Is your agent doing enough to sell your home faster?
According to an analysis of Lightstone figures on 26 suburbs with mid-value real estate, the average drop in sales are 33% for the year to date. To be specific, 30% less sectional title units and 36% less freestanding homes have changed hands in 2016 so far in these suburbs than in the previous year.
According to FNB’s House Price Index for September, the real rate of house price growth, adjusted for CPI inflation, weakened from a decline of 0.3% in July to a -1.1% year-on-year decline in August. The bank believes that this move to declining real house price levels points to a shift in the market equilibrium, with other indicators pointing to the same deterioration of the balance between supply and demand.
FNB’s valuers, in their FNB Valuers Market Strength Index (MSI) edged weaker in September 2016. The Valuers’ Residential Demand Rating was at a level of 54.23 in September (scale of 0 – 100), while the supply rating was at 52.71. This translates into an MSI (which is reflective of the difference between the demand and supply rating) of 50.76, with an MSI rate of above 50 still showing that residential property demand is perceived to be stronger than supply.
However, the rate of change in the indices often provides further insight into current market conditions. On a month-on-month seasonally-adjusted basis the revised Residential Demand Index has seen accelerated decline from -0.03% in June to -0.64% by September, which is much faster than the rate of decline in supply rating. This has meant that the rate at which the MSI is declining has also increased.
In layman’s terms, FNB’s findings suggest there are now fewer buyers able to qualify for a bond or willing to pay the asking price than earlier in 2016 or even last year, while sellers are still active. This is further reflected in the fact that the latest FNB Estate Agent Survey has found that the average time on market has risen from 11 weeks and 1 day in Q1 2016 to 14 weeks in Q3 2016.
Basic economics apply: If a seller wants to supply but there is no demand for what he is offering, at the price he is offering it at, the seller must adjust the price until there is demand or leave the market. More and more sellers are adjusting their asking price to be in line with what the market is willing to pay which explains the recent months’ deterioration in month-on-month house price growth.
In a recent Lightstone newsletter discussing time on market it stated that there is a difference of about half a month, on average, in time on market between mid-level properties and high-value or luxury homes, with mid-value properties taking between five and a half and six and a half months to sell, while luxury properties sell within five to six months of being listed. Although this is most likely due to the fact that most high-value properties are located in metro areas where demand remains high and there is a bigger pool of potential buyers, the time on market differs significantly between suburbs.
Lightstone believes that a large contributing factor to the difference in time on market between suburbs is due to the migrating patterns of repeat homeowners. Analysing the migration patterns of repeat homeowners showed that in cases where people were moving to different provinces, the Western Cape was most popular, followed by Gauteng. Despite the fact that the Western Cape saw the highest growth in repeat owners due to migration, the individual suburbs that saw the highest growth were located in Pretoria. Pretoria East in particular is popular with repeat homeowners, with suburbs like Moreleta Park and Garsfontein attracting the most repeat homeowners. This relatively high level of demand from repeat buyers assists in explaining why time on market is comparatively short in these suburbs – the average time on market in Garsfontein was recorded at 2.78 months.
Considering the above it could be argued that national average demand for mid-value properties might be suffering under the increasing inability of potential first-time buyers to obtain financing. Those buyers with a foot in the property market (repeat homeowners) are in a better position to grow their individual property portfolios.
The fact is, as explained by FNB, house price growth and Manufacturing Purchasing Managers Index (PMI) have proven to be leading indicators for the business cycle. The recent declines in both indicators suggests that the economy will follow suit after the brief recovery in the second quarter of this year.
It can easily be deduced from the above, that those first-time buyers looking at mid-value homes, who have been unable to finance the purchase, will find it becomes increasingly difficult to do so. At the same time property classed as high-value or luxury may also be affected as the pool of potential buyers becomes smaller due to economic pressures. In these cases sellers who are not in a hurry to sell are likely to keep their homes on the market, expecting to achieve their asking price no matter how long it takes.
