Lucas Cannan: Welcome to Think Tank episode #2. Today we're gonna be talking about price guides, quoting price and then revising your estimate as well. With me today I have Andrew Coulson and Brian Cannan. Hello gentlemen.
Brian Cannan: Afternoon Lucas.
Andrew Coulson: Afternoon Lucas, how are you?
Lucas: Very good, so I think it's really important that we we start from the very top and we really talk about what is a representation of selling price in relation to our true estimate. So before we get to true estimate, what's a representation of selling price?
Andrew: It is important that we recognise this because fair trading and doing a lot of inspections to around offices right through Sydney at the moment.
Brian: Yeah we're getting phone calls every day here.
Andrew: So it's really important that we get it right as far as estimate a selling price quoting ranges those sorts of things, so when we consider an estimate a selling price we're looking at any statement that you make during the marketing of the property that may be in a brochure it might be verbal it might be the back end digital might be in the back end of your your web search range portals
Brian: Email
Andrew: Any time you mention a range it's considered a statement and that must comply with the regulations.
Lucas: Now there have been instances in the past where by Fair Trading have come and inspected a property and let's say use an example for example let's use an example here where the estimate is saying price was $1 million to $1.1 million but the buyer feedback said just south of them and may have been you know mid 9s, so $950,000 and agents were talking price at from the $950,000 because that's where the buyers were talking. Is there a problem with that?
Brian: Well first of all your reasonable estimate of selling price you have to have the substantiation around it and that's what they're really looking for. Now once you have that substantiation yes and you said $1 million to $1.1 million and the feedback from buyers is $950k the law is very simple and very clear you cannot quote anything less than $1 million if you quote 1 cent one dollar under $1 million it's on your agency agreement then you are under quoting it's very clear. Now quoting as Andrew said and that includes verbal so a lot of agency if I verbally say what by feedback is at the $950k I'm not doing anything wrong absolutely that is under quoting.
Andrew: Even to a point where some agents don't use the line well I've had an offer of $950k the owners said no to it again you're making a statement around price.
Lucas: Or a representation
Andrew: A representation that we can't make that statement we can't send the emails out to people in that way because we are making statements less than our estimated selling price.
Brian: Correct.
Lucas: Now when we talk about quoting price it's really important to divide it right between private treaty and auctions let's start with private treaty because it's a little bit more clear-cut isn't it.
Andrew: It is.
Brian: I'm not sure about that.
Andrew: Well if it depends how easy it is to fill in an agency agreement. Enough agents have problems with that but at the sales inspection report which usually forms the front page of the private treaty agency agreement has a section there where you put down your estimate of the likely selling price. That's your opinion and as Brian says, you come up with that based on your information, you're gathering, your comments, the market data.
Brian: Research.
Andrew: All that research that you're putting in and we are required to put some skill and diligence it's not just a matter of printing out 4 sales from rpData or an agent and saying well that gives you my number we have to have good research to be able to come up with a guide that goes on the front page of that inspection report. Then the second section of your agency agreement which is the exclusive agency that has an asking price.
Brian: What price is the property to be offered at.
Andrew: And depending on your owners instructions they may choose to say well I want you follow their instructions you put their asking price in there or they might give you alternative instructions or you might discuss what a good strategy is to around there.
Brian: Yeah but some agents are liking the strategy of not go to auction.
Andrew: Hmmm. Really?
Brian: Yeah I know really scares me being auctioneers. But some agents are saying well we'll do an expression of interest or Express Sale or negotiate and if they want to put a price guide on there, what do they do then?
Andrew: Well again the rules are quite simple that we've got a one follow their instructions and secondly that number cannot be less than our estimate of the likely selling price on the front.
Brian: What would you be writing on the part where it says at what price is the property to be offered?
Andrew: Most agents are putting in there by negotiation by expressions of interest, express sale remember we're not going to be writing offers from, offers over, those sorts of comments. We're going to clarify those instructions depending on the strategy that you're discussing at your listing presentation.
Brian: Yeah and your owner needs to be clear on that strategy. I didn't go to if I was heading down that avenue, I've even go and get the owner to give me instructions to use the strategy and they understand the strategy. Okay, but I still would want if you're doing an expression of interest sale and you're going to put a guide on your advertising I'd love to see the same guide as as expression of interest and the guide that you're using advertising to be in at what price is it to be offered at.
Andrew: It's so much around transparency, and making sure that you're clear, you're not deceptive, you've been quite open and honest and that'll be appreciated.
Brian: But remember that guide if it's going to be an expression of interest cannot be less than what you put on as your guide for your selling estimate.
Andrew: And similarly with your auction agency agreement.
Brian: Yep.
Andrew: You're gonna have the opportunity there to put your estimate of what the likely selling price will be and then in the agency agreement itself it'll have the reserve price what do we just put there TBA.
Brian: Sure. That's a good idea!
Lucas: TBC
Brian: Yeah, there's not enough room but write To Be Advised.
