Declining market playbook.

If you’re new to residential real estate in the last three years, you’d probably assume that all property prices do is go up. If you joined the industry in the last nine years, you’ve never seen a Federal Labor Government, an increase in interest rates, or inflation.

We're now in a very different period of the market cycle. In the previous cycle, the market rose fast as cash fell from the sky, and record low-interest rates overstimulated the market. As we recover from the impacts of the pandemic, rapidly rising inflation from all that stimulatory policy now finds us in a declining property market.

The national property clock over time has gone from peak to decline, to the bottom of the market, then to a rising market and back to the peak in 5-7 years. Now we’re seeing it go from peak to peak in under 18 months, all driven by vast amounts of Government intervention.

Given that the market will decline for the foreseeable future, it’s time to switch gears. Below is a series of tools and strategic approaches to survive and thrive in the new world.?

There are three consumer types that thrive during a declining market:

First home buyers - As rental prices increase, it makes sense to pay off a mortgage rather than pay ever-increasing rent. Government incentives for First Home Buyers and First Home Builders provide support to bridge the gap on deposits and get more first home buyers into the market.

Investors also do well. At one point in the pandemic, up to 30% of the properties available for sale in markets like Leichhardt in Sydney’s inner west were previous investment properties. Investors make money in two ways, one from the rent they receive and two from the capital gains they make in the appreciating value of their investments. Many Landlords chose to sell, to take that capital gain. With global unrest, investors flock back to safe assets like residential real estate, and given a sharp increase in rents as buyers move to rent, there are locations where price, value and return are now meeting.

Upsizers also do incredibly well, as the more expensive home they wanted to purchase is cheaper; the one they have hasn’t suffered as much in price declines, so the change over costs are the cheapest they’ve ever been.

If you want to win, list more property that suits first home buyers, investors and upsizers.?

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No More Solo Offers

If a property is on the market for $1m, and you present an offer for $950,000, the owner will likely ask you to find a buyer closer to the $1m. If you present two offers, one at $900,000 and the other at $950,000, the owners will likely work with you to begin the negotiations with the buyer who made the strongest offer. The law of comparison works in your favour; you’re likely to choose the best when presented with two options.?

Reference Point

Change the reference point. The reference point is no longer the day of the market appraisal or listing. Prices are dynamic in a declining market. Where sellers begin and where they end are two different things. The longer a property is on the market, the more likely it is to sell at some level of a discount. Let’s say an owner purchased a property in December 2019 for $1m; by the time it made it to July 2021, in some markets it may have resold for up to $1.4m. By the time the property comes to market in September 2022, that same property may now sell for $1.3m. The owner has trouble justifying why they’ve lost $100,000 when they should be excited to have gained $300,000, a 30% increase on the original purchase price.?

Change Over Costs

In declining markets, it’s no longer about the purchase or sale price in isolation; it’s all about the change over costs. At the bottom of the market, if a seller sells for $1m and upgrades into a $2m property, the changeover costs are $1m, plus agents and stamp duty. As the market rises, the $1m property is now $1.1m, the subject property is $2.2m, and the change over cost is $1.1m. In a declining market, the $2.2m property is now likely to sell for $2,050,000. Yet, the seller’s $1.1m property stays relatively stable as there’s plenty of buyer demand from first home buyers and investors; the change over cost is the least it’s ever been at $950,000. Always work the change over costs and realise if you're buying up and have secure employment, there’s never been a better time.

Banks Shift to Retention

In a rapid inflation environment, central banks worldwide move to rapidly increasing interest rates. As the cost of money increases, consumers have less money to spend, and a cost of living crisis begins. As property prices decline, housing affordability improves. After ten years of relatively flat or declining interest rates, consumers are now faced with increased interest rates. Banks are short of new customers when you take a notional 1000 buyers and shift them to the renting queue. They shift their strategy to stealing other banks’ customers. Some include borrowers coming out of fixed-rate mortgages, and others are just good borrowers. Our experience is if your equity position has changed, and you speak with your mortgage broker or bank and threaten to leave to the competition, they’ll move quickly to retain you by decreasing your interest rate. We’ve seen clients achieve a minimum of a .5% and up to a 1.3% reduction in their interest rate of the day just by asking.?

Leverage In the Deal

Why this one? Why now? Five great words, two incredible questions. When used with great buyer work, they cut to the chase to identify why the buyer likes this home, and why now uncovers what’s driving the decision; i.e. vision or dissatisfaction. When working with buyers, it’s critical to find out both. If a buyer wants to buy a home, there’s little leverage. That bargaining power shifts when you learn more about why this one, why now. Imagine you’re negotiating with a buyer and you ask those two questions. You find out the buyer has already sold, they are moving from Darwin to your location, and they have to buy or they are homeless. The subject home is located in a hilly area and is one of a few homes with no stairs. They are keen on a single-level home as they have kids. The home is also located within 300 m of the in-laws, there’s an extra height garage door, and the husband is keen so he can drive his 4WD in with the roof racks on. Watch how fast the negotiation shifts. You don’t always have to have another buyer for a buyer to pay more. The more knowledge you have, the more bargaining power you have in the negotiation.?

