“Finally, you can really feel the heat!” Selling villas on the slopes of an active volcano

Monday, March 9th, 2009

(Sorry, folks, but it is time to train the sales departments
of residential projects how to respect their real client, the end user)

He was probably around 26 years old, but he was feeling like a Real Estate veteran. Having worked for the last three years in a “big” Real Estate agency, he felt he knew ALL and he could not help showing it. He was feeling soooo important, so intelligent and (most of all) so superior than you, the client. He was a typical seller of residential projects in Bucharest…

Residential: A new market was born in few months, but just for investors…
I came in Romania in January 2004. Until 2006, the known residential projects available in the market could be counted with the fingers of your hands. Suddenly, the expected Romania’s entrance into the European Union was combined with the explosion of plenty of new projects, being launched more or less in the same time. In few months there were so many developments announced, so many companies selling them, so many experts selling services to the developers, so many people selling credits, so many “intermediars” with “connections” so many clients willing to buy one apartment. One? Nope, wrong, usually tens of apartments, as they were investors, not end users, the ones who would finally live in this new residential “unit”.
The sales were boosted, being followed by the announcement of hundreds of new projects, everywhere in the city. In 2007 the market was already well developed, at the second half of the year the investor could choose between over 200 choices. Good projects, bad projects, the only important details were: Can we buy there? At what price? What are the guarantees that our agent provides us with about the success of the project? Is there a market study which will allow me to support my arguments? Is the owner willing to accept a deduction of… 2-3% if we purchase 200 units?

Fitze = vanity
Many developers assigned exclusivities to one agency who would “handle all with guaranteed success and huge profits”. Like this they would become rich, changing the prices every few weeks. Also they had time to find new lands for their “pipeline of projects”, as the biggest fear was not to remain without projects to sell. The Real Estate agencies lost control. Competition became very hard, as the promised sales were higher and higher, in order to acquire by the developers the desired exclusivity. More and more people were hired so as to sell the new projects, new departments were created. Very soon we also had in our hands very expensive catalogues of properties. So expensive that you could find only in the most advanced markets of the world…
No one was interested in the end user. Sales were super, the size of bonuses was enough to help almost everyone forget about them. People without any experience of business, any personal success in investments, had become “investment gurus” just because they had some connections which allowed to them to speculate and temporarily create wealth for their clients. Prices in new residential projects rose by more than 70% in 2007, which highlighted the way to the old apartments too. It was difficult to find someone without fitze and when you could see one, usually he was considered “not adjusted to the market”.
Soon the madness was spread all around the country and hundreds of projects were launched from Craiova to Suceava and from Cluj to Constanta.

End of 2007: New records for almost all
When the only serious business experience you have in life is what you lived the last 1-2 years, it is normal for you to believe that you know all. The investors kept coming, until the end of 2007, when the Government introduced the 19% VAT tax in the Real Estate transactions between companies. A very correct act. Bad for the agencies, as we all lost commissions, but good for the country, the economy and in the end for the Romanian people! With foreigners paying more and more every week, how could an average Romanian buy his own apartment? This had to stop, before the bubble would be even worse…
November and December 2007 had new records for almost everyone, thousands were in a hurry to catch up, before January 1st would come. The banks had given just few thousands of housing loans to individuals, their salaries were already too high, their consuming capacity was much better than the past but still under question. But all these were not important…

In just 12 months: Double price for a decent apartment
The success boosted the prices of apartments. The higher prices allowed many people to decide that a Romanian family should not live anymore in small flats, but in spacious apartments “like the rest of Europe”. (what they considered “rest of Europe” was the exception of the rule even there, but who cared? Clients liked the new trick). So, in the beginning of 2007 a normal couple could buy an apartment with 100.000 euro and live decently, as millions did the same “in the rest of Europe”. At the beginning of 2008 this was 200.000 euro or more…
Commissions were increasing, advertising budgets were more, media doubled or tripled their prices, so the final price of an apartment became outrageous. People who had no idea about real costs and budgets assumed that the profits of the developers were huge, so they initiated the land owners to double – triple their prices too. And this created new higher prices as well…

The most intelligent was the one who was asking more…
When I was asking many colleagues of other agencies “how many Romanians can buy an apartment of 250.000 euro and live at the outskirts of the city? How come all people propose apartments with bedrooms of 20 – 30 sq.m., who can pay them?” the answer was “all” or “thousands”. In the same time, I was talking to the hundreds of Romanians that I know and very few of them were even considering this option… But the end of 2007 had created a world when the most intelligent one was the one who was asking the biggest possible price, not the one who was selling and having the money in his pocket.
The prices were up not only because the developers asked more, but also because they paid a lot for the land, their consultants guaranteed to them that with bigger prices and advertising budgets the success is sure, the cost of construction rose by 20 – 40% in 18 months and many more…

