THE TRUTH ABOUT REAL ESTATE ADVERTISING COSTS
by Neil Jenman
Reading Time: Apx 8.5 mins
When you sell a property in Australia, most agents expect you to pay advertising costs. Usually, this amounts to thousands of dollars. That’s in addition to thousands of dollars in commission when you sell.
Or as happens in many cases, if you sell.
Many home-owners get so cheesed-off with the selling process – agents badgering them to accept a lower price – they decide to stay put. In doing so, they avoid commission, but they still lose thousands of dollars in advertising costs.
Money for nothing – as far as sellers are concerned.
Money for something for agents and advertisers.
If home sellers knew the truth about real estate marketing costs, none would part with a cent before their homes were sold.
That’s the way it should be. That’s the way it used to be. That’s the way it is in every country in the world – except Australia (and increasingly New Zealand).
So why are Australian property owners hit with thousands of dollars in upfront costs – or threatened with legal action if their homes don’t sell and they don’t pay thousands of dollars they ostensibly “owe” in advertising costs?
What have us Aussies done to deserve such a raw deal when selling our homes?
Earlier this year, I released my new book ‘88 Reasons Why You Must Never Sell Your Home at Auction’. In that book, I challenged any leading auctioneer to debate me on auctions.
No takers. Without their hammers they’re not so brave.
I could write another book called: ‘88 Reasons Why You Must Never Pay for Advertising Costs Before You Sell’.
For now, however, here are 10 REASONS YOU SHOULD NEVER PAY ADVERTISING COSTS BEFORE YOU SELL.
- YOU DON’T HAVE TO
Like so much in real estate, advertising (or “marketing” as agents call it) expenses are just a bluff, a cunning try-on.
When the concept of getting sellers to pay advertising costs was first introduced (known as VPA – Vendor Pays Advertising), many agents did not believe sellers would fall for it. But media companies hired salespeople from real estate to spruik the benefits (for agents, of course. “Hey guys, you get FREE advertising!”). The rest is a sad history.
Please understand, it is not compulsory for sellers to pay advertising costs. Again, repeat, it’s just a bluff. Don’t fall for it.
Say to the agent: “If $25,000 in commission is not enough, you are stupid as well as greedy.”
But look out, many agents are indeed stupid.
They are likely to reply with: “It’s your home, you should pay the advertising costs.”
That’s more real estate sophistry – and here’s why…
- YOU ARE CREATING NEW LEADS FOR THE AGENT
Many people who enquire about a property for sale also have a property to sell. Indeed, one of the first questions agents ask potential buyers is: “Do you have a home to sell?”
Many of these buyers are also sellers. The agents swoop and sign-up those sellers and sell their home and pocket a commission of, say, $25,000.
If this happens four times, that’s one hundred thousand dollars the agent has received in commission as a direct result of advertising paid by another seller.
How good is that – for the agent, of course?!!
Yes, when you agree (sorry, IF you are naïve enough to agree) to pay for what is supposedly “your advertising costs” you are, literally, giving an agent new leads.
How about saying to this an agent who demands advertising expenses: “Okay, so you want me to give you $10,000 to advertise my home – then, surely that means that I own the ‘leads’ that come from my home? Which means, surely, if you meet other sellers and sell their homes as a direct result of my advertising money, I am entitled to the commission earned on those other sales – right?!”
What do you mean by “NO”.
“Do you want me to pay for you to find leads and you get all the rewards from the sales creating from my money? My name is Billy not Silly.”
Tell the agent that if you are paying for the advertising, it must follow that you “own the leads” created from your money. That also means that you should receive any commission from sales created from such advertising money. That’s only fair.
Surely agents don’t want it both ways – they don’t want you to take all the risk while they have no risk and get all the reward? Surely not?
- RISK SHOULD BE WITH THE BUSINESS NOT THE CUSTOMER
As one savvy home seller commented: “Every business involves risk, but real estate agents are the only businesses that transfer that risk to their customers.” This lady did what all sellers should do: She refused to pay (or be obligated to pay) advertising costs before she sold. Her home later sold for $7 million and then she happily paid a substantial commission which included advertising costs – the way all sellers should do it.
