Competing on Value Not Price
Establishing Value as a Top Real Estate Consultant
Every real estate professional knows that he or she has to work hard to provide value to the client in order to justify his / her commissions. Buyers are able to pay less for a property because of our negotiation skills. Sellers also get the highest amount for their property because of our same bargaining abilities and reduction of liabilities. Yet some clients do not credit the value that we bring to the table by implying that all real estate agents do is paperwork and because of that consumers are being overcharged.
What is Value
Lets define value. In simple terms, value is the benefit that is provided minus what it costs. There are only 2 ways to increase value: You could either increase the benefits that are provided or else decrease what it costs. The choice is entirely upto the service provider. However I believe that as real estate consultants it is far more beneficial for us to do the former.
Some real estate agents and agencies devalue the services that full-service real estate consultants provide. By offering discounts or “limited services” they mean to imply that the only difference between one company and the other is “price”. I like to remind clients that in the dictionary the word “discount” is defined as “a reduction made from the gross amount or value of something” and the word “limited” is defined as “lacking breadth and originality”! So yes some brokers may charge less commission but to reduce their price they have to reduce value as well. As a client who is trying to buy or sell off your property is this really what you want for one of the most important transactions of your life?!!
Sometimes I like to sit with the client and have a frank discussion about the differences between a full-service real estate consultancy like Gupta & Sen and a discount broker or discount brokers disguised as web portals (e.g. nobroker.com). I like to explain to our clients that there are many more differences to the two models that what meets the eye. Apart from listing out the services provided and the liability reduction benefits that clients get when they act on the advice of real estate consultants, I usually seal the conversation with the example of why the basic entry level version of a car costs less than the fully loaded version. This analogy usually helps most people understand what is at stake when you pay less. In the case of a basic no-frills car you could lose your life since there are no “airbags” and in the case of our business you could lose a whole lot of money as well as your reputation when you deal with “discount real estate brokers”.
Since value is created in the mind of people, we would urge you first to find out what you really value. There are certain needs that are universal. Below are the basic expectations that most people have of their real estate agents:
Sellers
- Maximizing sales price
- Saving their time
- Minimizing inconvenience
- Receiving regular progress reports from their agent
- Saving money when preparing their house for sale
- Developing creative marketing strategies
- Having confidence that the agent they have hired can do the job
- Providing a reasonable time frame for selling
- Reducing their liability
- Educating them about the selling process
Buyers
- Saving them money by reducing asking price
- Saving time in finding the right property
- Being shown a wide range of properties in the price range
- Showing them properties in an efficient manner
- Negotiating a superior deal
- Informing them in a timely manner about inspections of properties
- Being shown the best properties that fits exactly into their budget
- Educating them about the buying process
- Providing regular progress reports
- Help with documentation, agreements and the registration process when buying
By showing both buyers and sellers how we at Gupta & Sen meet these needs and more, we establish value in the minds of our clients.
Competing on Value Not Price
Let me pose a question here to the reader. What specialized skill or training does it take to compete on price? Absolutely none! All one has to do is offer the lowest price and all those people who want cheaper services will fly to you with open wallets.
There are two main problems when you compete on price. The first is that you cannot have the lowest price all the time. Someone else can also undercut you! Under-cutters are everywhere and instead of gaining market share what under-cutters do is to eliminate everyone else’s profit margins – atleast the ones who are playing the discount game.
The second problem when you compete on price is that people do not necessarily go for the cheapest product on the market. Remember the lesson of Tata Nano! Studies have consistently shown that while 15% of shoppers are primarily motivated by low price, the majority (80%) consider factors such as quality, service, reliability and reputation of the brand to be more important factors when choosing a product or service provider. Over and above this, 5 % of shoppers are actually motivated by a higher price because it implies better quality.
When you think about choosing a lower-cost product or service, just consider the choices you make in other areas of your life. You could buy the cheapest car, cut-rate health care, the most basic laptop or mobile phone, the cheapest TV and the lowest prices clothes from the neighbourhood discount store. But do you? Well some of you might – and that’s why manufacturers make entry level products – but are these the kind of products that you really want to own or cherish?
