Taking Stock – Mark McLeod

As markets across the country start to take a different form, every real estate agency will need to turn its focus to stock management. Many believe that days on market and clearance rates are what the market serves up to them, but when offices don’t have solid stock management structures the market provides a great scapegoat for why performance is declining. Mark McLeod explains how you might approach the changing market.

Our research shows that quite a large percentage of agents who joined our industry, say in the last five years, have never faced a changing market. In my world, stock management is one of the six divisions that you need to build process and structure around, to ensure that regardless of cycle your turnover remains consistent.

Controlling days on market is without doubt the most important criteria in a real estate business; few people understand the impact of this statistic, firstly on the energy of the team and secondly on the effective turnover. Days on market and clearance are like a seesaw: days on market go up and clearance rates go down.

Very few people understand that an extra 10 days on market can affect turnover by up to 30 per cent (to explain this takes longer than the space I am given in this article).

Often I hear agents saying, ‘It’s just taking a bit longer to sell, that’s OK’. No, it’s not OK.

So how do you control days on market? Hard work, discipline and focus on the obvious. However, understanding certainly goes a long way on helping. Ask yourself a few questions. How many properties, when the market was booming, sold for more than you thought? Most agents are wrong on price when the market is booming, and will equally be wrong when the market is declining. Accept the position that we were wrong on the way up and we will be wrong on the way down. In saying that, it’s our sacred obligation to maximise price for our owners regardless of cycle.

Over the years the best offices have always applied a simple process called the sequence of sale, which is simply: traffic, platform, reposition and sell. When the market starts to slow, the first thing we see is a decline in traffic; traffic through our opens and enquiry from the portals. This decline often forces the agent to try to sell the property quickly, long before the vendor is ready. The first sign of a changing market is that many offices will have great offers they believe the vendor should have taken. Remember, to create a sale both parties have to be ready.

When the market was booming, quite often it allowed us not to do too much work on the vendor component of the process. Which leads to the platform; if an owner is going to adjust their expectation they require detailed information. Our research shows across a number of years now that detailed, quality vendor reporting and offers will always be the greatest asset in this process. Owners will often accept market value when they believe all the work is done and they are fully informed.

Which brings us to reposition. Repositioning is not always about price. It can take the form of method, such as switching from private treaty to auction. This shows the intent of the owner to sell and also shows the marketplace, by the way of changing method, that the owners are keen to secure a sale.

The final step in the sequence is sell. This is the most obvious stage, but one of the pitfalls of a changing market is that many agents will try to sell the home before the owner is ready. Sometimes you may have to rotate through the first three steps a number of times before you can move into the sales arena.

This may seem a funny statement based upon my earlier observation on days on market, but in a changing market speed kills. Be patient, be understanding and, last but not least, be empathetic to the owner’s situation; after all, they have given us the gift of their greatest asset.

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Mark McLeod

Mark McLeod is the Ray White Group's Chief Strategy Officer for Real Estate. He works alongside agents and businesses across Australia, helping them reach their ultimate potential to achieve success.