Estate agencies typically have fixed costs such as rentals, telecoms, back room staff and some advertising and marketing costs, while variable overheads on average comprise of things such as additional advertising and marketing budgets, and the share of commission with their agents. Even if sellers are still giving mandates, agencies might be expected to start feeling the pinch from a national decrease in demand, especially in the areas with mid-value properties.
While this might be the expectation, Grahame Diedericks, manager principal for Lew Geffen Sotheby’s International Realty in Midrand and Copperleaf believes that their continual spend on marketing and advertising has helped them realise record sales during the second and third quarters of 2016. In addition to this, the office has also seen an increase in sole mandates. “We have continued to increase our marketing budget on a quarterly basis,” tells Diedericks. “This eats into our profits but we believe it is necessary to continue boosting brand awareness and to meet our sellers’ expectations across all mediums.”
Kevin Jacobs, broker/owner of RE/MAX Premier offices in the Cavendish Close, Warwick Street, and Claremont areas says they currently have no concerns regarding the cash flow of the business; in fact the office’s registered sales are up by more than 66%.
“We are working off a very low base,” reminds Jacobs. “We have, however, been able to secure more sole mandates – 50% of our stock – as opposed to 10% for the same time last year.”
Jacobs says that his office’s average time on market is still as expected due to buyer demand in the area not having slipped. He does add that a stand-out trend over the past month is the increase in subject-to-sale offers, showing that there has been an increase in repeat homeowners investing in this area.
Interestingly, Jacobs’ office has increased its portal and print spend by more than 200%, although it is struggling to maintain a six-month expenses buffer. “We don’t believe that there will be a crash in the market, we just want to protect our business and people against the worst-case scenario and provide financial security,” says Jacobs.
James Lewis, Seeff’s principal in Cape Town’s Southern Suburbs, Hout Bay and Llandudno confirms that areas with high-value real estate and demand are also still on track to achieve good sales figures. “Seeff Southern Suburbs, Hout Bay, and Llandudno will likely achieve the same figures as in 2015,”says Lewis, adding that he perceives these markets to be well balanced between buyers and sellers.
On the opposite end of the country are suburbs such as those in Centurion and Dainfern where projected sales have not been met in 2016. Lee Peterkin, broker/owner for RE/MAX Executive Group in Dairnfern says that a review of its agents’ performance for the past six months reveals that most dropped below projections for 2016. “An agent who has good and consistent market share in Fernridge Estate in Dainfern has not had a sale in the past six months,” tells Peterkin. “From 2012 to 2014 there were 66 transfers in the area; in 2015 this dropped to 17 sales and in 2016 to date there have been four.”
According to Peterkin this creates a whole new dimension of problems for agents: An agent now has to request a bigger area of operation, which dilutes the agent’s capacity and marketability as an area specialist, just in order to survive.
“Sellers don’t understand the importance of knowing the buyer: The buyer’s affordability, type of employment and the banks’ lending criteria,” says Peterkin. “The rate of bonds being declined is at an all-time high.”
Steve van Wyk, Seeff’s principal in Centurion, says that sales in the area were down by as much as 45% for the first six months of 2016, while mandates have remained constant. According to Van Wyk keeping up with marketing and advertising costs during down periods becomes especially difficult for real estate franchises. “Anything from 15% to 22% of our income goes to marketing and advertising, and many of the contracts are set for 12 months,” he says, explaining that another drain on their market is the fact that potential sellers are simply opting to renovate their homes to live there for longer. “With the high costs of selling, including agent’s commission, moving costs, transfer duties and attorneys’ fees, many sellers simply choose to renovate their existing homes.”
Trevor Sturgess, Seeff’s principal in Kibler Park, agrees that the market is tough but adds that in his experience sellers are adjusting their expectations as they often need to sell their homes due to personal reasons. The importance of marketing and advertising is front of mind for Sturgess, who says that his franchisee, Seeff Johannesburg South, invests a lot into this aspect. “The franschisee does incredible marketing and knows that brand awareness and constant marketing is vital,” he says.
