THE ‘BUCKS’ BEHIND ‘THE BLOCK’
How to learn to sell for a “blown-away” price!
by Neil Jenman
Article written and provided by Neil Jenman from Jenman.com.au . To see the original source of this article please click here. https://jenman.com.au/the-bucks-behind-the-block/. Neil Jenman is Australia’s trusted consumer crusader. He can support you, all the way, from choosing an agent who will get you the highest price guaranteed to when your removalist comes! You get an unprecedented level of total support. All for free. To find out more visit jenman.com.au
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If you watched the final of the 2021 season of Channel 9’s top-rating show, The Block, here’s what you would have seen.
Five couples had worked hard over twelve gruelling weeks, building, and renovating five different homes in the Melbourne suburb of Hampton.
On Sunday night (November 7), it was the final episode of the 2021 season. Viewers watched the homes being sold by auction – not the best way to sell a home but the best way to entertain the folks at home.
The amount that the homes sold above the reserve price was called “the profit” and this amount was to be awarded to each contestant on each home they renovated.
WHY AGENTS WANT LOW RESERVES.
In all auctions, the vendors (owners) set a reserve price which is the minimum price they are willing to accept.
But most sellers short-sell their homes, especially in a boom and especially with auctions. The reason is simple: They set their reserve prices based on the advice of their agent.
Big mistake. Costly mistake – as the final episode of ‘The Block’ revealed.
You see, most agents, especially in a boom, are not in-tune with the actual market. These agents underestimate how much buyers will pay for a home, especially a home the buyers love – such as those in beautiful condition. And no one can dispute that the renovations done on ‘The Block’ are superb, a credit to everyone involved.
Even if some agents do understand what’s happening in a boom and how fast prices are rising, and how much buyers are prepared to pay for homes they love, there is one point agents focus upon. The lower the reserve price, the better the chance of selling a home.
Now, please remember something else.
When selling your home, you and the agent have different agendas.
Your agenda is simple and fair. You want to sell your home for the best price.
The agenda of most agents is also simple but not fair to you, the seller. The agent wants to sell your home. At any price.
Therefore, the lower the reserve price, the easier it is for the agents to make a sale and earn their commission.
Or, as you may have seen on ‘The Block,’ the higher the reserve, the harder it is for the agents.
And that means agents must work harder.
Auction is a lazy way to sell real estate. Agents do little other than gather buyers together usually by under-quoting the selling price and then they sell the home to the person who makes the highest bid. Usually, the homes are under-sold.
WHO SHOULD SET THE RESERVE PRICE?
One of the most anticipated parts of the ‘The Block’ is when reserve prices are revealed. Of course, with this TV show, a lower reserve is also great for the contestants because the amounts that the homes are sold above reserve is their prize money.
The median house price in the suburb of Hampton is $2.3 million. That’s $1.3 million above Melbourne’s median house price. Hampton is a popular suburb. And these five homes on ‘The Block’ were better than many homes in Hampton.
The agents had told the contestants that “buyer interest” for four of the five homes was in the mid to high two-million-dollar range ($2.6 million to $2.8 million).
The host handed the nervous contestants their sealed reserve prices before telling them to open them up.
What followed was gasps of horror.
The “powers-that-be” at Channel 9 (in other words, the vendors) had set the reserve price on four of the homes at $3.5 million. The reserve on the fifth home was set at $4.2 million.
NEAR MUTINY ON ‘THE BLOCK.’
The contestants were shattered. At $3.5 million, they felt that no bidders would go that high. They had been expecting a reserve as low as $2.5 million, maybe $3 million.
They decided to ask their five chosen agents, all of whom were billed as “experts.” As each contestant spoke with each agent via their phones on loudspeaker, the shock of the agents was clear. Some were silent. They were all unanimous: There were no buyers at such high reserve prices.
The contestants looked deflated. Some seemed angry. Others sobbed. If the reserve prices had been even $3 million, they may have had a slim chance, but at $3.5 million, no chance. One spoke for all when he said they might not make any money at all. All that hard work. It all seemed wasted. All for nothing.
When one contestant blurted out: “I don’t think they are going to sell,” they all seemed on the verge of mutiny.
Another said: “Is everyone here prepared to walk away?”
“Without a doubt,” said someone else.
Even the host, Scott Cam, a great bloke, agreed, “I think the reserves are too high.” His empathy was evident. He knew what these people had endured – the hard work, the stress, the bickering, the sleepless nights; but all of it underpinned by one factor that kept them hanging-in-there, the expectation of a great reward at sale-time.
But now that great hope was all but gone.
“It feels like we have been punched in the gut,” said another contestant.
