Condo Sales and Marketing Tricks Part I

With a few new and old developments selling quickly in Vancouver it is time once again to open up the hood and take a look at various techniques (dare I say “scams” which I will use interchangeably throughout this post — apologies in advance) used by real estate salesmen and marketeers to move their product. I am expert in neither salesmanship nor marketing but do have a gargantuan tumor of skepticism.

This is the first in a planned series of posts surrounding sales and marketing tactics used in the real estate industry, focused mostly on BC but many tactics are universally applied pretty much everywhere. Sales techniques generally involve establishing: the good for sale is scarce, trust with the customer, the product has value to the customer, and the product has value to others besides the customer.

This first post concentrates on condo presales.

Confidence Scam

The technique I saw in action in Toronto. What happens here is that many prime units are listed as “SOLD” in big red letters on a big wallboard. Customers are obviously disappointed with this but a sales agent takes their number and will phone them if one comes available. Of course within a day or two they get a call, either indicating the unit is back on the market or the owner of the presale is looking to sell it for a quick profit due to some cash crunch or whatever. This works well when the customer believes they have an inside track to the prime units through the sales agent. In many cases ethnicity or other commonalities are used to their full advantage to foster trust.

This line of salesmanship is particularly offensive — it comes across as a gambling house scene out of the movie The Sting. The atmosphere is loud, fast-paced, and it’s hard not to think “something bigger” is going on and you need in on it. Phone calls from salespeople are filled with background noise and conversations are fast and interrupted, giving further sense of urgency. Include the trusted “insider” shepherding the buyer to the till, and the fix is in.

Now or Never

This works particularly well if you’re in the middle of a lineup. Salespeople can be pushy and fast, “requiring” you to sign a thick and complicated contract quickly. If you don’t buy now, they say, there are dozens more waiting in the line. The sense of urgency is thick, and an ultimatum is often given. Luckily in BC there is a cooling off period after signing a contract, where you can renege if you get cold feet. One hopes the adrenaline and endorphins wear off before that period ends.

Crying

Don’t laugh. Salespeople will cry to get a sale. Remember Gil, the Glengarry Glen Ross-esque salesman from the Simpsons? Don’t fall for it. There are many things to cry about in life; walking away from a “hard up” sales agent doesn’t even come close.

Lineups and Media Hype

The idea here is to produce the appearance of impending scarcity by producing lineups in lengths far exceeding the number of units being sold. If successful — and it often isn’t — the media are often quick to pounce on the opportunity of an easy story, and the positive feedback loop is closed. Lineups beget lineups and the development sells out quickly. The same technique is used at night clubs. We witnessed this recently with the new Metrotown Bosa condo/hotel development and to a lesser extent with the Village at False Creek.

Pre-selling to Insiders

This technique was used most recently by condo marketing virtuoso Bob Rennie on the Village at False Creek, where he claimed 30 units were sold to a select few “insiders” who got first kick at the can. This technique is useful because it shows customers that industry insiders have confidence in the market so the investment is a good one. In the case of the Village at False Creek, the astute will have noticed it was unclear whether or not the 30 presales actually completed. The wording of the press is a bit ambiguous:

“Rennie said it’s his initial goal to try to sell 60 condos in 60 days and he might already be more than halfway there. Last week, he did some market testing and got offers on 31 units, he said.”

Hm. He got offers but did he close? You need to close, man.

Bait and Switch, Lost Leaders, and Discounts

This is simply offering specific units at discounted prices but only having more expensive or less desirable units for sale. This is pretty common everywhere. Discounts are, again, pretty straightforward: slap an “up to 50% off” sticker on a billboard and witness a feeding frenzy ensue. The obvious question, of course, is up to 50% off what, exactly?

False Comparables

I’ve never witnessed this first-hand but, if a developer has other projects on the go close by, they can temporarily inflate asking prices, giving the sense that a particular unit is priced to market.

Condo Fee Discounts and Other Incentives

This is where the developer will, through agreements and warranties (some legally required, mind), provide a lower strata/maintenance fee for buyers. This can sometimes be done through straight incentives (offering to pay a certain % of fees for N months) or through a prepaid warranty. When these incentives end and the strata is flying solo, fees can escalate significantly. Other incentives include discounted financing rates (0.5% APR or whatever), cars, additional parking spots, paying the HST, the list is endless.