Andrew: Just leave it blank.
Brian: No, we're joking, you've got to To Be Advised. But what happens we had an agent that sent one away overseas had that had their estimate likely selling price at $2.2 million to $2.3 million and it came back and the owners are set to reserve at $2.5 million they came in to CPD and said "What can I quote?" so I asked the class and it was 50/50 half of them said $2.2 million to $2.3 million the other half said can't quote any less than $2.5 million.
Andrew: Good. At least there's 50% of agents out there that have some sort of idea.
Brian: It was good and because once the owner gives you indication in writing of what they want then you've got to start quoting that.
Andrew: That's right, that's why most of us do our reserve meeting very very close, the day before or the day of the auction so that once they give you that reserve price you're not going to be quoting anything...
Brian: The written reserve meeting, the written price we can still have verbally talking about it and where they're at and what they're doing because they're not they haven't made their mind up, when they put pen to paper they've made their mind up.
Andrew: Yeah it's it's all within the Australian Consumer Law that we're not misleading or deceptive by telling people our number when the owner's have made it clear this is the last price that we're prepared to accept.
Brian: In writing.
Lucas: Which is what we're really tossing up between here the Property Stock & Business Agents Act says we can't quote less than what our estimate is but if the owners have given us into an indication of what they're wanting to sell the property itself or whether that be price of which the property's to be marketed for in private treaty or the auction reserve price in the auction method of sale we don't want to breach the Australian Consumer Law in that regard.
Brian: No.
Andrew: Yes, I agree.
Lucas: So now that know in that respect now we've brought up the Australian Consumer Law how does it work around offers because during the course of the campaign obviously offers will hopefully come through that'll be the idea what happens if in our in our range where you can that use that same range $1 million to $1.1 million and we get an offer right in the middle of $1,050,000.
Andrew: Park it. Sorry, obviously, what's an offer?
Brian: That's the question I had that question today so the scenario today was that the buyer wants to put an offer in it's at a level that the owner would look at taking and the agent has recommended that they put on contract with the 66w so the owner can take it seriously and he's having a discussion with the purchaser's solicitor and the solicitor's saying well send me a sales advice is that offer accepted and he's trying to explain that that for that offer to be accepted it needs to be on contract and the solicitor said it is an offer and the agent saying no it's not it is an offer first of all it is often what how the agent should have handled that was yes to agree with the solicitor it is an offer but my client has instructed me in writing to qualify that offer before they'll answer it now that qualification that the client wants is a 66w because if they come to auction and sign it there's no cooling-off prison they want the same conditions on the day of the auction for that offer before that before they consider it.
Andrew: Yeah again we always turn to the legislation the legislation says unless otherwise instructed in writing all offers must be conveyed to the principal in writing so we don't get the choice to say what is considered an offer or not we get told unless they give us written instruction so unless that vendor says I want it on a contract with a 66w or I won't consider offers in this format.
Brian: Yeah but if we get a verbal offer we have the right to qualify that offer.
Andrew: Certainly.
Brian: Okay before we take it to the owner.
Andrew: Certainly, because we got to know the grounds of what that offer is it's not just price.
Brian: No you need to know the conditions around it and the owner has the right to say look I don't really consider that to be an offer until I get a 66w so you can put that on a on a contract and have a 66w which is the same terms as auction day then I will consider that offer and they had the right to that as well but the solicitor was getting upset with the agent because the agent was saying it's not an offer and the solicitor was absolutely right it is an offer but what the agent should have been saying I agree it's an offer but my owners have asked me to qualify that offer before they're going to give me an answer.
Andrew: That's right.
Brian: That's every right of every owner to do that.
Andrew: We've got to find out what the settlement period is, what the amount of deposit, is there any terms and conditions, is it subject to finance, all these things the owner has the right to say no they're not suitable, six months settlement, $10,000 deposit, they're not going to be suitable and he can reject on those grounds without having to affect his estimate of the likely selling price.
Brian: So they're affecting on the terms not on price.
Andrew: That's correct.
Brian: Timing can be terms.
Andrew: Again your documentation is what's going to really help you out here.
Brian: That's the difficult part isn't it.
Andrew: It is. Asking real estate sales people to document evidence.
Brian: They're busy people, I'm on their side, I'm not very good with paperwork so you know but what you've got to do is have have procedures in place so it is documented so you know we're very much paper-based here because of what we do and we have procedures that make things, so you need to have the same procedures if you don't want to do it yourself have someone do it for you but you need to document it that's what's going to protect you.
Lucas: So now we know obviously the offer can be qualified but what happens if it is just rejected on price?
Brian: Well then you've got to increase your quoting.
Lucas: It's pretty simply isn't it.
Brian: If it's higher than what you're quoting you've got to increase your quoting. You can't mislead buyers to believe in something that's not true.
Lucas: So if you're quoting $1 million to $1.1 million and the offer comes in and rejected at $1,050,000?
Andrew: The first thing we need to do is write to the owner and let them know that we are adjusting our estimate of the likely selling price....