Yes, and another said: “It seems we have been set up to fail.”
And so, the host contacted the owners (the Channel 9 management) and urged them to listen to the advice of the expert agents. Lower the reserve prices.
As the auction day loomed, the new reserve prices were revealed. $3.4 million for the four homes and $4.1 million for the fifth home.
Only $100,000?! was the clear response. With an expectation of disaster looming, the auctions started.
THE RESULTS – MORE THAN $2 MILLION ABOVE RESERVE!
All the properties sold at all the auctions. And all for hundreds of thousands of dollars above their so-called “impossibly high” reserve prices.
Here were the individual results.
Auction Number 1. Reserve Price: $3.4 million. Highest bid (sold) price: $3,696,000. Prize money for contestants $296,000. Not bad for 12 weeks’ work. This first sale – at almost $300,000 above the reserve which went to contestants in prize money – would be the worst result of all five sales.
Far cry from yesterday’s comment about “a punch in the gut.”
Auction Number 2. Reserve Price: $3.4 million. Highest bid (sold) price: $4,044,444. Prize money: $644,440. Not bad for 12 weeks’ work (almost $54,000 per week). Plus, as the highest selling home (above reserve) they were awarded a winners’ prize of an extra $100,000. Ironically, these contestants were the only ones who did not seem devastated when the reserve prices were announced. They felt that the experience itself was a sufficient reward. Such a great attitude made it feel like they truly deserved to be the winners. They seemed happy with the least, yet they received the most. Some may say that’s called ‘karma.’
Auction Number 3. Reserve Price: $3.4 million. Highest bid (sold) price: $3,800,000. Prize money: $400,000.
Auction Number 4. Reserve Price: $3.4 million. Highest bid (sold) price: $3,930,000. Prize money: $530,000.
Auction Number 5. Reserve Price: $4.1 million. Highest bid (sold) price: $4,401,523. Prize money: $301,523.
The total sale price of the five homes was $19,871,967.
Collectively, the total amount above all the reserve prices was $2,171,923.
That’s an average of $434,000 per home above their reserve price.
THE “EXPERTS” (THE AGENTS) WERE WRONG.
All the agents got it wrong, big-time.
Indeed, given that the agents said the likely selling price was as low as $2.6 million per home, the amounts by which the homes sold above the amounts the agents were quoting to buyers and sellers was closer to $6 million.
Yes, those five agents under-estimated the selling prices by at least $1 million per property. Some “experts.”
But who was closest to estimating the true selling prices? The bosses – aka “the powers-that-be” at Channel 9 – the owners! Even Scott Cam the host was more confident than the agents when the auction started, reassuring contestants that the market was “very hot.”
Like many non-experts, Scott took a pragmatic view. He reasoned that maybe “they [the owners] know something we don’t know.”
Like many owners, the bosses at Channel 9 were more accurate than all five agents who, between them, had decades of experience.
HOW SELLERS MUST MANAGE AGENTS.
A golden rule when selling real estate is this: Never let agents control you. You must control the agents.
And you must never allow agents to set the reserve price (if you have made the mistake of signing-up to sell by auction); or you must never allow agents to tell you what your lowest price should be when negotiating with individual buyers.
If these agents on ‘The Block’ had been allowed to set the reserve prices, they’d have likely chosen $2.5 million.
The message for all home sellers in Australia has never been more important: Most agents are not experts at getting the best price. Especially agents who do auctions to home-sellers. These agents are only experts at getting prices down.
ACHIEVING THE BEST POSSIBLE PRICE.
So, how do you be sure of getting the best price for your home?
Well, first, do not let agents off the hook.
If you are going to be paying $80,000 (or any amount) in commission to sell your home, there is one word to remember – JUSTIFY. Make sure the agent can justify charging such a sum.
So, make the agent work hard.
Hold out for the price you believe your home is worth – within reason, of course.
But get this: If you don’t fight to get the best price for your home, who is going to fight for you?
Find an agent who’s competent and ethical. Had those homes been sold by an agent who was competent in the art of negotiation, they would certainly have sold for much higher prices.
And please understand a vital point that many sellers are now realising: The best agents are not just competent, they are also confident. They know they are going to get you the best result, so they never charge you until your home is sold and you are happy. That’s good business practice. Putting the client first. It’s integrity.
The more you hold out for your price, and the more you make agents work to find the right buyer and the more you tell the agent to stop focusing on your lowest price and start focusing on the buyers’ highest price, the more chance you have of selling your home for the right price.
In a boom, many buyers will pay far more than the agents think a property is worth.
THE COMPARABLE SALES TRAP.