Add-on Fees

This applies to condos as much as cars. The sticker price isn’t necessarily what you’ll be paying. Be sure to look at the bottom line.

Walk-through

This is where presale buyers are only given a very short time to do a walk-through to look for deficiencies. Often only one hour is allotted. Any deficiencies (mostly cosmetic; large deficiencies are usually covered under warranty) not noted are the responsibility of the buyer. Think about this for a second: you buy a $500,000 asset and are given only one hour to find deficiencies?!? Does that seem reasonable?

Layout Changes

Often presale contracts are worded such that the developer has the ability to change suite layouts and this is laid out in the contract. CBC Marketplace did an exposee in early 2008 on this and other dirty tricks about 3 years ago. Make sure you know what you’re getting. If it’s ambiguous, well, I guess you know better next time. Go to the link for more useful tips on how not to get shafted. A derivative of this scheme is to produce showrooms with dimensions on the large side of what actual units will be. Vaulted ceilings and lighting are used to make a suite seem larger than it really is.

Forgetting about Parking

Many people incorrectly assume a condo comes with a parking spot. Not necessarily…

Developer Financing

This isn’t necessarily a scam but some developers have agreements with financing outfits to allow buyers to obtain mortgages. This can be an advantage or a disadvantage but, given how much other hanky-panky could be going on, I would be cautious dealing with these outfits. It may turn out to be a good deal due to reduced overhead or the developer throwing in incentives (mentioned above), but it may not be as good a deal as you think.

How to Protect Yourself

So what are the methods available to bolster a defense against being taken to the cleaners? Some people suggest using  a buyer agent to help guide you through the morass. To this I suggest, even then, it pays to tread carefully. If a buyer agent is paid only on a successful closed sale, there is an inherent and unavoidable conflict of interest to close the deal. I would even suggest using an agent on a fixed retainer, and use someone who you know well, if that’s possible. Additionally, if you have a trusted friend or family member who knows some of the pitfalls to avoid when buying, employ them and get multiple angles of advice. Friends and family, in my experience, have often been more lucky than competent so even that advice should be evaluated carefully. It should be self-evident to retain a lawyer who is working for you, and paid the same regardless of your end decision.

As an additional aid, I prefer to concentrate on the numbers and blatantly ignore sales tricks. It comes down to the price and what income (imputed or rental) I reap from it. If you know what you’re willing to pay beforehand, it’s dead easy to walk away. I haven’t been into a condo or presale sales room for a while now simply because the numbers don’t work for me and it’s doubtful the price could be negotiated sufficiently lower to where they do.

You can attempt to change clauses in the presale contract more to your advantage. Given the complexity of the contracts this is no small feat. If sales are slow, however, it can’t hurt to try crossing off every clause that is not to your advantage. Remember how much money is at stake: hundreds of thousands of dollars of your income, past and future. In the corporate world, a contract of that size typically go through several revisions, sometimes major, before they are signed, as well as many hours confirming the contract is in the best interests of the company. Why not with a condo purchase?

Conclusion

Condo sales and marketing is fraught with different techniques designed specifically for extracting as much money from you as possible. I have attempted to list a smattering of the usual tricks for your perusal. Check out the comments for more tips and warnings from our loyal readers. This is not to say that buying a presale condo is always a bad idea; this blog would simply encourage you to properly account for the risks and be cognizant of the sales tactics used.

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CH
Guest
CH

Part 1? Thats just part 1?

Theres another 12 scams comming up tomorrow?

1
Guest
1

Interest rate change – this spring or not until Q3?

yes, I know the gdp numbers are boiling, just wondering if anyone things the BoC may hold off for 6 months?

also, 5-yr gov't canada – could we see 5 year rates tick higher in the months ahead, or is this on the backburner for quite a while?

thoughts

kansai92
Guest
kansai92

You forhot the whole phase 1, phase 2, phase infinity strategy. Makes it seem like sold out but another phase is just around the corner.

kansai92
Guest
kansai92

Rennie. Got news for ya. Coffee is for closers.

vancouverite
Guest
vancouverite

The parking lots in new developments are frequently held by the development company and leased out to the building for a set period. Owners of condos don't necessarily retain a parking spot forever – it may have to be re-negotiated at some point. Also, storage lockers/units in condo buildings (I'm talking about you, Olympic Village) have to be purchased separately.