Villas on the slopes of an active volcano! Buy NOW, before the prices will double soon!
The Real Estate volcano was ready to explode, but while there were already minor explosions, you could see people coming closer and closer to it, almost to its opening. We don’t have a real active volcano near Bucharest. If we had, I am sure that:
- There would be greedy owners asking huge prices for lands on the volcano’s slopes, without any utilities or common sense.
- We would soon read a study by one of the “big” agencies, explaining why the investment is great there and that there is major demand for villas on this volcano. We would also find as advantages the thermal water which “probably can be found by digging”, the magnificent view and the 0 cost for heating our villa during the winter, due to the heat produced by the volcano (don’t laugh please, we really read many analyses like this in the last years, also many valuations based on this kind of arguments).
- We would enjoy watching a journalist walking on the slopes (usually a female one, on high heels) explaining to the audience why the potential there was great.
- There would Real Estate agencies having many projects with exclusivity and marketing companies promoting the projects with ideas like “Finally, you can REALLY feel the heat!”
- There would be “special” tours for investors, while the “serious big” agencies would buy a helicopter, so as to have it available for their “unique tours” of their exclusive investors (why to rent? There had to be found a way so as to spend the big profits).
- Of course any request for discount would be treated by most of Real Estate “experts” with an arrogant smile and a look full of pity… something like “poor you, you have no idea about the market… buy now before the prices will be even higher”.
So, if anyone would DARE to ask: “But who will be the final resident of a villa like this? Who will go to live on the slopes of an active volcano?”, the vast majority of all the new “experts” would look at him and reply: “You don’t know about Real Estate” (or worse, more insulting words…)

I work since I was 12 years old. Since 1987, when I started, I my activities could be summed up as: commerce – trade, media publishing – journalism – political consulting and Real Estate. All these happened while Greece passed from the golden decade of ’80s (when almost everyone could succeed in business due to the huge available money to be spent) to the more difficult ’90s and the tough ’00s, which eliminated the vast majority of the “successful” businessmen. For many different reasons everything changed and whoever did not change as well was finally obsolete, sooner or later.
I have met so many “big ones” of the ’80s, who are badly paid employees today. So many who had the best cars back then and now their file in the black list of the banks (if we print all the pages and put them one after the other) is longer than several meters. The main characteristics of all the failures were usually: Arrogance, 0 respect to the client, strong belief that one is intelligent and all the others are stupid and will be tricked by him and investment of profits in all possible stupidities (the cases of bad luck simply confirm the rule).

I could not understand… the simplest possible strategy
All these memories remain strong, actually they are part of the valuable knowledge and experience (that I consider) I have collected so far in this life. In 2007 and 2008 they were crossing my mind almost every day, living here in Romania and working in Real Estate business, especially in the residential market.
I fought with many of my ex agents, because I didn’t allow to them to present an apartment before they would see it, take the papers of it, check the area, identify advantages and disadvantages and understand why it was good for the client.
I could not understand how is it possible to hear that exist thousands of clients who can buy apartments in residential projects, just by watching the area of the project, checking the prices, choosing the details and paying. When it is time to buy an apartment, I had the impression that Romanians are like Greeks and they negotiate, ask endless questions and search for the optimum solution.
Instead, I was watching the strategy of the majority of the other agencies, who had exclusivities, trying to sell like this: “Client comes, agent shows, client asks prices, agent mentions prices, client asks for better price, agent refuses but offers other minor advantages and mainly financing by bank, client provides all feedback that the agent wants, client signs reservation or preagreement, agent is happy with the deal”

The ideal method of selling: Waiting the client to come and sign
Apparently this method of selling was successful for a period of time. You just needed to have a project, almost anywhere. The developer was paying the advertisement and you were waiting the clients at your office. You had the leaflets and promotional material etc, you had trained your people too (yeah, sure…) and you just had to be friendly, announcing the prices and showing the available choices, usually without any flexibility. You also did not need to have any connections or good name as person in the society, just sufficient advertising budget. The project was selling by itself, probably together with the brand name of your agency. You just had to welcome the clients… find some time for all of them and close the contract…
Do you know anything better for a sales person? As no one had experience of selling residential projects (there was no market just couple of years ago), the initial success spoiled the people very fast and after a moment this was considered as the rule. I still remember agents making fun of me, when I was trying to train them so as to understand the client’s needs, to choose what he really needs and to try for a better price…
All this worked very well, as long as the majority of the clients were investors…

