Editor’s note: This is the second of a four-part series. Read Part 1, "Mistakes to avoid when negotiating multiple offers."
The market has finally turned around and the good old days are back again — well, not necessarily. Although there are plenty of buyers and reasonable financing, the challenge is that there aren’t enough sellers.
What can you do to keep your business strong when there are very few deals to be had?
In a seller’s market, there are plenty of buyers but very little inventory. When there is a scarcity of inventory, the first agent to reach the seller usually obtains the listing. How can you be that first agent?
Prospect for one-party listings
An owner may not want to list his house but is willing to sell if someone brings an offer to him. If you have buyers who have made offers on other properties and lost out in multiple offers, have them identify the properties they would like to see based upon the outside of the property or any other information you can provide. Be sure to take photos of the places they like best.
Next, draft a letter to each owner (not a postcard) that explains what your buyers would like to purchase, their price range, and when they would like to move. Also explain how you have also driven the buyers past the owner’s property and the buyers have expressed an interest in seeing it.
For example: "Mr. and Mrs. Smith have four children and are looking for a four-bedroom, four-bath, two-story contemporary in your area. They made an offer on another home that appears to be similar to yours, although they lost out in a multiple offer. When they saw your home, they asked me to contact you to see if you would possibly be interested in selling."
If the owners are interested in having their property shown, outline the steps they need to take for that to happen.
1. One-party listing agreement
Tell the seller: "Before showing any property to any prospective buyer, our company requires us to obtain a one-party listing agreement. This means that my company will receive a 6 percent commission, if and only if Mr. and Mrs. Smith purchase your property. The agreement applies only to Mr. and Mrs. Smith. You are under no obligation whatsoever if you decide to sell the property to someone else."
2. Show the property
Once the seller signs the one-party listing for Mr. and Mrs. Smith, you can show the property to them. If the Smiths are interested in making an offer, begin negotiations. To avoid dual agency issues, ask that your manager represent the sellers while you represent your buyers.
3. Close for the next sale
If you sell the house, offer to help the sellers find another home in their area or to assist them with a relocation referral. If the buyers do not purchase the property, the agreement expires in 30 days. If the buyers were to purchase anytime during the next year, however, you will be entitled to a commission.
4. Increase the odds
In addition to including one of your business cards with the letter, be sure to hand-sign the letter and hand-address a white, plain envelope. People are more likely to open letters that are hand-addressed. Use your personal return address or your company’s address, but do NOT reference the name of you company. Using your company’s stationery may cause the recipient to toss the letter without reading it. If your state requires you to disclose your brokerage name, be sure to follow those guidelines.
Please note that this letter sets up an expectation of a full commission. The sellers may resist paying you this amount. In some cases, the sellers may expect you to take a 3 percent commission since you didn’t have to "do anything to sell the house." In truth, you will most likely be creating a dual agency situation. This means you must represent the best interests of both the buyer and the seller.
Avoid creating an accidental dual agency situation
Regardless of whether you earn a commission, when you give the seller advice, this normally makes you the seller’s agent in most states. This can be especially sticky if you have a buyer’s agreement in place. If the seller will agree to a dual agency and pay a full commission, ask your manager to step in and handle the actual negotiation for the sellers. This will ensure both parties have adequate representation. If not, seek your manager’s assistance in avoiding a dual agency situation.
Under no circumstances do you show the property prior to obtaining a signed one-party or an exclusive right to sell agreement. Clarifying the exact nature of the agreement and addressing the required agency issues is critical to avoiding potential litigation.
Does this strategy work? The answer is "yes" and "no." In some areas of Southern California, so many agents are mailing these letters to sellers that they have lost their effectiveness.
On the other hand, if mailing has died out in your area, this can be an extremely effective strategy. In fact, the agent who shared this strategy with me was facing a strong seller’s market where there was no inventory. Buyers were clamoring for listings in this million-dollar neighborhood. The agent had three buyers and sent out three different letters describing what each buyer wanted to purchase. He had one direct sale and obtained two listings that sold as soon as they hit the MLS. That’s an excellent return for very little effort.
Want to learn more about the fallout from a red-hot seller’s market? See Part 3 on Thursday.
