Archive | June 2013

Want more income? Stop client attrition

Real estate agent with clientsA simple strategy for agents who want to increase their income, is to decrease their rate of client attrition, according to Bernice L Ross, who is an internationally renowned real estate trainer and owner of www.realestatecoach.com.

“While most business plans focus on creating new customers and working with referrals, virtually no one addresses how to reduce one of the most expensive costs in the real estate business – the attrition of past customers and clients,” she says.

“This is so even though one of the major characteristics that differentiates top producers from less productive agents, is the fact that their past clients – the buyers and sellers that they have previously worked with – and their referral sources, keep sending them new business.”

Everyone knows by now that the cost of continually finding new clients is substantially higher than working with people who have already had a positive experience with your services, but few understand just how high the cost of attrition is. Ross explains: “Losing just one out of every five potential referral sources each year over five years will require you to replace 100% of your existing clients in that time, just to maintain your current rate of business.

“On the other hand, if you cut your attrition rate, that’s the same as adding new clients that you would have to generate from your prospecting activities – and much easier.”

Some ideas for reducing attrition in your business include the following:

  • Stay in touch. Call all of your past customers and clients at least four times a year and try to see them in person at least twice a year. Send them useful information, such as a regular update of what property has sold in their area, and for how much.
  • Don’t write off past clients just because they move away. Their previous friends and neighbours in your area could still be a source of business referrals, and if your real estate company has a national referral system, you might even earn a fee by helping someone who lives across the country.
  • Check your service. If there is anyone who has stopped doing business with you or stopped sending you referrals, try to find out why. Being honest with yourself and taking specific steps to remedy any problems mentioned by past clients can literally make you tens of thousands of rands.
  • Don’t forget to say thanks. Make sure anyone who makes a referral to you receives a thank you note, plus a small token of your appreciation – regardless of whether or not the referral ends up doing business with you. Never be afraid to let your contacts know how important a role they play in your success. Helping someone makes people feel good, and they will keep doing it.

SA homeownership set for huge growth

Homeownership set for growthThe residential property market is set for enormous expansion over the next few years, on the back of huge growth in SA’s black middle class.

Just-released research findings show that the number of adults in this group has more than doubled in the past eight years from 1,7 million to 4,2 million, while the number of white middle class adults rose from 2,8 million to 3 million.

The research, conducted by the UCT Unilever Institute of Strategic Marketing, also found that the annual spend of the black middle class already tops R400 billion a year.

What are even more exciting though, are the findings of the survey with regard to changing consumer behaviour in this group over the past eight years – years which have included the global financial crisis and an enduring economic downturn in many parts of the world.

Reporting on the research this month, Institute Director Prof John Simpson explained how tough times and much greater difficulty in finding and keeping employment, have led to a new financial conservatism in the black middle class.

He said respondents to the survey had clearly indicated that it was no longer a case of ‘bling at all costs’. In contrast to the Institute’s studies on the black middle class (Black Diamonds) in the early 2000s, which revealed rampant spending and a huge appetite for short-term borrowing, 80% of participants in the latest study – entitled “Four Million and Rising” – reported being much more cautious about spending and “only using credit when something was absolutely essential”.

This is a very positive development from the real estate point of view, because it suggests that far more consumers are now getting a handle on their financial affairs, getting rid of short-term debt, and putting themselves in a better position to save deposits and acquire homes of their own.

In other words, as First National Bank recently noted, they would appear to be “reprioritising” their household spending – as already indicated by the fact that spending on household goods and services is declining, new car sales are down, and the rate of unsecured lending growth is dropping.

Obviously, there are also rising demands on household incomes from other sources, such as increased food, transport, and utility costs – but it is the high levels of household debt which are currently the real barriers to homeownership for many families, because the repayments chew up a very large proportion of their disposable income.

And since there now appears to be a new and growing willingness to eliminate credit and store card debt, to stop buying furniture, cars, and other goods on credit, and to stop taking out personal loans to fund a lavish lifestyle, the black middle class has the potential to raise housing demand – and home ownership – by literally millions of units over the next few years.

  • Meanwhile, some 400 000 low-income households are also set to become new homeowners over the next three years, according to budget documents recently tabled in parliament by the National Department of Housing, which will spend R32 billion on new houses this year. Many of these owners may never be able to upgrade to more expensive, bonded properties, but the fact that they have a proper home and security of tenure will improve their lives and those of their children, which is the most important benefit of homeownership.

SA homes still getting smaller

Small house

The latest available building statistics from StatsSA show that the rate at which new homes are being delivered to the market continues to trend upwards – but that the average size of these new units is declining.

On a year-on-year basis, the total value of new residential buildings completed rose 25% in January and February, while the value of building plans passed for new homes rose 20,5%.

In the same period, the square metreage of new small homes (less than 80sqm) completed rose 20,2% compared with the first two months of last year, and that of flats and townhouses completed rose 38,7%, while that of homes bigger than 80sqm rose only 1,1%.

Meanwhile the square metreage of plans passed for new houses of 80sqm or more rose 2,4, and that for flats and townhouses a whopping 50,2%, clearly indicating that this is where developers believe future demand will be.

The major factor stimulating new housing development at the moment is the decrease in what First National Bank has termed the Replacement Cost Gap – the percentage difference between what it would cost to replace an existing home and the current value of that home.

This differential is variously estimated at between 21% and 33% now, but has definitely been on a declining trend since the start of 2012, making it easier for developers to bring new homes to market at prices that can compete with those of pre-owned homes.

However, the size of new homes is also steadily declining. The average has gone from 141sqm in 2006 to 111sqm now and is not expected to rise again in the foreseeable future, due to rising consumer preference for smaller, more secure and easier to maintain homes in the face of rising property rates and utility costs.

This is underscored by the fact that flats and townhouses now account for more than 27% of all residential building completions, up from 24% in 2011, and suggests that estate agents will increasingly have to hone their expertise in sectional title sales, and in working with bodies corporate and home owners’ associations.

Meanwhile, this is all good news for first-time buyers especially, because there is usually no transfer duty payable on newly-built homes (VAT being included in the sale price instead). This can significantly reduce the amount of cash they need to complete a purchase, at a time when the average deposit required by the banks is 17%.

Give your buyers the good news

stk119199rkeYes it’s tough to obtain a home loan these days, but it’s also far from impossible, and the process is nothing to be feared, even if you don’t have a perfect credit record or a long history of employment by one company.

That’s the message that agents and their mortgage originators need to get across now to prospective homebuyers – along with the fact that the banks are in the lending business and currently building up their home loan “books” again, so don’t really want to turn people down if they can help it.

Indeed, we at BetterBond believe that many more South Africans could own a home if they had access to more accurate information about the home loan qualification process and the range of home loan products available – and that it is up to the real estate industry to ensure that they get it.

For example prospective buyers don’t need a perfect credit history to get a home loan. Most people have had some money trouble at one time or another, and as long as they have dealt with it responsibly and established a new pattern of managing their credit wisely, keeping credit card balances low and paying their bills on time, their credit score will rise – especially if they have a deposit and a steady job.

On the other hand, while job stability is important, you don’t need five-year track record with the same company to get a home loan, especially if you have a deposit and a good credit score. There are even mortgage products for self-employed people who have difficulty documenting their income – especially if their credit is good.

There are also a number of innovative mortgage products now available for first-time buyers who don’t have extensive credit records, or who need to borrow 100% of the purchase price.

In short, the lowest interest rates in more than 30 years mean that now is an excellent time for prospective buyers to get a foothold in the market and start laying the foundations of their future wealth, and we should not let them lose the opportunity for want of a little information and encouragement.

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