Tape Measure Close

Marketing is a battle of perception. Imagine you turn up to a private appointment as a buyer, and you walk in and catch the real estate agent in the act with another buyer, measuring the fridge space with a tape measure. Immediately you feel the other party is about to buy the home you want. In seconds your blood rushes to your head, and you move at speed. Make sure you take a tape measure to all buyer appointments and open houses.

9:14

Measure campaigns logically, not emotionally. There are two critical timelines to ensure the campaign is on track. By day 9 you need to have a buyer coming back for a second appointment. We know that during the opening week of the campaign we experience a wave of buyer interest. From the callbacks, your role is to get a buyer back for that second appointment. People spend more time at the supermarket than they do inspecting a home they’re about to live in for the next ten years. By day 14 you must receive an offer. No offer = no decision. If you don’t ask, you don’t get. What do you feel it’s worth based on what you’ve seen? Would you like to own it? At what price would you take it off the market? All great questions. If you don’t have a second appointment by day 9 or an offer by day 14, you must act decisively. Your options could include a change in marketing, a change in sale method (including pushing out the auction date), or a change in pricing. Whenever you make a change, you must have a buyer appointment within the following 24 hours so the owner links the change to new buyer activity. The longer you wait, the worse it gets.?

Six Stages Of a Campaign

The modern marketing campaign is changing and now has six clear stages:

Stage 1 - Photos and three buyers

What’s the benefit to a buyer being on your database? Highly progressive agents have a weekly buyer email with a heading called ’yet to be photographed'. It allows buyers to find out about new listings before they go to market on major real estate websites. Getting three buyers to a property in and around the photo appointments drives the fear of missing out. Great agents buyer match with previous properties they’ve sold over the last 12 months. Call buyers to see if they still have an appetite, then invite them to the photo shoot.

Stage 2 - Off-market

Once the property is photographed, you move quickly to the off-market stage. In your weekly email, have a section called off-market where you have a list of off-market properties. You should also have a section on your website for off-market properties. This provides an advantage for buyers loyal to your brand to find out about properties before the rest of the market. It’s also a great holding tank to slow or speed up properties to market, depending on the time of year or the amount of open homes you have each weekend. Let’s say you have five open houses every weekend; you can hold new listings off-market until you sell a property, and then you fast forward those off-market properties to market. Hence, you have a consistent number of opens every weekend. It’s also a great tool to list in December for a January launch to kickstart a new year and get back to working buyers at opens.

Stage 3 - Launch week

What’s the purpose of just listed? It’s not just an Instagram post; it’s a chance to get all the neighbours to the property. On the Thursday before the first open home, take an invitation to the neighbours with a property brochure. Door knock the ten houses either side and the 20 across the street after 4 pm, when parents and kids are home post-school, and invite them to the open. Ask them for a mobile number so you can SMS them the result when it sells. On Friday, place a door hanger on each door of those same homes, reminding them of the open on the weekend. On the Saturday morning, SMS those owners to remind them of that open house. If you have 7 of the neighbours turn up, with one buyer who happens to be keen to buy, it drives the fear of missing out. Maximise the buyer audience with great buyer matching, digital channels with portals, email, website, AI and social, including paid partnerships with key Instagram accounts for architecturally significant property.?

Stage 4 - On-market

After the buzz of the first week on the market, shift to your rules; by day 9, look for that second appointment and by day 14, look for an offer. If you can’t get either, adjust. Working hard early in the campaign is best, whilst you’ve got energy, momentum and trust.?

Stage 5 - Auction day

Whether you prefer auction or for sale, what’s critical is that you sell by day 28. Auction campaigns are favoured as they bring the transaction to a head, force decisions to drive buyer focus, and bring together an unconditional transaction. Heading into auction day, register interested parties five days out from the auction day. Know what to do and coach the buyer, even if it’s a one-bidder auction.

Stage 6 - Post-auction?

?If the property doesn’t sell on auction day, revert to a fixed price, open the home again later that day, on the auction day, and again on Monday. Some clients believe that if a property isn’t sold within 14 days of an auction it must be taken back to auction. A property that languishes on the market is going nowhere fast. Always do what’s in the best interest of your vendor. Make sure you re-sign the agency agreement to remain in an exclusive authority period.?

The great news is you can sell at any stage of the campaign. You have six stages at which you can sell the home and each stage allows 100% flexibility in approach. Consumers are fast-moving; they respond quickly, and our role as great agents is to give buyers and sellers the confidence to transact. I meet many people who say they do most of it, but just like making pancakes, you can’t use most of the ingredients. You either do it all, or you don’t, and every time you miss one of the steps you expose yourself, the owners, and the buyers to risk. Reduce the risk, maximise the sale price, make it easy and get them sold. It’s an excellent formula for continued career success. ?