Inside your real estate business you need to make three sales..
The first is the sale to the vendor. This is the pitch that you make to get the listing in the first place. You’re going to sell your services and do a listing presentation. Before that, you’re nurturing the vendor through your pipeline, all with the intention of converting them into a client.
Sale number two is the sale of price alignment.
This is the one that a lot of real estate businesses struggle with making in a changing market. It’s all about aligning your vendor with the price that you believe that they can achieve in the current market. If you’ve ever had a vendor asking for more than the market suggests they can get, you know how much of a problem this sale presents.
The final sale is the sale to the buyer, which needs no explanation.
It’s the price alignment sale that I’m going to focus on in this article.
I’m going to give you a formula that will help you to achieve alignment. But first, we need to look at something that many real estate businesses get wrong.
The Mistake That You’re Making Right Now
The big mistake that you’re making right now is that you’re focused on the first and third sale. You’re not even thinking about price alignment. Instead, you’re looking to get the vendor on board and then try to get the property to market as fast as possible.
By doing that, you’re not selling the price to the vendor. And that means you have less control over the situation when offers start to come in.
To give you an analogy here, I like to think back to the Olympic Games in Sydney back in 2000. The women’s volleyball team took the gold home because they focused on something specific.
You see, in volleyball, you have three specific actions.
First, there’s the Dig. This is when you dig the ball up before it hits the floor and you lose the point. In terms of our three sales, you execute the Dig when you make the sale to the vendor.
Second comes the Set, which is where you prepare the ball. Usually, this involves a member of the team hitting the ball into the correct position. And of course, that’s what you’re doing when you’re aligning the vendor on price.
And finally, you have the Spike. This is the smash down into the opposition’s court that gets you the point. In our case, the Spike is the sale to the buyer.
The problem I see is that many real estate agents Dig and then try to Spike. But if you do that in volleyball, you’re going to miss-hit the ball because you have no control over it.
That’s what you’re doing when you try to sell to the buyer before you sell price alignment in your real estate business.
The Formula to Achieve Alignment
I’m going to run through some quick steps here. If you don’t have one of our worksheet’s, just grab a pen and paper and follow the steps:
Create two boxes and write the address of a current listing in the first box. And in the second box, enter the price that the property came on the market at. If it’s a new property, just enter the listing price here. Let’s assume we’re working with a $600,000 property here.
In a separate box, enter the Current Vendor Price. If you’ve had the listing for a while, this may be lower than the original price.
The next box is your Team Price. I want you to imagine that it’s Friday today and you’ve got to sell the property in seven days. What price will you put in the front window of your office to get the property sold by next Friday? Be conservative here. In this example, I’d put $550,000 for a property originally listed at $600,000.
In the next box, you’re going to work out the current percentage difference between the current vendor price and your Team Price. Here’s the formula for working that out:
(Current Vendor Price – Team Price) / Current Vendor Price x 100 = Percentage Difference
So in our case, we get:
(600,000 – 550000) / 600,000 x 100 – 8.3%
Now, you’re going to work out the Commitment Level. This is a figure that’s 10% below your Team Price. We do this just in case there’s a quick fluctuation in market prices that affect your listing. Just do the following:
Team Price / 1.1 = Commitment Level
In our example…
555,000 / 1.1 = 500,000
With these numbers established, you need to start keeping track of the following:
Number of Inspections Per Week
Number of Offers
For this one, you’re also listing down the actual offers.
Here, you’re going to work out your commission based on your Team Price.
If it’s 2% in our example, we’re looking at an $11,000 commission.
Aligning Your Prices
With these formulas, you have a way to align your prices with your vendors to arrive at the market price sooner rather than later.
Starting next week I am going to take a small group of business leaders through this process. If you want a formula to remove market conditions reply back with ‘Me’ and will send you the details.
Process & Structure Coach
For Real Estate Professionals
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