ANALYSIS - VPA: not only possible, but a must

On a national scale, approximately 70 per cent of agency advertising costs are paid for by the vendor, according to the Macquarie Relationship Banking’s Real Estate Benchmarking Survey 2009.

However, the report says this figure is much lower in Western Australia, where only 58 per cent of advertising costs are met by the vendor.

Late last month, director of Perth-based Realmark Coastal and former member of the RE/MAX group’s platinum club, Sean Hughes, told a conference that while it was initially tough to get vendors to pay for marketing, the extra money spent on advertising had helped deliver a spate of strong sales results in his area.

The stronger sales had also helped drive local properties into new price brackets, further boosting his bottom line.

Mr Hughes said while he initially couldn’t get some vendors to pay for the entire marketing spend, strong sales results soon had vendors convinced that they should pay for all of the campaign.

Mr Hughes’ comments were echoed by Brisbane-based real estate agent Matt Lancashire, of Ray White New Farm, in Brisbane. Mr Lancashire has been ranked in the top one per cent of Ray White salespeople for the past two years.

In the very first instance, he said agents simply needed to ask for vendors to pay for advertising.

“All you’ve got to do is ask for it,” he told Ray White director Sam White, in a one-on-one interview at the recent Gold Coast-based Young Professionals in Real Estate (YPIRE) event.

“All they can say is no.”

These comments were supported by the Real Estate Benchmarking Survey report.

“There is a direct relationship between the level of advertising recoveries and agency profitability,” the report says.

“The amount of vendor advertising that is not collected becomes a direct expense on your business. The profitable businesses in the market collect 100 per cent of their vendor advertising, usually a result of strong policy and protocol including accountability on the sales person listing a property.”

John Caputo, director of Maylands, WA-based Harcourts Integrity, says vendor paid advertising is just as much about helping the seller as it is about assisting the agent.

“If the vendor pays for the cost of marketing a property upfront, then the agent doesn’t have to wear it,” Mr Caputo says.

“But if an agent pays for the marketing, they are no longer acting in the best interests of their client, because they now have a vested interest in the actual sale of the home. They want to achieve the sale as soon as possible to recoup their expenses.”

Western Australia is home to the nation’s lowest VPA rate and it can be difficult to pitch up-front marketing costs to a potential client, Mr Caputo says.

However, experience has taught Mr Caputo that VPA is a possibility if it is pitched to the vendor correctly.

“If I gave you my property and said, ‘there you are, sell my home’, how much are you actually going to spend on the marketing? Probably not much,” Mr Caputo says.

“The idea is that the owner gives the agent money to spend on their behalf to market the property properly, by taking professional pictures, decent advertising and securing the best possible sale.”

Marianne Robinson is an independent agent and director of Duncraig WA agency, Marianne Robinson Real Estate.

She believes every client and every property is different, however one thing always remains - VPA is crucial to selling a home.

“Today, vendors have to be educated and understand that selling a home comes with multiple costs, such as VPA and agent fees,” Ms Robinson says.

“Selling a home requires a combined effort from both the agent and the vendor. If they are not prepared to give something or put some money forward to help sell their home, then it is simply going to sit on the market for weeks on end.”

Ms Robinson’s business model operates on a client-to-client basis.

She believes if the costs of marketing the property are minimal the vendor should pay, however, if the fee is substantial Ms Robinson incorporates the associated costs into her fee and reimburses her clients a small amount upon completion of the sale.

“When I do an appraisal I have a look at where my client is and what they want to achieve,” Ms Robinson says.

“I then go away and conduct my own research, compare the price and state of the home to others in the local area and return with my proposal.

“[What I charge] really depends on the property and the client. If the home is overpriced, or the owner refuses to make necessary repairs, why should I pay for advertising the sale of a property I know is not going to sell?”

Whether most agents are actually enforcing VPA was disputed by a recent Real Estate Business straw poll, which showed just 23.6 per cent of the 937 respondents were charging vendors for the marketing of their property. Another eight per cent of respondents said that they recouped some of the additional marketing costs.

While there is a wide range of contract approaches to advertising costs, a growing number of agents may be footing the bill for marketing their client’s home, REIWA president David Airey admits.

“I think you’d be right to say [agents paying for advertising] is a growing trend, but each office has their own business model and works within a deregulated system,” Mr Airey says.

“Most agents would want to recover some or all of the marketing and advertising expenses incurred, with the selling fee or commission being a separate issue and based on the sale price of the property.”

Mr Airey believes business models should adapt and change depending on the client’s wants and needs, particularly in today’s challenging market.

“History shows that in tough markets such as we have now, an agency will lose money unless it recovers advertising costs on properties listed for sale.”

“In fact we are seeing a trend develop where smaller agencies are closing or merging with others because they can’t sustain a full listing book and few sales.”

Mr Caputo largely agrees and believes agencies that continually foot the bill for their clients will soon feel the strain of excessive expenses.

“All 10 sales agents in my office get [the costs of] marketing, because I tell them if they don’t I’m going to go broke and so will they. It’s as simple as that,” he says.

“Marketing is a huge component in selling real estate and it quickly adds up.

“We have over 100 listings in my office right now. If had to pay for the marketing of every one of those listings my marketing bill would be astronomical. I’d be looking recover a $50,000 to $100,000 marketing bill right now, which is huge.”