Raise to new heights, despite the high inflation era.

I've never loved the language 'next level', but I've fallen in love with the dialogue, ‘raise to new heights.' We're all capable of more. We live in a new world, and unless you were in residential real estate in 1986, you've never experienced a high-inflation market. Interest rates are the blunt tool used by reserve banks worldwide, and when they increase, they are designed to do one thing and one thing alone - kill demand.

In an era where central banks are killing demand, what can you do as a real estate agent to create demand? We don't just prospect for sellers anymore; now, we prospect for both buyers and sellers. Find buyers who want to buy and sellers who want to sell.

During high inflation eras, central banks ratchet up interest rates to reduce the amount of available cash in the community. But as costs increase, so do prices, and consumer attitudes diminish from expansionary to contractionary. With the constant change in buying power, you have to rapidly increase your agility. House prices fall, the volume reduces, and agents in survival mode move to slash fees to win what opportunities exist in the market, and it's the quickest way to exit the industry.

There's a difference between how things are and how you want them to be. Plenty would love for the reserve banks to stop interest rate hikes and give some respite. But there are a number of causes for the inflation event of the 2020s. These include the aftermath of the 2008-10 financial crisis, COVID-19, the rapid expansion of money supply, trade conflicts and disruptions in global supply chains, plus the war in Ukraine, all leading to production and supply constraints. None of that is going to be fixed by June. International markets now realise the challenge when 90% of car wiring looms are made in Ukraine, and all the chips are made in Taiwan. After a 40-year trend of exclusive manufacturing in China, businesses aim to reduce risks by manufacturing in multiple locations, including India, China and Mexico. This retooling and reinvestment takes time. Supply-side constraints are here to stay, forcing the hand of central banks to play dangerously close to recession environments.

So what impacts on marketplaces, and what can you do about it?

Government Policy

Although separate from the Government, the Reserve Bank of Australia sets interest rates. They're expected to keep hiking, even after nine consecutive interest rate increases. There's a lag between when interest rates increase and when consumers feel it. Banks shift from new loans to refinancing as millions come off fixed loan terms. APRA, the Australian Prudential Regulation Authority, sets the assessment rate. The RBA has the cash rate set at 3.35%, adding roughly 2% on top of the banker's margins, which means the interest rate of the day is circa 5.5%. APRA regulates the banks and has increased the buffer, or assessment rate, from 2.5% to 3%. Which means you're assessed at 8.5%. As you come to the top of the interest rate cycle, the need for the assessment rate comes off, and they will soon meet to decide if it's required at its current level. When interest rates are low, they need a high buffer or assessment rate to ensure mortgagees can withstand interest rate increases.

We asked Shore Financial to produce a list of National Government initiatives as of Monday, Feb 27, 2023. Please note these are subject to frequent change, but here's the question - How many of them do you know about?

First Home Guarantee Scheme

Previously known as the First Home Loan Deposit Scheme, the Federal Government's First Home Guarantee Scheme helps you buy a property at 5% without paying LMI. Property price caps are applicable per state. From Jul 1 2022, there are 35,000 places available for the financial year.

First Home Super Saver Scheme

The First Home Super Saver Scheme lets you make pre-tax or after-tax voluntary contributions into your superannuation account to save a deposit, up to a maximum of $15,000 per year (with a maximum lifetime cap of $50,000). These contributions will then be taxed at 15% instead of your regular income tax bracket.

Downsizing Contributions Into Superannuation

If you have reached the eligible age (55 years and older), you may be able to contribute up to $300,000 from the proceeds of the sale (or part sale) of your home into your superannuation fund. There is no maximum age limit.

Astute real estate agents monitor state and federal initiatives, finding an angle to encourage buyers and sellers to transact.

Media Sentiment

The fear of overpaying (FOOP), the fear of not getting out (FONGO), and the fear of not getting in (FUNGI) are all terms driven by media sentiment. When you see others buying, you want to buy. Real estate was added to the shopping list globally during the pandemic when excess holiday cash was ploughed into either a new principal place of residence or a holiday home. Now FOOP and FONGO rule consumer sentiment. Auction clearance rates get hammered. We know any auction clearance rate above 65% for a sustained period indicates a growth market.

Interest Rates

Low interest rates stimulate a market. In the decade of declining interest rates before the pandemic, they practically made money free.

Inflation

Inflation rose quickly, based on global demand and supply shortages. Used cars increased in value, and car buyers paid more for a car they could have now rather than waiting 12-18 months to drive away a new car.

Supply (New builds, stock levels)

Supply in the market changes prices. Low stock levels so far in the first quarter have slowed the speed of price declines. With 30 major builders heading into administration in the last six months of 2022, new builds are slow to market.

Demand (Immigration, fertility rate)

Immigration projections for Australia have increased from 250,000 to 350,000 people in the next 12 months. Chinese Government policy, where students must return to face-to-face learning to achieve recognition of their University Degrees, saw 30,000 students head to our major cities in under two weeks, driving rental demand. For the first time, China saw its population decline, with a decrease in the fertility rate.

Employment

Employment drives confidence. Rapid wage increases with declining margins in business are causing a huge reshaping of the tech sector, with tech companies and prop tech under pressure to survive. All the majors like Meta, Salesforce and Twitter have laid off thousands of employees. Rightsizing of organisations becomes the mood of the day.

Each of the above impacts sentiment. And sentiment drives supply and demand.

Now that we understand the current set of waves, the role of any great agent is to bring forward the future plans of consumers to today. Regardless of the market dynamics, people still need to buy, move and sell. Births, deaths, marriages, divorces, and job relocations still go on. We're all getting older, and our next stage of life is another day closer. The skill is to shift your value, not to reduce your fee.