Similarly in the case of real estate consultants, do keep in mind that quality service takes time, experience and training. These things do not come cheap and people who appreciate quality will always pay higher for a higher level of service coming from experienced consultants. Research by Alcatel-Lucent has shown that customers who perceive high quality in products will always be prepared to pay a premium price.
Activities We Do to Earn our Commission
One of the most effective ways that clients can be convinced of the visible ways that we earn value is by making a list of all the activities that we engage in to earn our commission. When I started out in real estate in what seems like ages ago, I made a list of over 100 things that I had to do in order to sell a property. Just a few of the things are listed below:
- Obtain a preliminary title report
- Create a targeted marketing plan
- Show the property to potential buyers
- Hold open houses for the property
- Place advertising in relevant media outlets
- Negotiate on behalf of the seller or buyer
At that time I had little clue about how powerful making a list like this could be until one day a seller asked me to lower my commission because in his own words, “You agents don’t do much!” I promptly whipped out my well-prepared list and replied, “I don’t know about other agents but I absolutely earn what I make. These are just some of the things I do to earn my commission. If you want me to lower my commission pick a few of the tasks mentioned here that you would be willing to do instead of me. Because each and every one of these tasks takes time and effort!”
The seller simply glanced at the list and said, “You’re the agent. I expect you to do these things for me.” My response was, “I will do everything it takes to sell your house at the highest price. But you will have to pay me what I am worth. If you want to pay less, I will see if I can find you an agent who will do less and then maybe you can save some money”
In my twenty two years of experience I have never met a seller who wanted to do any of the things on the list by himself. In fact, after they see my list they usually do an about turn and say, “You guys are overworked and underpaid!”
I have also developed a list of over 100 things I do to earn my money when working with buyers. This list is even longer than the “sellers list” because helping a client buy a home takes more time and effort. My “buyers list’ includes the below activities:
- Locate good properties that meets the buyer’s wants and needs
- Educate the buyer about financing options
- Arrange for property inspections
- Negotiate the purchase of the property on behalf of buyer
- Help with documentation
Answering Commission Objections
Real Estate Consultants like us are always ready to answer common objections that clients may have when they deal with us. Some of the objections and our replies are given below:
Seller Objection: Your commission is too high
Our Answer: Maybe I haven’t explained my value clearly. Let me show you a list of the work required by us to sell your property. This clarifies the benefits that a reputed real estate consultancy offers.
Buyer Objection: Why should I sign a Buyer-Broker agreement with you?
Our Answer: There are a number of benefits when you sign an agreement with us. For one it allows us to put special effort in showing you all the properties in the market in the price band and the specific area you want to buy. Without this agreement most agents are not incentivized to put special effort in offering their services. Another benefit is that we will show you off-market properties that are not yet on the market. Without this agreement there is no motivation for us nor anyone else to do this.
Seller Objection: Other agents will list my home for a lower commission.
Our Answer: Selling a house is a highly complex assignment that requires experience and knowledge of contracts, financing, marketing, negotiation and much more. I hope that you can make your decision of hiring a real estate consultant based on the person or agency that can do the best job, because in the end a knowledgeable realtor will be able to get you the best price and the best possible terms.
Seller Objection: Can you lower your commission?
Our Answer: The commission we charge is already a discount. Let me explain how. According to NAR statistics (National Association of Realtors®), if you were to try to sell your house yourself or through inexperience brokers you would end up with a 16 % lower price than if an experienced top 10 realtor sold it for you. If we charge you 2 % you are already ahead by 14 %. Which means that you are getting an almost 15 % discount right from the start!
Buyer Objection: I would like to work with several real estate agents and not have an exclusive tie-up with a single agency. I believe that will give me the best chance of finding the dream home for me and my family.
Our Answer: I know that it makes sense. However do remember that the broker community (especially the good ones!) are a small lot and word gets around. If five agents are working for a deal and if only one of them gets to make a commission, the other four have wasted a lot of their precious time and efforts for zilch. Most professionals would rather put their maximum time and effort with clients who have signed an exclusive mandate with them and use their leftover time to serve your requirements. Which means that when you contact 5 agents for one job you can be sure that all five of them will not be putting much effort into helping you find your home. So why not trust one agent to work hard for you? That person will reward you by going the extra mile to find you the home that you really want and make your journey that much quicker and hassle-free.
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