Luke Gilford, Founder and Principal of the Australian College of Property & Finance, discusses why it’s important to get into the mindset of buyers to create wins for all parties.
Arecent study conducted in July 2012 by RateCity found that home ownership is a distant prospect for many Australians, with the average income earner on $70,000 taking over five years to save for a 10 per cent deposit on a $300,000 property!
With this worrying finding in mind, coupled with the universal doom and gloom about the economic and property outlook, it is no wonder that buyers are looking at other ways to acquire real estate, rather than what I call the ‘vanilla’ method of saving years for a deposit, only to end up unable to purchase properties in locations they desire.
With the abundance of books, DVDs, online courses and seminars as modern mediums of education about how to invest in property, it is especially important for agents to keep up with their real estate buyers in facilitating the execution of property deals in ways that may not be conventional.
An article in the May/June 2012 issue of Sold Magazine titled ‘Reaching the next Generation of Property Buyers’ highlights that today’s residential real estate buyers are vastly different from those who transacted decades ago, and why it is imperative to adapt with the times to appeal to the younger generation.
The importance of education and increasing knowledge levels for agents to get into the mindset of their buyers will be pivotal in reaping wins all around for all parties.
THE CASE FOR ACTION
We All Want Increased Sales, Productivity and Efficiency.
How many times have you as an agent had a deal fallen over due to finance? Or had to sit helplessly by while your seller’s property sits on the market unsold for months and months?
If my conversations with several real estate agents that I know, and those I had the opportunity to speak with at the recent Australasian Real Estate Conference (AREC) on the Gold Coast, are a reflection of the wider real estate agent population, this happens much more frequently than you would like.
More often than not, this hurdle can be overcome, and quite simply. The key is, in this market, no longer a simple question of ‘Can I do it?’ but more importantly ‘How can I do it?’
While it is not expected that agents take on the role of finance broker, they are well placed to act as the intermediary and offer encouragement based on knowing what options are available.
This would not only set you apart as an agent that goes beyond the ordinary levels of service, but one that is well-learned, experienced in up to date strategies, and clearly committed to positive outcomes for all parties.
Lack of Education leads to Close-Mindedness
I have predominantly focused on providing education to existing owners/investors to unravel themselves from the mess of incorrect finance, ownership, tax and/or cash-flow structures, alleviate unnecessary financial hardship, and turn out over $250 million in deals, regardless of their cash, asset, debt and income positions.
While my students are savvy about using great strategies to create win-wins for both buyer and seller, they are now experiencing a growing disparity in the knowledge levels of agents and subsequently their sellers.
While some of these strategies may go beyond convention and what buyers, sellers and agents are typically used to, ultimately both buyers and sellers may actually find themselves presented with a greater number of options that they didn’t even realise were possible.
Without a doubt an agent’s role in any property transaction is pivotal to the successful outcome for the seller, and it’s important that agents understand these unconventional ways so that they are able to communicate them to the seller as a potential option to consider.
If you were to ask the question, “Why are properties worth X amount less than they were a few years ago?” most would respond by saying, “It’s just the market.”
What we need to understand is, we are the market. Therefore, we can do something about it. We are all familiar with the scenario where a seller was perhaps experiencing ‘mortgage stress’ and ‘had to sell’ which resulted in a good bargain for the buyer.
While this, on face value, appears to be a win-win scenario, because the seller got out of the property with some money, and the buyer got into the property at a bargain, this is in fact short-lived.
The hidden detriments of this transaction are:
- The potential of affecting the median value of properties in the street, which is likely to result in angry neighbours;
- The buyer is now the owner of property that has dropped in value literally overnight and faces the problem of waiting for the value to inch up again;
- Other sellers not being able to sell their properties at what they are reasonably expected to be worth, because valuers begin to see a pattern of low priced sales;
- The properties sit on the market for a longer period of time, and agents miss out on not only the number of sales, but also the frequency and values of the sales.
The problem is that this is not restricted to one transaction or even one area; this is happening across the country.
FINANCIAL EDUCATION AND LITERACY IS THE SOLUTION
Busting the Myths of Mortgage Distress
Too many times I work with students who are seemingly in ‘financial distress’. The common denominators of these cases are typically inappropriate loan and cash-flow structures.
I teach my students always to have a buffer in place. A buffer that is created from the property deal and/or the structure that is used, not necessarily dependent on their income.
I also teach them how to use the bank’s money to pay their mortgage, use their equity to create buffers, accumulate wealth and additional income, all the while ensuring that asset and debt protection strategies are in place to mitigate the risk of financial loss or distress.
Creating Wins all around (for the Seller, the Buyer, the Agent and the Market)
My aim is for my students and the real estate industry to start looking at deals from the mindset of creating opportunities to:
- Maintain the level of the property value as well as the median;
- Create a cash / equity buffer in the property;
- Create more and faster sales;
- Make it easier for other sales in the area to obtain a higher price;
- Refresh the market with renewed activity and strategies.
And if you don’t know how, get educated!
Bridging the gap in knowledge levels between buyers, sellers and their agents will assist to re-align the market and create more successful wins all around.
VALUE ADD TO YOUR CLIENTS AND THE MARKET
There is an enormous opportunity in this market for agents to set themselves apart by having a can-do and open-minded attitude towards securing the best outcomes all around. After all, ‘If you want to be part of the solution, you need to stop being part of the problem.’
The market does not and should not dictate to us. We are the market. With our varied levels of expertise and roles in the industry, let’s all work together to set it back on track, sooner rather than later.
Luke Gilford is the Founder and Principal of The Australian College of Property & Finance and is also a full- time property investor and developer. For over 13 years, Luke has used his experience and knowledge in Finance and Property Deals teaching others to create positive.