VHB
Member
VHB
So, we're still seeing high levels of inventory **for this time of year**, at the same time as bidding wars on some props, at the same time as record listings AND record sales. What a weird market? If this were just a regular hot spring, we would be seeing low listings as people would be reluctant to sell a hotly appreciating property. Why sell now when you can wait 6 months and make an extra 400K on your SFH? That's what we saw 2004-2008. But we're not seeing that now. What we see is a) a set of buyers (maybe even HAM!!) whipped into a 'now now now' frenzy. b) a very willing set of sellers, willing to take their money off the table NOW by listing. (Welcome to our HAM overlords–right this way!) c) Less panic to buy the… Read more »
pricedoutfornow
Guest
pricedoutfornow

@VHB:

It IS a strange market. Some properties (lower end I guess) are just not selling. One property I went to an open house at last year (V862005) is still for sale, after about a year on the market, and not a single reduction in price. In my building (in COV), I'm noticing a lot more listings, more open houses with lonely realtors hanging out by the front door. Prices are strange too: one unit is listed at $399k, while a similar unit on a different floor is just over $500k. Big difference!

Where are all the "rich Chinese" in these cases? They're certainly not keeping the realtors in my neighborhood company. Odd…I guess we will see later this spring what it all really means.

Boombust
Guest
Boombust

Here's a fun one…

Yesterday, I happened to notice a REMAX window in Port Coquitlam with all their Coquitlam/Port Coquitlam postings plastered all over it.

There is one particular ho hum house that faces Coast Meridian Rd. (which is busy) but they say its address is "Kent St." (It's a corner lot). Nonsense. The entire front of the house, including the front door, faces Coast Meridian.

The place has been on and off, on and off. For the past SEVERAL months, the price has been reduced to a mere 547K…

They are now advertising it as being in the "Burke Mountain Foothills". More nonsense. It a LONG way from the fancy new developments on Burke Mountain. "Bottom of the Hill", actually.

Such crap.

M-
Member

@vancouverite: It's not just parkades– when I owned my condo, the property manager talked of a horror story where developers kept title to the common entrance and elevators– it was leased to the strata (for free initially), and after 5 years they renegotiated the lease, and those costs were tacked onto the "owners'" monthly strata fees…

KopyrightKlepto
Member
KopyrightKlepto

One property in my VOW watch list caught me by surprise this weekend:

V867297 – 3284 TENNYSON CR. List: $ 879,900 Sold: $ 655,000

http://tinyurl.com/4uu6tf2

That's a good 25% under list for a nice SFH in North Van and appears significantly out of line with comparables.

The property was sold in under 2 weeks, so it had not been languishing on the market. I also have not seen any history that suggests it is a re-listing.

PaulB – can any of your (R) acquaintances provide some context on this one?

vreaa
Member
Pity nobody speaks out like this here in Canada: http://www.theaustralian.com.au/business/bigger-b… RESERVE Bank board member Warwick McKibbin has warned that Australia is being caught up in a global bubble.. Professor McKibbin told The Australian the bubble in global commodity prices and property markets in Asia threatened to dwarf the US housing market bubble that led to the GFC in 2008. He warned that the inevitable bursting of the bubble would reverse the surge in Australia's record high terms of trade, push down the dollar and leave the Reserve Bank struggling to fight off rising global inflation pressures. "This is shaping to be much bigger than 2004 to 2007," he said in comparing the new excess of global liquidity with the global financial bubble that led to the worst global financial crisis since the 1930s. —– "SNAP!" Canada = Australia (very roughly… Read more »
Jack Wagon
Guest
Jack Wagon
I think this market makes perfect sense. With all the speculator owned inventory, and the current economic environment, it makes complete sense that we're seeing a bit of a "fire-sale". There's a lot of inventory out there that has a pretty solid profit margin built into the current market value, so it's easy for investors to price sharp (read significantly below comps) and take whatever the market will bear. On the other side is the investor/homeowner. Through either getting fleeced on buying their ever appreciating asset, filling their snouts with HELOC money or buying too recently and now getting cold feet, they need to sell AT comp to break even or make a small return. They're scared, and they're listing, but they're not getting any looks as the sellers with margin are undercutting them at every turn. I'd be interested… Read more »
Best place on meth
Member
Best place on meth

How about that loonie? A 3 year high today.