Easy come…
More or less, the same story was happening to all the domains of the market… Soon we started watching the new army of rich people, the ones coming from Real Estate agencies. In some “big” companies, only almost half of the employees found themselves with lots of money and at all of a sudden they were able to buy a 30.000 – 60.000 euro car, endless new clothes, anything else (branded) that could promote their status, the most expensive vacation packages etc. Many also invested in expensive properties (who said that who earns easy money is always able to know how to invest it?), others created their own companies and for sure almost all dramatically fought so as to show to the people around that their status was higher than the past. They became the example for the other employees, who started chasing the easy money too.
But especially in the residential market, there was a small issue, which no one paid attention to. The money kept flowing, but mainly coming from investors. The technique of sitting and waiting the clients was ok, as long as this category of clients existed. Very few people really tried to sell to end users, to the long term clients of this market. Even less people tried to study these people, to understand their needs. While the profits were huge and easy, who had time to lose trying to serve properly a simple couple who wanted to buy an apartment with “only” 150.000 euro?
Unfortunately not even 5% of the sales people did not focus on the majority of the clients, the ones who can invest up to 100.000 – 170.000 euro (80 – 90% of the market). It seems that after they said to their clients 1.000.000 times that average Romanians want and need apartments of 200.000 – 400.000 euro, in the end they believed it themselves too!

Easy go…
The market froze since long time ago. But in the beginning people still had money to lose, from what they earned the previous period. Months were passing by and the sales were lower and lower, but the official announcements to the media were always super: 80% of apartments sold, this %, that %… (when the banks came and asked to see the advance payments of all these presales, you can not imagine what happened and how 80% became 10 – 25% in plenty of cases).
It was very difficult for a normal Romanian to find a normal apartment in a new project, inside the city, so as to buy it. In the same time, the developers kept raising the prices, having the approval of their agents too. The investors disappeared for many different reasons and at least God sent to us the World crisis, so as all the irresponsible ones who promised huge profits to their clients to be covered. “If it would not be the crisis, we would have sold here in Titan with 1.800 euro / sq.m.” (which is 2.100 at least, if you include all the hidden costs). In the same time, the new measures of BNR blocked a part of the clients too, as they are very strict.
Now, just 6 or 12 or 18 months after Real Estate agents were the big spenders (depends on which category each of them was), more or less half of the agencies are closed. You call and the number is wrong… “Big” companies lay off lots of people and most of the expensive cars are either sold or replaced. There are thousands of people with 0 income for the last months, while their fixed costs were very high, due to the new way of life they had adopted. Unfortunately even the properties can not be sold anymore, as most of them were purchased with other criteria and a different market…

Not easy to change…
Even if the situation is this and it will become worse in the near future, it is very difficult for the majority of Real Estate agents to change. To forget the fat commissions without sweat, the life without worries, without thoughts and decisions, without the necessity to go back to the basics and start from the main rule: Client is the king.
Although the developers are disappointed and they stop collaborations with agencies or fire almost everyone who can be fired, still the “sellers” continue to approach the problem through their “old glasses”… It is very difficult for them to squeeze their mind for thoughts, ideas and solutions which work in reality. The majority of them still did not realize that even without the crisis, they would not be able to sell these expensive apartments to people who simply have 1.500 – 3.000 euro / month as couple. And a couple with this financial capacity should definitely not be oriented to apartments with price over 100.000 - 200.000 euro.
Unfortunately we keep watching around us people who look like a pedestrian in the middle of a big boulevard with cars driving like crazy around him. He looks at them and does not know what to do, which direction to take, so he just looks and waits.

Action is required, NOW!
I would expect the unions of the Real Estate agencies to become more active nowadays. To ask the agencies for the structural problems they have, to organize trainings (as now the time is plenty for most of the people), maybe even to search for solutions which would allow to smaller agencies to reduce their costs. Silence…
Action is required, NOW! We need to:

• Stop considering all clients as “the ones who are desperate to buy” and the agents as “the ones who will relieve them from their problem”.
• Start training almost all the sales teams from the very beginning. Immediately, if possible, because the more time is lost, the bigger the problem will be.
• Find some time to invest in training sales people especially in how to handle the real problems that can happen during a meeting with a client who is potentially interested in a property.
• Redirect the attention of the agents from easy money to the client’s needs.
• Reorganize the sales strategies. Until now they were based on the developer’s convenience and on the agent’s simplified way of work.
• Re-invent almost all advertising campaigns. The simple way of placing some adds on specific media and waiting the clients to respond, can be considered officially dead.
• Include internet in every marketing strategy. Especially in Romania, where internet is the part of life for millions of people.

This new world, the crisis and all the other factors that have created all we live today, give us many trouble, but also a major opportunity: To enter again in the healthy path of progress with the client in the centre of our attention. The ones, who will continue to consider him as not their main priority, will face serious survival problems…

“Finally, you can really feel the heat!” Selling villas on the slopes of an active volcano

Leave a Reply

All time classics

Real estate news