Cobus Odendaal, managing director of Lew Geffen Sotheby’s International Realty in Randburg believes that tough market conditions reinforce the necessity for constant marketing and innovation. “In volatile market conditions the one thing we can be sure of is unpredictability as sales can vary greatly from one month to the next,” he says. “While certain segments can be challenging, it is these marketing segments that inspire us to find better solutions and diversify our actions for different results.”
Diedericks, Odendaal’s counterpart in Midrand and Copperleaf, spends as much as 51% of the office’s overheads budget on marketing of homes but he believes that this benefits both the business and its customers. He says that this spend is paying off as the office has been receiving a growing number of referrals from clients who realise the value in working with an agent that spares no cost in marketing their homes.
The importance of adequate brand management and marketing is recognised across the board. Dr Andrew Golding, chief executive of the Pam Golding Property group, says that the PGP group recognises the fact that web-based search for property has essentially become a battleground. Golding believes that, although the portal experience has transformed the way the consumer searches for property, it remains lacking in that it is by definition not able to give the consumer more than a generic or non-specific view of the market.
According to Golding this is where there is room for innovative thinking; real estate companies need to customise their web offering in such a way that the user experience is much more specific and targeted. “PGP’s website has seen a host of technical innovations recently, such as draw search, school search, and the introduction of a pinboard which enables you to compile your own personal selection of your favourite properties and immediately share these with family and friends,” explains Golding.
Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty, agrees that out-the-box creativity is required for a company to be noticed in the cluttered digital world. “We’re fortunate in that Sotheby’s International Realty is a global entity that sells for and attracts buyers from the top echelons of the market. The company name already opens doors,” adds Geffen. “Locally we produce a number of national campaigns every year and utilise every available platform from our own website to print, property portals and social media to market our products.”
Geffen explains that the company will continue to adapt to the direction the market takes and that Lew Geffen Sotheby’s International Realty is fully prepared with a strategic plan to assist all franchisees to react accordingly should the franchise be struggling. “We have operational managers who will go into the franchises to review their operational and marketing strategies, as well as help then optimise their business plans and company structures,” explains Geffen, adding that franchises have a comprehensive national structure at their disposal as it is important for the company that franchisees succeed.
The bottom line is it cannot be denied that the market and price levels in which a franchise operates play a significant part in its success. Importantly too, innovation when it comes to how a home is marketed and the real estate’s brand can take a potential sale to the halfway mark.
The homerun, however, still hinges on broader economic indicators which suggest a market that is battling to find equilibrium between supply and demand – and more specifically, buyers who have the real ability to qualify for financing. The market in general shows no signs of turning, with house price inflation continuing to decline; the flipside is that while the demand from buyers exists, lack of affordability means sellers are going to struggle to sell their homes at respectable prices.
Real estate company owners need to start asking themselves some serious questions. If you are paying a PR agent you better be sure the releases you are putting out will be of the highest quality that will be picked up by more than just the average newsroom looking to fill space.
Portal spend, too, should be looked at as while properties are getting a lot of eyeballs on them, are they translating into sales and, more importantly, new mandates? Are real estate groups getting what they really need from these portals?
In terms of brand management, can a real estate group really afford to have its agents named and shamed on online community forums as agents who just do not get back to clients, never answer calls or emails, or are perceived to be misinformed and late? How does an agency appropriately put out the social media fires and stop the reputation bleeding, while at the same time getting to the bottom of the veracity of such claims. Does the company really want its agents inundating social media users with images of homes for sale on these same community pages, often accompanied by poor-quality photos and captions that read: “Reduced to sell!”?
In an online environment where users are constantly bombarded with images, news and advertising, it is important to position a brand in such a way that users take the time to listen to what you are saying. In a market environment where attracting the right seller has become just as important as the right buyer, real estate companies need to remain on point and at the forefront of brand management and marketing.