Value Sellers Versus Price Sellers

In any agency, we've got value sellers and price sellers. Price sellers are the agents that had to be commercial about it and reduce their fees. They'd rather reduce the fee to get the business and get moving than spend the extra 10 minutes with the client to demonstrate value. Value sellers uphold fees by doing things the customer finds valuable. You've probably seen on social media an agent who offers the top ten tips on how to present your house for sale, whereas other agents organise the quote for painting, managing a mini-renovation and styling. The future belongs to those that sell on value. The Reject Shop is a price seller; discount your way to greatness. Louis Vuitton is a value seller.

Carefully curated experiences drive fee growth. That's why great firms are turning to lead sources (the better the source, the higher the fee) and the customer experience to drive little to no competition when it comes to the listing presentation.

The new era forces you to be clear on your proposition. Why would someone pay an extra .5%, 1% or 1.5% more than a competitor? The truth is, there can only be one agent in every market who is technically the cheapest; everyone else must sell on value. I don't get why Bunnings and Officeworks will beat it by 10%, yet we have agents in the market who need to slash fees by 50%. I've never met a fee discounter who values themself.

My dad always says, tell them, tell them, then tell them again. Don't hope the customer will understand why they should pay more to use you. You need to make it clear. In the absence of differentiation, the customer will always shop on price.

Interview your five next sellers within 36 hours of them signing an agency agreement. Ask them one key question: What's the one reason why you decided to use me? The answer to that question will be your winning formula. Document it, then have the top 3 reasons why people use you on an A4 in your next presentation. We did this with our coaching clients; energy and the way I think came to the top of the list. So I know I'm in the good energy business, and I must think creatively and differently to overcome objections in the market.

The skill is to bring more value to the customer through the job framework; what can you do for them before, during and post the transaction?

Before:

- Storage

- Getting the property ready for market

- Painting

- Landscaping

- Mini-renovations

- Styling

During:

- Open-day preparation before an open house

- Channelling buyers at specific times to improve uninterrupted family life when on market

- Switching private appointments to opens online, so you attract additional buyers

- Reducing days on market through a great sales process

- Helping them purchase their next home

Post:

- Removalists

- Connection and disconnection of services

- Redirecting their mail at settlement

The list goes on. How many salespeople have a list of all the things they do before, during and post the transaction to demonstrate the value? And that's the clincher that differentiates between price and value selling.

Problem, Timeline, Destination

People won't move unless they are dissatisfied, have a vision and are prepared to make the next steps happen. Simple dialogue shifts the game.

- What problem are you looking to solve by buying, moving or selling?

- How urgent is that problem for you?

- What locations are you considering?

- How much would you like to spend?

- Have you bought locally before?

- What are your plans with the existing one when you buy the next one?

Then you chase data sets, like landlords and their principal place of residence, archived landlords, past market appraisals (as every appraisal you've done in the past is now wrong) and past clients for their annual check-ups.

Great agents shift to better cross-selling. Realise that every buyer you meet needs to land on something. You do it when you handle the enquiry, at opens, at inspections and when the property sells. And when it sells, many agents miss their biggest opportunity to take buyers from one campaign to the next.

Separate Fee from Marketing

The airlines drive profit by separating baggage from the seat ticket price. Best practice estate agents do the same, separating fee and marketing. Rather than the fee, what if you thought about it as the way you price your services?

If I say my fee is 2%, what's the next number you think of? As you're only presented with one number, you think lower, i.e. 1.5%.

What happens if I don't offer a round number first up and instead offer you a fee of 2.13%? Now, what's the next number you think of? 2%?

What happens if I give you options?

Our basic fee is 2.13%, or there's our basic plus which is 1.91% plus 10% of every $1 above the reserve. Now the customer gets to choose. Do you have it in writing on an A4 visual, or just say it verbally?

Before you negotiate on fee, make sure they've made the decision for you. If we could agree on a fee, would you use us? Why's that?

You're in real trouble if they haven't chosen you or can't see the difference.

Simple dialogue can help you quickly. If you get what you want, would it be ok if I get what I want?

It's hard to say no to that.

What if I do this: I won't charge you a fee at all, in any way, unless you get the price you want. And if you don't get what you want, then I won't charge you a fee, and you get to retain ownership. Would that be ok?

It's what happens anyway; sometimes I just explain it. The secret is to ditch the proposal mindset and list while you're there. The customer is the most primed they'll ever be; it doesn't get better when you leave.

Think, we see a decrease in volume and a decrease in average sale price in declining markets; the last thing you should do is discount your fee.

One of our clients had an aggressive competitor come to town. They had a fee of 2.5%, and the competitor came in at 1.8%. The sales reps lost their confidence. The business owner put printed posters all over the office, '2.5% looks good on you', and for 30 days, offered the sales reps 100% of any % above 2.5%. Suddenly the reps started getting 2.5%, 2.8%, 3% and even 3.3%. Fee is tied to your belief about who you are and what you do to be worth the fee you charge.

Remember - until you value yourself at the highest level, no one else will. Make sure your market is big enough for your aspirations. Don't measure the number of houses; measure the number of properties that sell every year over a ten-year trend line, so your business plan isn't based on the best market of all time. Our best agent chases 14 separate postcodes in Sydney Eastern Suburbs and is a master at it.

The skill is to set your own blue ocean strategy. Be so good, no one can get close. Create your own market. Remember David vs Goliath - Why be smashed by a Goliath when you can move quickly as a David? Or, why get smashed by a David when you can be a Goliath with a much more compelling story on volume, access to buyers, etc.

Differentiation matters, and you're the one in charge of driving that strategy. Have an abundance mindset. Boom your confidence.

Remember the quote, "This too shall pass." And as Jon Kombat Zim says, "You can't stop the waves, but you can learn to surf."