When agents talk about “comparable sales” they are talking about homes that have sold many weeks, even months ago. Recently, median house prices are rising at $2,000 per week across Australia. The median national house price is now almost $1 million according to Domain.
So, if a median priced home (of $1 million) is rising by $2,000 a week, a $4 million home could be increasing by $8,000 a week. That’s a $200,000 increase every three months.
Which means if the agent is showing you “comparable” homes sales from three months ago, there is no allowance made for the value of those homes in today’s market. You are being shown yesterday’s prices.
And given that research shows that around 90 percent of Australia’s homes are under-sold by as much as 10 percent, that’s another $100,000 that most sellers are under-selling for every million dollars. It’s common for homes that could have sold at $4 million to be sold for $3.6 million.
The homes on ‘The Block’ sold for an average of $600,000 more than their reserve prices. Which adds up the figures mentioned above about why agents get it so wrong.
PROOF OF INCOMPETENCE.
Agents are constantly making boasts such as: “Home sells $500,000 above reserve price.”
But that’s just proof that the agents are clueless about the true value of homes, especially in a booming market.
Understand this: If a home sells for $500,000 above its reserve price, it means the agent would have advised the owner to sell at the reserve price. But the buyers’ desire for the home drove the price higher.
Most agents don’t know the highest price the buyers are willing to pay because most agents are focused on the lowest price the sellers will accept. This is why agents are constantly under-selling homes. How can agents get the best price from buyers if, as happens at many auctions, the agents never meet the buyers until after the home is sold?
Consider something else that’s commonly happening these days. Homes that sold as little as a few months earlier are often re-sold for much higher prices than the buyers paid. This common phenomenon is said to be proof of how quickly homes are increasing in value.
But the fact that homes are increasing in value is only part of the truth.
The other truth is this: The reason homes are being re-sold for massive amounts is also because they are massively under-sold on the first sale.
Look at how these re-sales are commonly reported. Here is one example:
The agents and the media and the public all say, “Wow, a home sold for $3.13 million and then was re-sold for $4.25 million nine months later.
It increased in value by $1.12 million in nine months.”
But here’s what’s happening behind-the-scenes with homes re-selling for huge prices shortly after being purchased. These homes are massively under-sold in the first instance.
So, if a home is under-sold by half a million dollars and then it increases in value by half a million dollars, it appears that the home has appreciated by a million dollars.
Due to the incompetence of the agents and their desire to get a sale at any price, today’s home sellers are being short-changed massively. And sadly, most never realise it. Especially in a boom. If you sell your home for half a million dollars more than you expected, you are likely to be so swept along in the euphoria of the moment that you never notice that you could have sold for another half a million dollars.
THE DIFFERENCE BETWEEN ‘GREAT’ AND ‘BLOWN AWAY.’
Let’s make it clear: You are not being greedy to have an agenda of selling your home for the best price possible. You are being financially smart. You should take the time to find out how you can get a price that “blows you away.”
The difference between a great price and a “blown away” price can be a million dollars. Even more.
Here’s a true story that happened days ago. It’s typical of hundreds of such stories, although without the desire to sell for the best at all costs. As in this case, some sellers are willing to sell for less than they could have achieved, especially if they know and like the buyers. If you can afford it, as these sellers obviously could, it feels good to cut buyers a break, especially those buying their dream property.
The sellers were hoping to receive $3.5 million.
A young couple fell in love with the property; they were prepared to pay $4 million.
Because they were family friends, the owners – an older (not old) couple – voluntarily gave the young couple a discount of $120,000.
The agreed sale price was $3.88 million.
Everyone was happy.
The buyers bought their dream property for $120,000 below their maximum.
The sellers sold their property for $380,000 more than they hoped to achieve. Given that they bought the property 10 years ago for $1.9 million, they earned $200,000 a year for a property they never lived in. It was a great price, for sure.
But, out of the blue, another buyer emerged. She really wanted the property. She offered the owners a “blown away” price – $5 million.
That was an extra $1.12 million.
Although no contracts had been signed, the parties had shaken hands, so the owners refused to accept the higher offer. They let the young couple buy at the original agreed price.
In many cases, particularly public auctions, sellers never know that buyers are willing to pay more than they offer (bid). Agents do not give them the choice of accepting or rejecting a “blown away” offer because most agents don’t know how to get such offers. They are poor negotiators.
Prices can soar into the “blown away” category on homes when buyers suddenly appear and offer amounts the agents did not expect.
At auctions, however, even at the “blown away” prices, homes are still sold for less than the buyers are prepared to pay.
It’s vital for sellers to understand how they can get the absolute highest (“blown away” price) whatever the method of sale (other than public auction).
