Let’s debunk myths and false legends
In the real estate brokerage market, there are two types of services to choose from for supply customers- owners trying to sell or rent their property. Representation on an open basis contract and representation with exclusivity clause. The adjective ‘exclusivity’ often raises a lot of negative emotions, yet in recent years more and more customers have started to reach for this type of cooperation.
By comparing the analysis of pros and cons of an exclusive contract with a standard contract through the perspective of increasingly more semantic chaos, we can use the analogy of compering a classic soup to a cream soup. In classic soup all ingredients are visible to the naked eye and can be distinguished and estimated as a percentage. In a cream-type vegetable soup, we know that there are celery and carrots for sure, but we can’t say from where to where is the celery, and from where to where is the carrot. Let’s add a tablespoon of cream and a blade of parsley and we have a authentic ‘Zupa Romana’ thus a complete mystification.
The basis for forming opinions and making sound decisions is the ability to use factual databases and draw logical conclusions. Therefore, I propose to start by sorting out and discussing a few issues related to the form of contracts covered by the exclusivity clause.
Let’s start by debunking three of the most widespread myths about the exclusivity clause:
- Exclusivity means that only one agency can essentially offer the property.
- Only this agency has the right to offer the real estate and only to its own clients.
- The real estate exposure to the market is therefore limited and inferior than to what it would be under an open contract.
I encounter these three of the above-mentioned stereotypes on a daily basis will cooperating with property owners who use the services of the Igloo Warsaw Properties office. So, I try to debunk these myths by attempting to show to my clients that the exact opposite is true.
How does exclusivity actually work?
- To the owner signing a representation agreement with the exclusivity clause, the agent becomes the sole representative of the owner, a bit like an employee. He is now responsible for the offer and becomes the main source of information flow, an intermediary between the owner and the market.
- Thanks to exclusivity, the owner has smoother flow of information and stricter control to what is happening with his offer, e.g. when regulating the pricing strategy, etc.
- Comfort that the owner answers the phone only from one trusted person, not from several frequently anonymous agents.
- Exclusivity does not limit the offer by restricting it for customers of the agency that is representing it.
It is quite the opposite actually. Exclusive offers in principle are listed in a listing exchange system for the exchange of offers such as MLS, WSPON (Warsaw Association of Real Estate Brokers) or Asari Premium.
The MLS WSPON system includes approximately 200 offices and over 1,000 intermediaries who have exclusive access to the offer. They know that these offers are proven, up-to-date and can offer them to their customers. They also know that the agent representing the offer has always been open to cooperation, which seldom is the case with open contract offers.
In the case of open contracts, agents count on remuneration from two sides, so they do not want to cooperate with other agents, therefore they limit access to the offer, which has a negative impact on the final sales price and time frame in which the property is sold.
Exclusivity means that the agent to participate in the transaction will definitely not be an agent by chance, but a specific agent representing the owner. Therefore, the agent representing the offer, being aware of the guaranteed remuneration, is much more active.
For agencies operating in the premium segment, it is standard to exchange offers with other agencies competing in the same market segment. Each professional agent has his own well-worn trade paths and friendly agents with whom he regularly cooperates.
In addition, most agencies always have at least one WSPON member and it is this form of getting out with the offer more broadly, that is truly irreplaceable, and often underestimated by the owners. The fact is, that most exclusivity transactions are carried out in inter-agency cooperation – which refutes the myth of the single-vector sale procedure. What’s more, a lot of exclusive deals often take place before the offer is published.
Side effects of open contracts
The activities listed above, unfortunately, do not apply to open contracts. In practice, this means that customers / owners, without knowing it, are deprived of a truly comprehensive and professional service. Despite the fact that the agency remuneration is at the same level in the case of both forms of cooperation.
A common misunderstanding is the believe that establishing cooperation with more than one agency, is synonymous with a broader exposure of the offer to the market. Doubling the offer, unfortunately, does not translate to greater exposure of the offer on the market, but only with the fact that the offer advertisement is repeatedly duplicated by various entities, which, paradoxically, is counter-productive and very harmful from the marketing point of view.
There is nothing worse to the prestige of the offer than being published on the same portal numerous times, often even several times by different offices. Apart from the fact that often these offers are prepared very untidily, with unprofessional photos and descriptions. It is not uncommon for agencies to place different asking prices, which inevitably try to compete with each other by using various tricks.
For example, by providing the price without a parking space or storage room. Often, without consulting the owner, they lower the price by small amounts just to stand out, or be in the lower price range on portals.