Brian: We don't have to adjust the estimate of the likely selling price at this stage but we do have to adjust what we're quoting because it's still in between $1 million to $1.1 million okay but it's $1,050,000 and we should be quoting over $1,050,000, we can't use the word "over" but $1,051,000 or $1,055,000, because we know that they won't accept that. Once you know that you can't mislead buyers.
Andrew: That's it, that's it.
Lucas: Now this concept is really important because there's a lot of campaigns out there running with the forthcoming auction where you're listing it with a couple of weeks just to obviously get a bit of the market feedback before actually going down a fully fledged auction campaign, now how does that...
Brian: Property launch.
Lucas: Soft Launch, whatever there's many different terms.
Brian: Yep
Lucas: How does that impact the auction campaign if it doesn't sell during the first couple of weeks?
Brian: The question is are they getting offers that are being rejected and if the answer is yes well that's going to impact what you can quote. You can't mislead.
Andrew: A lot of agents say I'm just gathering feedback just gathering information, again once you're gathering that information you you've got to keep your estimate of the likely selling price to be a current and accurate guide.
Brian: Yeah but feedbacks aren't offers.
Andrew: True.
Brian: Let's not get them confused. Feedback is not an offer. If an offer's rejected you have to move it up, feedback then that would come back to whether it makes the agent change his opinion as to their likely selling price to then that you will talk about, I suppose in a moment, how do you do that, but if they're getting offers during that pre-launch and they're higher than their estimate, well then when they launch it they're going to have to be up higher.
Lucas: Just on that when we talking about revising your true estimate we actually had a client only this week contact us because fair trading had told us that buyer feedback in their words not ours buyer feedback may be a reason to revise your true estimate but is not a reason to change your true estimate.
Brian: It doesn't substantiate your change.
Lucas: Exactly right. So if your buyer feedback is sitting at $950k and your true estimate is $1 million to $1.1 million, then you may want to revise it based on the buyer feedback but you aren't able to use that as a reason to change it.
Brian: That's right, it doesn't substantiate your change.
Lucas: Up or Down:
Brian: Okay it gives you a reason so that's like they say on a weekly basis you should you should look at your true estimate so if the feedback is at $950k it says well I better look at my true estimate and if I'm looking to revise it that gives me a reason to look at it but now I have to substantiate why I'm going to change it okay and there's got to be more than just one reason why you're going to change it with feedback isn't going to let you change it.
Lucas: Okay so what can we use to change it?
Andrew: Well when you've done your estimate of selling price you're taking into account four or five but maybe even up to nine different things not just your compatibles, all your market conditions your interest rates.
Brian: Your market demands.
Andrew: Your market demands. If any of that changes then you're going to take all of that into consideration when you're revising your estimate of selling price.
Brian: If I'm revising my estimate of selling price right now I would obviously look at market demand you know we know that the auction clearance rates have dropped okay from 80% to say 70% so market demand isn't there. You can you can prove by that there's a number of articles in the paper which we all love to read the buyers love to read them that the market isn't as strong as it was if so the market demand isn't there. Investors are moving out of the marketplace, overseas investors are unavailable at the moment for numerous reasons, banks have increased fixed term interest rates which has hurt the investor as well, you can't get fixed term loans very difficult now so all of this is making it less demand for the property so the property price can be reduced.
Andrew: Yeah that's right so you're using that together with some buyer feedback but not buyer feedback on its own.
Brian: The buyer feedback can give you reason to look at your estimate, your substantiation of your estimate would be the other things interest rates there's a market demand there's less buyers coming through I'm hearing that all the time, the number of buyers coming through opens has dropped you know that all of that...
Andrew: Days on market days.
Brian: Days on market. Yep, all of those things you can use to change your estimate the the the feedback is giving you a hint that you should be looking at your estimate that is really important that's what fair trading is looking at right now.
Lucas: And they are looking, and there's no doubt about it. And they're looking at all of the paperwork make sure all lines up from your agency agreement to what your marketing and what your representing the price to be revising your true estimate to offers everything along those lines and if you don't have your paperwork in order you might find yourself in a bit of trouble.
Brian: You will find yourself in trouble. And the thing that they also looking for is that offer one if the offer comes in and is rejected and you keep marketing it at the lower price, that's not a good thing to do.
Andrew: No, they're looking for that dialogue through the marketing of the property they're looking for comments, letters, if you've got a file on the sales advice in it and not much else then that's just going to open up....
Brian: Most agents have good files the ones that I go and see have good files but they just going to be really tight on your paperwork around the quoting guidelines because that is exactly what they are out looking for right now.
Lucas: If you guys have got any questions about this subject, feel free to comment below if you guys we also have some forms around your likely estimate of selling price and revising it as well so if you'd like them let us know below, we're more than happy to send them out to you guys but that does wrap it up for today so thank you very much for joining us, on behalf of myself, Brian and Andrew we hope that helps and we hope to see you soon.