Therefore, the sellers themselves must insist on trying to get a “blown away” price.
Do not let agents set the price – or even recommend a price – because, as you saw on the Sunday night TV show, five out of five agents massively under-valued the homes.
As the auction progressed, the price moved into “blown away” levels. But, as already explained, the higher than reserve prices had nothing to do with the skill of the agents.
In speaking with agents these days, they soon admit that they are being “blown away” by the prices buyers are paying. In a booming market, sellers should be saying: “I want you to be blown away by the sale of my house too.”
Michael Kies is Australia’s most brilliant real estate salesperson – in both negotiation ability and client care. He now consults to some of Australia’s best agents. Recently Michael made this remark about today’s property market: “If the price asked by the owners does not frighten the agents, the price is too low.”
BE YOUR OWN EXPERT.
The great lesson from the 2021 season of ‘The Block’ is this: The owners of the homes – the TV executives in far-away Sydney – were more accurate about the boom-time value of their homes than the five agents they had hired.
As an owner, never allow agents to set the value of your home.
Most agents are not experts at getting the best price for homes. Their expertise is in getting the best commission for themselves with as little effort as possible. And as fast as possible.
Your family home is your biggest asset. Some people – especially agents – may say that this article will encourage home-sellers to be stupid or unreasonable about their price.
Well, how stupid is it to under-estimate the value of homes by a million dollars?!
It often comes down to two choices in today’s market: Listen to typical agents and under-sell your home. Or ask a higher price, look for the right buyer, and sell for a blown-away price.
Hold out for your blown-away price, sellers. Especially, as was the case with ‘The Block’ if you have a beautiful home. Those two Bs – Boom and Beauty – can soon give you a third B – a Blown-away price.
Make agents justify their commission. Make them work hard for you. The higher your price, the harder agents must work. Is that a bad thing?
Insist upon your price. Resist pressure from agents to push you down in price.
Insist and resist, that’s your strategy for a blown-away price.
Good luck to you. Take your time, please. Get it right before you start selling which includes finding the best agent possible. Better to take a few weeks to find and instruct the right agent than to spend a few months stuck with the wrong agent.
In most area, there is a boom happening.
It is your financial duty to your family to get the best price for your home.
If you do your research and acquire the right knowledge – and follow the points in this article – or even call Jenman Support for personal help, you will give yourself the best chance of getting the best price.
And that’s a blown-away price.
FOOTNOTE: Now, we are helping many sellers to sell their homes for prices far higher than either they or their local agents appraised the value of their homes. I am helping a few couples to choose an agent and negotiate the right sale price. Many of these sellers are so delightful that it’s like speaking with great mates.
And the fun we have at getting the right price adds to the joy of the process.
Instead of an agent being in control, the sellers (with my assistance) are in control.
One of the sellers with whom I am working was quoted $6.5 million by an agent who is notorious for over-quoting.
But we recently helped other sellers achieve $7.5 million in the same area for a home that, while the location was more sought-after, is not as large – in both home and land size – as this home.
Further, this home is immaculate with glorious views. It’s the sort of home that you walk into and fall in love.
So, what’s better: A home in need of massive work in a magnificent position or an immaculate home in a great position?
It depends on the buyers.
Some buyers, like some agents, will prefer the quality of the location.
Other buyers will prefer the quality of the home.
If the two homes were measured purely on home quality, the second home must be worth at least one, maybe two (or more) million dollars more than the first home.
And so, that makes it worth $8.5 million to $9.5 million. Perhaps more. To the right buyer.
So often, agents tell sellers “what the buyers are saying.” They call it market feedback.
And this deflates the sellers and causes them to lower their “expectations.” This is what the agents wanted to happen
But, instead of lowering their prices, what the sellers should say to the agents is this: “Well, those buyers are the wrong buyers. I am paying you to find me the right buyer for this home. I don’t care if ninety-nine buyers say it’s over-priced because they are not the right buyers. The right buyer is the person who will see this home and love it and pay what we believe its worth.”
If the price you want is more than the expert-agents think it’s worth, that doesn’t matter. Make agents work. Make them show your home with enthusiasm.
Top quality homes such as this are homes that people love for many happy years.
And what’s more important to most buyers if they can afford the price asked: Their money or their happiness?
Happiness, of course.
So, buy this home and, as the sub-title of the book Real Estate Mistakes reads ‘Live Happily Ever After.’
If you need some truly expert help to sell your home for the right price and you’d like someone who puts your interests first, please contact us at Jenman Support on email@example.com or 1800 1800 18.
Thank you for your interest.