Ch. 5 M&M Principles/Advantages Flashcards
What are FIVE Strategies to Dominate a Market?
- Build Long Term Client Relationships
- Specialization
- Exclusive Representation
- Probability Brokerage
- Value of Representation
What is the importance of The Value of Representation?
- Who sells a piece of real estate, how it is sold, and to whom it is sold has a significant impact on an owners ultimate net proceeds.
- In speaking with owners in your marketplace, your job is to demonstrate that in order to maximize price, minimize timeframes, and reduce impositions.
- As you move through a first or second appointment there are three “non-vocalized” questions that sellers have and that you need to answer.
What are the components of the Value of Representation?
- Seller Representation
- Ability of Underwrite with a Seller-Favorable NOI
- Ability to Communicate the opportunity and future value of the investment
- Exposure of the property and opportunity to the widest possible ranges of qualified buyers in a tangible fashion
- Ability to create and harness competition to be distinguished from an open listing
- Ability to effectively communicate and defend value
- Ability to arrange the best possible financing
- Ability to manage the due diligence and closing process to reinforce the agreed upon price and preclude or minimize any attempt to re-trade
What are examples of how you can articulate the Value of Representation to clients?
- Seller Representation
- Ability to Underwrite with a Seller-Favorable Net Operating Income
- Ability to Communicate the Opportunity and Future Value of the Investment
- Exposure of the Property and Opportunity to the Widest Possible Range of Qualified Buyers
- Ability to Create and Harness Competition
- Ability to Effectively Communicate and Defend Value
- Ability to Arrange the Best Possible Financing
- Ability to Manage the Due Diligence and Closing Process to Reinforce the Agreed Upon Price and Preclude or Minimize any Attempt to Re-trade.
Importance of Seller Representation Includes what?
- Its an attitude and a commitment
- Its our focus
- The buyer will typically look for ways to diminish value
- There will be many opportunities during the process to represent the strengths of the property and area. There will be many questions. We must accentuate the positives, mitigate the negatives without exaggeration or puffery, must answer questions and overcome concerns and sell the upside.
- Shape the Expectations of the buyer
- Advocate and fight for your position and client
- Value is a “subjective” concept and a broker who can convincingly tell the story of the property and the investment opportunity will get you a higher price. YOU NEED AN INFLUENTIAL PROMOTER.
- I am committed to driving value for owners
What is the Importance of your Ability to Underwrite with a Seller Favorable NOI?
- Buyers will try to reduce their risk and increase their future returns by underwriting the income and expenses on your property as conservatively as possible
- One of the things we we can do is underwrite the property in a manner that produces a credible, yet high NOI. Important not only for the buyer but the lender as well.
- “A seller favorable” NOI needs to be persuasively presented to buyers, lenders and appraisers and we are good at it. Its the reason we are known for pushing value.
- “My job is to defend the BOI from the time I list the property, through the marketing and due diligence, right up to the time of settlement”
What is the importance of your Ability to Communicate the Opportunity and Future Value of the Investment?
- We sell future cash flow streams generated by investment real estate to investors
- The more upside a buyer sees in an investment, the more willing he or she will be to pay a higher price for the property today.
- One of the important skills in pushing value is the ability to “craft a story”, about future upside and value. “I believe we have a convincing story about your property and this area”
- One of the ways we add value is our ability to communicate the future opportunity of the investment through underwriting, marketing, comps, financial modeling, etc.
- Buyers, lenders, appraisers all look at market value through the “rear view mirror”. They look at what the value was at the time of sale, not what it will be going forward. One of the keys to our ability to push value is our skill in challenging buyers to look through the windshield. We win if the buyer is considering, “what the property can be worth in the future.”
What is the importance of the Property and Opportunity to the Widest Possible Range of Qualified Buyers/
- All buyers are not alike, they have different underwriting, sources/equity, attitudes, sources of debt, investment goals, yield requirements, degrees of sophistication, etc.
- Selling a property to one of the buyers who expresses interest often ensures that you will leave money on the table
- My experience is that “local capital” tends to look backwards in value, “outside capital” will look forward.
- The highest price one buyer will be willing or able to pay may be much less than what other buyers are willing or able to pay. One of the reasons to hire us is for the peace of mind that you have not left any stone unturned, therefore, no money left on the table.
