Old-time brokerage is back

John Stone

Old-time brokerage is back! If you have been in the business for more than 10 years, you may already know what I am talking about. If not, you are very likely about to learn what “knowing the customer” really means.

Knowing “the customer” versus “your client?”

First be sure we know what the words mean. The Encarta dictionary defines a customer as “a person or company that buys goods or services.” Meanwhile, a client is defined as “a person or organization taking advice from an attorney, accountant, or other professional person.”

According to the dictionary, both words are unfortunately interchangeable with the following: customer, purchaser, buyer, user, patron, shopper, consumer and client.

Most real estate agents list property for sale, thereby “representing” the seller, who is then referred to as our client. We spend an enormous amount of time and energy courting the seller in hopes of being hired to sell their property, and while this is a necessary activity and often the only activity of importance during a peak in the market, it becomes considerably less critical when the market has cooled, as we shall soon see.

Knowing “the customer” is critical!

The definition of “customer” above is typically referred to as the “buyer,” whose cash makes the world turn. In today’s market, knowing who has the money has become a most important undertaking, but first let’s put into perspective what we have done for at least the past 10 years.

Most would agree that, thanks to the Internet, Web sites and e-mail, we have become more of a “processor” than a salesperson. We can now send thousands of “for sale” notices that direct the recipient to the property Web site for more information. The prospective buyer can execute an electronic confidentiality agreement and download the package, all without talking to anyone. If all goes well, the salesperson should call the person who downloaded the marking information and determine if there is any interest and, if so, discuss in more detail.

This e-marketing worked well during our first real market peak since the Internet has been around, but how will it work now that the market is more challenging? The following chart compares marketing activities of four similar properties over a seven-year period, from 2001 through 2008:

Year 2001 2004 2006 2008

E-mails sent 2,059 2,594 2,831 5,877

Response 92 87 116 480

Marketing Packages Delivered 70 83 97 93

Showings 8 12 22 10

Offers 4 17 18 6

While the volume of e-mails and marketing materials has increased over the years, the actual number of showings and offers has returned to more traditional levels. Unfortunately, this information doesn’t tell us much about the buyer or his or her capabilities or motivation.

Show me the money

“Show me the money” seems to be the mantra for 2009. Since the first of the year, we have been in direct contact with dozens of prospective investors and have studied numerous reports to chart our way forward.

Many surveys have circulated in recent months, most in electronic forms, and all introduced through e-mail. While survey’s and studies provide insight to the subject group as a whole, it doesn’t really say much about what each participant is capable of or willing to do as it relates to buying.

To find out what the customer (buyer) is capable of or willing to do, we must speak to them directly. While this “person-to-person” form of communication is, to some, old fashion, it still exists because it works. By speaking directly with dozens of prospective customers, we discover that less than 5% have cash available to investment today. While cash is critical, it must also be matched with motivation before anything occurs. Less than 2% of the customers we spoke with had the motivation to purchase, even if cash was readily available. That small list of customers is what I call an “A-List.”

Old-time brokerage is back with a vengeance! Prior to e-marketing, the real value of an investment broker was his or her knowledge of the customer. In other words, having the “A-List” of those capable and with a desire to buy is of the highest value today.

It appears this knowledge is once again in high demand, for knowing who has the money and motivation has never been more important to the transaction process. It has recently been said that, “We’re not going to e-mail our way out of this market slump,” and I believe they are right.

John W. Stone, CCIM, is a principal with Colliers Arnold in Clearwater and managing director of multifamily investments and foreign capital services.