- IT’S PROMOTING AGENTS, NOT PROPERTIES
Real estate advertising is not about promoting houses, it’s about promoting agents.
Behind-the-scenes in real estate, upfront advertising is one big joke. The agents are laughing at taking your money to promote their faces. In the industry it’s called “profile building”. As a former president of the Real Estate Institute of Victoria (REIV) told a group of agents around a bar one night: “I just got $14,000 from that old lady and we already have the buyer for her home?”
“So why would you take her $14,000 then?” asked one new agent.
The agent raised his glass, took a long sip of his beer and then slowly said: “Profile mate, that’s what this business is all about.”
- AGENTS ALREADY HAVE BUYERS
Agents get dozens of enquiries from prospective buyers. The bigger and better agents (not always the same) get hundreds of enquiries per month.
When a good agent secures a home for sale (a new listing), the first thing that agent does is ask: “Who do I already know who may buy this home?” The agent will scour through past enquiries calling one prospect after another – often selling the home promptly and for a great price.
When bad agents get a new listing, the first thing they do is ask the sellers for money to advertise, allegedly for the main purpose of finding buyers. Lazy sods.
Ask any agent the following question: “When you advertise a home do you ever get contacted by buyers already known to you?”
The common answer is: “Sure, all the time.”
“So why do you ask the sellers to pay to attract buyers you already know?”
Oh, that’s right, real estate advertising is done to advertise agents.
- ADVERTISING IS CONDITIONING
Advertising is part of the “conditioning process”. The more a property is advertised – and the longer it is advertised – the more “evidence” the agent has to convince sellers to lower their prices. As agents are often taught in training courses: “Advertising is ammunition to use against sellers who want too much.”
As all agents know, the lower the price of a property, the easier it is to sell and the faster they get paid.
- AGENTS GET KICKBACKS.
Agents prefer to use the term “rebates” or “volume discounts”. In essence it means this: Advertisers pay agents a commission on money they collect. The more you spend, the more the agent pockets. Agents get a bigger percentage for selling advertising to home-sellers than for selling houses to home-buyers.
- ADVERTISING DAMAGES VALUE
Best homes, like the best jobs, are seldom advertised. The more a home is advertised the more its value gets damaged. After a while, buyers wonder why it hasn’t sold – or they check the number of “visits”. They think: “This home must be too dear or else there is something wrong with it.”
Further, if you put your property on the internet, you are entering the ‘comparison selling market’. Buyers compare similar homes. And which ones get sold first? The cheaper ones, of course.
Once you enter the comparison market, the main way to attract buyers is price. The home-sellers with the lowest price attract the most buyers.
Agents have a slick line to convince sellers to advertise. “You can’t sell a secret.” Agents who make such a statement display their lack of negotiation knowledge. Any agent of any merit knows that off-market sales often attract record prices.
Ignorance affects most agents. Just don’t let their ignorance lower the selling price of your home.
- THE PREMIUM RIP-OFF
There is no bigger rip-off in the real estate advertising world than premium ads. Not only are they a needless cost, but they can also severely damage the value of your home. As one executive from a real estate internet company told this writer (September 1, 2019): “When I sold my home, the agent wanted six thousand dollars for a premium advertisement. I said I worked for the internet company, and we know that, if advertising is necessary, a hundred-dollar ad is more effective than an ad costing thousands of dollars.”
How come almost everyone is asked to pay for a premium ad? If nearly every seller is paying extra for their homes to “stand-out”, none “stand-out”. Have you ever heard of anyone being told: “Sorry, all the premium spots are taken?” As long as there is an agent dodgy enough to suggest a premium ad and there are sellers naïve enough to pay, everyone gets accepted for the premium rip-off. At five thousand dollars a pop.
- DO IT YOURSELF – IT’S EASY
Consider this: If advertising finds the best buyer for your property, why have an agent?
Why pay thousands of dollars for advertising plus thousands of dollars for commission?
