By Lianne McOuat
I am going to say something controversial to many in the industry today. Before you launch a co-op program, considering it a low risk way to add a new sales channel for your lowrise project, take some time to think. After 25 years in the industry, marketing more than 1,000 projects in good and bad markets, my argument should be considered to be well informed and well rounded.
There’s no question that for certain types of projects, engaging the brokers is absolutely necessary. Please do not read this article as “anti-agent.” It makes a lot of sense for a lot of projects to co-operate. The downtown highrise market is completely built around this model.
But there are times when it may not be the best decision, particularly in the lowrise world. As an example, we recently opened a townhouse project for one of our clients and sold $50 million worth of homes (80 sales at $700,000 average), with a total $50,000 advertising spend. If they had co-operated like some of their competition did, they would have spent $2 million on commissions, $1 million of that paid up front.
Was a co-op program needed? One-hundred per cent no. How did we do it? With unique marketing strategies, excellent targeted lead generation, a compelling nurturing program and a strong product offering – all at the right market price.
Every project is unique and every builder has different branding and absorption goals, so consider your specific situation before you decide whether to commit to a co-op program. Sometimes it’s the right thing to do. Sometimes it isn’t.
Here is a list of pros and cons to think about before you decide:
You create an army: You will only ever have just a few on-site agents. Engage brokers/co-op agents and you create a virtual “army” to go out and promote your project. Who doesn’t want their own army?
Lower up-front sales and marketing cost: A co-op agent may have an established presence in their community, as well as a large database of prospects from other projects. You can then reach new customers at a very low initial cost and enter new markets in a cost-effective way.
You pay only if they sell: If they don’t sell, you don’t spend. Up-front costs for selling through co-op agents include all of your collateral, of course, as well as emails and events to get their attention and setting up a broker portal.
Effective scaling: If you have an established broker channel model, you can scale very effectively by adding more channel partners into that mix. One broker can manage multiple agent partnerships bringing in revenue that would generally require a much larger, entire sales team.
Speed: If you need fast sales in order to secure financing for a tower, and you can reach your sales numbers much faster than with your own team.
Commissions: You will need to share between 2.5 and five per cent of your revenues with the broker/agent who makes the sale. Some projects in highrise have offered up to 10 per cent to get agents’ attention! Yikes!.
Cash flow: Agents will want 50 per cent of their commission payable upon a firm deal so you have to ensure you are properly financed for this cash payout.
Less control over marketing: Agents can twist your narrative any way they like in their own marketing. This includes using the word “investment” in their marketing (which flies against OSC rules), or marketing your project as the “lowest price in X market” – which makes it difficult for you to raise prices later, since their marketing effort has positioned your project a certain way. They may flood your market with flyers, suppressing the effectiveness of your own marketing or buy up your keywords, driving up your cost per lead (or stealing them outright). They may actually create a negative view of your project by putting out bad, unattractive, typo-ridden marketing, and the public may not even realize they don’t represent you. This generally gives you less control over your brand.
Less control over the sales process: There’s an intermediary between you and the client, so you have little or no ability to influence the outcome of sales opportunities. With outside agents doing all the communicating with customers, they are the ones who hear the objections. If sales don’t pan out the way you hoped, it can be difficult or slow to get the feedback from agents on why the buyers didn’t purchase or why they cancelled, so it takes more time for you to implement changes.
Less predictable revenue: Brokers won’t share their full pipeline with you, and even if they do, it’s hard to predict revenues when you have no control over the sales process.
What’s the bottom line? Do co-operating agents have some magic marketing sauce that we don’t know about? No, of course not. What do they do to create their sales pipeline? They advertise! They create relationships with potential purchasers. They follow up with leads that come to them. All of which you and your team know very well how to do. Agents will publish websites that compete with yours. They confuse the public by promising first access, prices and floorplans when that may not even be true. They release all of your product into the universe before you may want them to. They buy up important online search keywords. They funnel the interest for your project into their own databases, which they then use to sell not just your project but other builder’s projects. Then, when the next hot thing comes along, most will move on, often leaving you with the toughest product to sell and potentially no marketing database.
Without question, there are many positives and negatives to selling through outside agents. So, before you decide to launch a co-operating broker program, think twice if you really need them.
That’s the million-dollar question.
Lianne McOuat is Vice-President, Strategy, at McOuat Partnership.