Such a situation is extremely harmful, as it creates chaos in the image perception of the offer by the recipient. This communicates an oversupply resulting from the owner’s desperation and suggests that there is something wrong with property, since it is being offered by so many intermediaries.
Such a crowd-oversupply of the property means that a potential client frequently browsing the portal pages often does not enter the offer because he is already subconsciously tired of it.
In the case of open offers, it is a rule that agencies conceal the exact location and positioning of the property until the very stage of real estate presentation. Such actions are prompted by the fear that the potential buyer, even before signing the brokerage agreement, and already having knowledge of the location of the real estate, will try to bypass the agency, trying to contact the owner directly. Often, it also happens that buyers in such a situation try to play agencies against one another in order to negotiate a better commission.
Apart from the lack of transparency and the resulting obvious discomfort, from the point of view of a the potential buyer, the consequence of such actions is the emergence of a conflict of interest. Instead of representing the owner’s interest by negotiating the highest possible price, the agent is only motivated to finalize the transaction as quickly as possible.
It is also not an option to regularly up the bids or distinctions of the offer on real estate portals, because it involves additional financial expenses on the agency’s part, and such activities are generally provided for exclusive offers only.
A side effect of the sale process conducted in this way, is that real estate is very often sold at a lower price, than could have been obtained if the real estate was sold in a more professional manner.
The essence of exclusivity
Exclusivity, in English, also means uniqueness, which is unfortunately lost in translation into Polish. The purpose of advertising the offer is to create a feeling of uniqueness, especially in highly competitive markets. Under the conditions of a demand driven buyers’ market, this is a key issue.
The offer should signal that it is a serious, ‘exclusive’, one-of-a-kind offer – that is exactly the opposite of oversupply. That it is only and exclusively available to serious bidders.
In Anglo-Saxon countries such as the United Kingdom, the United States or Australia, where the real estate markets are much more developed and orderly, most of the sales transactions come from exclusivity agreements.
In Australia, for example, the proportions are at the level of 90/10% of which 10% are direct sales. It is not forbidden by law to sign open contracts, but no agency will sign a non-exclusive contract with the owner – there are simply no other contracts functioning.
When it comes to renting, it is a bit different due to the fact that apartment leases are handled by Property Management – a service that is only beginning to gain popularity in Poland. This service, due to its specificity, is an autonomous exclusivity, but maybe more about it another time. Moreover, in Australia, the owner pays for marketing, which is unthinkable in Poland. When I speak to the Sydney agents they are amazed at the chaos in our country and how it is even possible.
What to consider when choosing an exclusivity clause?
When deciding on exclusivity, there are definitely things worth paying attention to. The main issue is the choice of office and agent as exclusivity service is not equal amongst providers, and different agencies offer different variations of the service.
It is always worthwhile, as when purchasing any product or service, to determine exactly what is included in the exclusive contract. It is necessary to determine what benefits we receive additionally on an exclusivity which are not offered by an open contract.
In today’s market reality, a professional photo session is already a standard for exclusivity. There are already agencies that place all their offers with professional photos. If the office does not offer a professional photo session with exclusivity, then you should ask yourself whether you should look for another agency that allocates more money to promote its offers.
An important issue is to determine the sales strategy and pricing strategy – it should be determined what steps the agent will take to promote the offer, what tools he uses to promote the offer and what financial expenses the office allocates on promoting the offers, e.g. on portals.
As I mentioned, the standard service should offer at least: a professional photo session, in addition to the basic export to portals, additional bids and distinctions, installation of a banners.
It is always worth asking what extra – over and above activities the agent will take in order to broadly enter the market with the offer.
Summary
In summarizing therefore, both forms of cooperation, let us use an analogy when comparing the sales process to a travel journey . Just as the seller’s goal is to transfer ownership to the new buyer, the traveller’s goal is to reach his destination.
Imagine a trip from Krakow to Gdansk. We can choose between hitchhiking blindfolded , or a rental car with a driver. Choosing a hitchhiking trip, we have no guarantee that the journey will take place with one and the same driver, the same car and a predetermined route. We have limited options with determining the time of arrival. Virtually no foreseeable travel comfort and safety.
When choosing a rental car with a driver, we have knowledge about the driver, the car and the travel route at the start of the journey. We have a predetermined travel agenda and time of arrival. Travel safety and comfort are also much more predictable.
Of course, as with everything in life, there is no guarantee that everything will go as we wish. By choosing the option of traveling with a driver, we increase the probability of a successful trip and minimize the risk.
To sum up, for me, the next time I go on a long trip from Krakow to Gdansk, I know exactly how I will plan this trip.
Marek Szałowski