Why not place a small ad yourself? If you do, you’ll discover what many sellers are now discovering – without a typical agent, you not only save yourself thousands of dollars commission and needless advertising costs, you also get tens – even hundreds – of thousands of dollars extra.
Don’t be bluffed. It’s not hard to “sell” your home without an agent. There is no real “selling”. Agents don’t “sell” homes (in most cases). Buyers buy homes.
Here’s a final question: “Are you smarter than typical real estate agents?”
Of course you are. Most agents are boof-heads.
So why pay a boof-head about $5,000 an hour to advertise your home and wait for a buyer to show up? Work it out. If you can’t find a great agent who can get you a great price without demanding upfront costs, call 1800 1800 18. We’ll send you a book on how to sell your home without agents. Our Christmas gift to you – for ‘22.
These are ten truths about real estate marketing. There are plenty more, but the biggest word to use if asked by agent to pay advertising costs before your home sells is “NO!”.
The agents who genuinely look after the best interests of clients rarely charge upfront advertising costs. Find such agents, save thousands in costs and, as a bonus, get a better price. If not, find your own buyer.
How do you find a buyer for your home?
Easy, just put an ad on-line. Repeat: If you can’t find an honest and competent agent, try it. What have you got to lose? What can you gain? Thousands of dollars more.
As an extra bonus, you’ll feel great too!
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November 9, 2022 @ 9:55 am
Very good advice. Especially as I intend to sell our place in the not-to-distant future.
November 9, 2022 @ 1:31 pm
Yes, Yes and Yes. Agree with it all Neil.
I recently sold my (not settled yet but looking good) sister farm in a regional location in WA. We did it through a For Sale By Owner set up which was our only advertising cost to get it on the internet. In our case I feel thats completely necessary as we are not agents with built up leads or leads from other properties coming into us.
That cost was around $1100 which included a large 6×4 full colour photo For Sale board erected on the property in the regional location. It take us 9 months to get the right offer but we expected it could take some time due the property and the reduced market that it applies to.
Local agents put a price of $875-$915,000 on the property and wanted an average of 2.75% and yes additional advertising costs were mentioned although no figure was given at the time.
At this stage we have achieved a sales price of $1,025,000 (obviously we have to wait to settlement as the sale was a subject sale but that property sold within a week and we are just waiting on the buyer of that property for their finance approval). We achieved that without any additional advertising costs, no pressure from an agent to reduce the price. Only had home opens when we had qualified buyers to look through, so effectively by appointment. However on a few occasions if we had 2 or more parties planned to come through on a weekend we would advertise on the website that it was open on that day but without a time so people would still have to ring and be qualified.
If we had sold through one of the local agents, to come out with the same money in the hand we would have to sell for
$1,025,000 plus commission $28,984 plus advertising costs, say $2,500 min
That means a total of $1,056,484 less our cost of $1,100 = $1,055,384 but they thought it worth a max of $915,000.
Love that experience of yours on the plane !!
November 9, 2022 @ 1:46 pm
Uh I forgot to mention, I would love to know the response of these Top Performers in Real Estate if Sellers said we will pay the advertising costs but only if you remove your name and picture from the ad as we are only paying to advertise our house and you can pay for your own advertising if that is what you want. Your name and phone number on the sign or ad in an appropriate position and size but that’s it.
I also would like these Top Performers, there is one in particular that works in the area I live, how can you justify the commission you charge when you have so many listings to look after, there is now way you can be putting the justified amount of energy and effort into selling each one of your listings every week/month, unless you are just relying on the website listing to do your work for you in which case why so much commission.
Like I have said before I don’t necessarily have a problem with high commissions providing the client is getting a total and premium service and the outcome they want or better. BUT to be charged a high commission to be on a Top Performers book so you can just be another number is crazy.
Thx for the article.
November 9, 2022 @ 1:57 pm
Advertising money is a scam, do why would you still advocate not paying advertising money until a home is sold rather than ablanket NO to advertising money?
November 9, 2022 @ 6:19 pm
I do not understand why advertising costs are justified, either before or after a sale. It is a business expense like renting, heating, transport.