Rumors of a rate hike in April or May are swirling.

http://ca.news.yahoo.com/canadian-dollar-hits-nea

specialfx3000
Member
specialfx3000

@KopyrightKlepto:

"That’s a good 25% under list for a nice SFH in North Van and appears significantly out of line with comparables."

This is my theory. It's in North Van and look at that huge driveway and yard. The satellite mainland Chinese wife with her 10 year old would not be able to clear all the snow on days like yesterday nor mow that lawn in the summertime. Either that or there's a hospice nearby.

Bag it and tag it
Member
Bag it and tag it

@KopyrightKlepto: "V867297 – 3284 TENNYSON CR. List: $ 879,900 Sold: $ 655,000"

That is a curious one if it did in fact sell for $655K…seems very low for the current market, as I peruse NV detached from time to time.

Danm
Guest
Danm

@KopyrightKlepto #11

That property does not appeal to Asians. Way too many trees.

cgh
Guest
cgh

@Best place on meth:

"How about that loonie? A 3 year high today."

Pity me, for I am paid in US dollars…

nonymouse
Guest
nonymouse

A bit off topic but I noticed reports of two "nice" restaurants are closing down. Both Lumiere and db Bistro on the west side are closing. You can infer what you like from their closing, but I'm think it's showing how tight the purse strings are getting locally.

Best place on meth
Member
Best place on meth

@nonymouse:

That's ok, business at McDonalds is picking up steam.

Bear Vancouverite
Guest
Bear Vancouverite
I'm a bear (and condo owner) and I think some of you have gotten a bit ridiculous in the past few months, perhaps as we all desparately wait for a pending crash patience wears thin and we start to babble nonsense. 1) Half of these items listed in this article are not scams at all. Educating yourself against these is just common sense. I'm constantly surprised for instance that people don't realise presales maintenance fees are a fraction of what they will really be in year 2 of ownership. Sales people are not our friends, they are there to SELL something and will tell us anything to do it. Do you think a car salesman, or computer salesman will be any more ethical? 2) "Confidence Scam": I go to a lot of presales to check out the vibe, probably around… Read more »
Bag it and tag it
Member
Bag it and tag it

@VHB:

I think there is likely a balance between buyers and sellers both motivated to beat the new rules.

We know agents are using the new rules to motivate buyers, but behind the scenes I'm sure they're also using March 18th to motivate sellers. Things have been lean for too long and agents are getting desperate for commissions…so I'm sure they're starting to use their tricks on sellers as well. "If you think it's tough to sell now, wait til after March 18th, I recommend listing below comparables to incite bidding war"…yada yada yada.

It'll be interesting to see what the avg and benmarks show for Feb and March.

Bear Vancouverite
Guest
Bear Vancouverite
#20: "…I noticed reports of two “nice” restaurants are closing down. Both Lumiere and db Bistro on the west side are closing. You can infer what you like from their closing, but I’m think it’s showing how tight the purse strings are getting locally." Don't read too much into this. Lumiere/db Bistro (formerly known as "Feenie's") survived so long because it was run by Rob Feenie. The business started losing customers the moment he left. I went there some 2 years ago, not by choice, but because I had been given a gift certificate there. The food was not nearly as good as when Feenie was still in charge. I have business associates who used to come and treat people to a meal at Feenie's, now that its changed hands and names they don't even bother to ask about it… Read more »
Kosta
Guest
Kosta

@nonymouse:

Rich Chinese Buyer (RCB) is not into the French cuisine even though admires expensive cognac.

http://blog.cognac-expert.com/honey-i-quickly-gra

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