- Our access to buyers can help leverage your price.
What is the importance of our Ability to Create and Harness Competition?
- There are “two prices” that a buyer will pay for a property: 1) The price he “wants to pay”, and 2) The price he “will pay” if he is forced to bid in a competitive situation and truly wants to own the asset. As an owner, you will never sell for the highest price without creating a competitive bidding situation between buyers.
- In order to achieve the highest price for a property, your broker needs to be able to introduce the “fear and loss.” The buyer has to want the property and then fear losing it because of the competition to motivate him to raise his price beyond his comfort level. We are very skilled at creating this type of competition on behalf of the owners we represent and it is another reason why we are known for pushing value.
- You will not obtain the highest price for your property unless you and your broker “harness market forces by leveraging competition”
- You will obtain the best offer from a buyer only when the buyer realizes he is a competing against numerous other credible buyers from the property.
What is the importance of Effectively Communicating and Defending Value?
- During the marketing, showings, encourage of offers, negotiating, removal of contingencies, arranging of financing and closing process, there will be dozens of situations where your broker’s ability to communicate will influence the ultimate price at the closing table.
- It is important that your broker has the ability to present info, field and respond to objections, solve problems, sell ideas and concepts, demonstrate value, negotiate, and influence people.
What is the importance of your Ability to Arrange the Best Possible Financing?
-The price you obtain for your property will also be determined by the type of financing a buyer is able to secure.
First, it is important to have the right buyer. Second, it is important to have the right lender, Third, it is important to sell the lender (and appraiser” on the buyer, the property, the area, and the underwriting and the upside potential.
-MMCC has relationships with the best lenders in the market and can provide the “clout” of being a repeat client even though this may be the first deal for the buyer with that specific lender.
What is the importance of your Ability to Manage the Due Diligence and Closing Process to Reinforce the Agreed Upon Price and Preclude or Minimize any Attempt to Re-Trade?
- Once a property is placed under contract, the price will rarely go up. The only directional pressure on the price is downward.
- Buyers are naturally motivated to rationalize any opportunity to justify re-trading the deal to a lower price. If there are real issues that arise, they need to be addressed appropriately and corrected, not used by the buyer as an opportunity to renegotiate aggressively.
- The due diligence and closing process should be proactively managed by the seller and the seller’s broker through: “good documentation, large cash deposits on front end, short time frames for due diligence, staggered contingency deadlines to keep process moving, actively managed, non-refundable deposits upon contingency removal”
- You need a strong, proactive advocate throughout this process, someone who knows the market, the property, etc. Attorneys will be a valuable part of resolving the legal issues that arise, but you need a strong broker to handle the real estate issues that will arise.
- The buyer must sense the potential “fear of loss” throughout this process to “keep him honest.” Back up buyers are critical to keeping buyers honest.
- There are a different set of skills involved in placing a property under contract at a high price and maintaining that price throughout the due diligence and closing process. We are highly skilled at both parts of the process and it is another reason we are known for pushing value.
What are a Sellers Alternatives?
- To sell to a buyer for the highest net dollar sale price
- An efficient transaction and a high probability of reaching the closing table
- A quick close
Perceived Advantages vs Perceived Disadvantages to Market property without a Broker
Pros: Saves Sales Commission .. Maintain Control
Cons: Limited marketing/exposure to buyers .. Buyers discount out fee savings with lower price .. Tremendous seller time investment fielding calls, sending packages, facilitating showings, etc … No intermediary/negotiation buffer .. Many buyers are represented by brokers, these buyers may not see eye to eye.
Perceived Advantages/Disadvantages to Marketing property on an Open Basis
Pros: Maintain control .. May get more brokers to make a deal
Cons: No broker accountability, Seller has burden of qualifying buyers and brokers, No seller representation, broker only represents buyer and themselves .. To some buyers and brokers an open listing indicated a seller is not serious about selling the property .. Tremendous time commitment by seller .. Seller may undervalue or overvalue property due to inexperience in market .. No incentive for broker to continue to work deal after their immediate buyers reject the property. Tendencies of brokers to present rather than promote property .. There is no broker cooperation with open listings ..
