went to a Bunnings store.   Your statement is an asumption based on what they were like when they started, from my experiences of late they seem to hire juniors who wouldn't know what a hammer was.

    You'll get someone for around 2% soon enough, and they will do just as good (or bad) a job as someone who is stiffing you for 4.5%.

    In theory, one would expect (even hope) that this were true.   But try thinking of it along these terms, if you needed a heart transplant would you look for the Doctor who would do it for the least or would you look for the Doctor who had the proven track record and charged for his time accordingly?   The posts on this forum alone, abound with people who have been burnt by looking for the cheapest and in hindsight regrett not useing the professional.

    I suggest that the real task for most people is finding the person who can actually back up their words with actions and deliver the results.   This is why so many of us preferr to work on a referral basis.

    Jon

     

    Profile photo of cu@thetop[email protected]
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    @cu-thetop
    Join Date: 2007
    Post Count: 36

    Prohibit any agent from acquiring any of the properties from the outset.

    Only put a few on the market , or once you've reached your financiers pre sales target- reduce available stock

    Keep the best off the market for yourself

    Always have the agency agreement open for review.

    Why not appoint two agents- don't let them be complacent

    Profile photo of egdegd
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    @egd
    Join Date: 2005
    Post Count: 5

    Thanks folks, some good tips gratefully received.  To Jon, the development is along the Whitsunday Coast, making it regional.  Interested in your additional comments/ views.

    Profile photo of Jon ChownJon Chown
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    @jon-chown
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    To Jon, the development is along the Whitsunday Coast, making it regional.  Interested in your additional comments/ views.

    EGD.   For those who have had the opportunity to visit this area, it would have to be one of the most beautifull parts of Queensland, even Auatralia for that matter.   From what I understand, the population is growing mainly by retirees and people looking for a sea change.   It's main industry, I assume, would be Tourism, hence somewhat a transient population.

    My immediate thoughts are:-

    Have you designed the project towards Ownership or Investment (holliday lets)?
    Are the Townhouses going to be over $500,000 each?
    Work hard with the Architect to maximise GFA with limited wasted space.   Dare to be different.
    As I am presuming that most of your sales will originate out of the area, waiting for Buyers to look for signs or look in agents window will be next to useless and a well planned Marketing Plan will be essentual.
    Organise a Property Investment Analysis to be done by a Quantity Surveyor ( after they have done a depreciation schedule) and include this with your Marketing.  
    Talk to property managers in the area and ascertain the expected weekly rent (Projected Annual as well).   It is better to be on the mark not over the mark.   If a Buyer feels that you are quoting an excessive figure they will be less likely to believe any other marketing material as well.

    There is possibly much more that I could add.   If you would like an independant opinion of the plans, I would be happy to view them and offer constructive advise.   You are welcome to email me if you wish.

    Jon 

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