Choosing the Right Sales Method – 3 Decisions You Need to Make

If you were to read the Auckland newspaper recently you would think every home is being sold by auction in 3 weeks at some extraordinary level above fair value. The hype surrounding a single sales method, besides illustrating a frothy and potentially out of control market, is inaccurate and potentially misleading.

Of course, the real estate industry is good at taking a single datapoint and stating truisms too - “auctions get you the best price” is one of those.

The way homes are sold in New Zealand is driven by the real estate sales person chosen for the task. When making listing presentations some sales people always lead with auctions, others don’t believe in them and recommend a tender, and there are those that only ever sell by private treaty. Thats why the Auckland market sees more auctions but Wellington has more tenders. The choice of sales method is more strongly correlated to the sales person involved than it is to the seller or the property.

But, one sales method is not best for all markets, or every property, nor is every seller right for a single sales approach. So how do you decide which sales method is best for you?

To do that we don't start from the sales method and make it fit. What we should do is examine the three key components that make up the decision. It is the combination of, and interaction between, the seller, the property and the market that determines the best sales method.

We can uncover the best sales method by asking some straightforward questions about those three factors:

Is the property being sold simple or complex? By simple we mean a straight forward property that is a known quantity to potential buyers. The three bedroom brick and tile home, for example – there are a lot of them built (some suburbs are full of similar homes), are relatively easily analysed and understood. A complex property is the other end of the continuum of course. Less commonality, more complicated, more unknown factors, one than has less certainty for buyers and requires more examination.

The market? Simply, are there plenty of buyers actively searching for this type of property, or only a very few. The central Auckland market right now is buoyant of course, while in Northland things are still pretty stagnant.

Looking at the seller is vital. Specifically, at how the seller makes decisions or reaches conclusions about their property. No right or wrong here, no good or bad, just a continuum. We’ll label the two extremes Analytical and Emotional to borrow from Myers Briggs.

Analytical decision making is one based on objective and impersonal criteria using a defined and structured process. Sensible and logical, calm and reserved, driven by rational arguments, it's not personal. The other end is more humanistic – emotional, the need for harmony, a sensitivity to external factors and extenuating circumstances, normally involving more human aspects and time for interaction, reflection, and compromise. Often when there is more than one party involved.

The Mortgagee is the ultimate Analytical seller - the bank/lawyer managing the transaction is using a structured process with clear priorities – time is more important than price, they do not want the complexity of conditions, the need to ensure legally sustainable thresholds are met. At the other end of the spectrum is the elderly seller who has been in the home for 40 years, having recently lost a spouse and facing huge life changes, possibly with several interested family members involved. Complex decision processes tend to be more emotional with mutiple people who can view the same information with different filters, so there is negotiation, compromise, the need for time and discussion. There is simply more human interaction involved.

By combining these factors we establish a decision tree with 3 key questions in order:

Is it a simple property - Yes or No?

Is it a bouyant market – Yes or No?

Is the seller decision process analytical – Yes or No (emotional)?

Follow the yes/no decisions to a result.

We have analysed the various sales methods in other articles (for example, auctions, and tenders) and apply the conclusions here without delving into the strengths and weaknesses of each sales method.

For example, a simple property (“yes” to question 1), with lots of potential buyers (“yes” to question 2), and an analytical decision process (“yes” to question 3) is probably suited to an auction. Now this is where religious warfare can erupt – Tender fans will tell you until they are blue in the fact that their preferred sales method will work just as well as an auction (or better) in this sceniaro. Fair enough – but for our analysis we are going to allow that intense buyer interest in a simple property will create sufficient competition to gain a fair price.

That same simple property, in a bouyant market is probably better marketed as a Tender when the decision maker needs more time to make a decision (“no” to question 3), to consult and take advice, without the intense and public pressure of an auction.

A complex property (ie “no” to the first question), in a slow market (“no” to question 2), with an emotional seller (“no” to question 3) is best as a Tender. This hopefully generates competition if possible, enables buyers the flexibility of including conditions and allows the seller time to evaluate the more complex set of responses they possibly get as a result. The analytical decision maker with the same property and market would be best served using the same Tender process or indeed Pricing the property – afterall they will likely know what they want and their rational bent will enable a quick cut-through of any complexity and conditions in an offer.

The idea of the decision tree is to provide a tool allowing home owners to objectively analyse and determine the right selling method for them, the local market and their home. There are some qualifications to the analysis of course.

The decisions at each level are not not always black and white – there aren't just simple properties and complex properties for sale in the market. It is a continuum and so think about where on that you reside – it your property more toward the simple end, or the complex end.

The three decision levels do not always carry equal weight. The most important will likely be the 3^rd question – decision making. But it may not be.

The aim here is to provide a framework to help you determine the best sales method for your specific circumstances. One method does not suit all. The most significant financial transaction a person undertakes is worthy of considered analysis. This is not a situation to merely follow the hype.

Finally, this is a work in progress and we plan to continue investigating and refining the tool. Add your thoughts, insights and feedback to that. It is appreciated.