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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[…] at vancouvercondo.info February 28th, 2011 at 5:33 pm- “Had lunch with friends today, ran into a home inspector who joined us. Is having TONS of […]

scullboy
9 years ago

@bear Vancouver: Um….. record store? I suppose I do sound bitter, but I assure you I'm not. I don't live in Van after all, if anything I'd be bitter if the market (or real estate culture) in Halifax were anything like Van's. Mercifully it's not. I'm told I have a bit of a sharp tongue, perhaps that's what you're picking up on. @Dave: there were boomers, GenX and GenY three years ago when the industry was booming, so I really doubt it's generational. I also reiterate that I think the alcohol laws are bullshit. None of us can do any more then guess, but my guess is the perceived "wealth effect" is wearing off. People are slowly coming to the realization that they're maxed out and they'll either have to sell their homes and cash out on the equity, or… Read more »

Simpatico
Simpatico
9 years ago

@N: I've used Custom House as well. Vancouver Buillion and Currency Exchange is a bit cheaper. CH no longer wants to deal with retail/individuals for transactions under $500K I believe, since Western Union took them on. Interesting to figure out which is best, since I'm now looking for alternatives to CH.

Simpatico
Simpatico
9 years ago

@nonymouse: Yup. I see lots of retail, esp. restaurants going under. Take a look at all the for lease signs on Broadway, esp.between Arbutus and Fraser. Few say the business moved. Simply lots of commercial properties empty and for lease. A friend who works for a large commercial real estate company said the restaurant "fail rate" in Vancouver is now twice the normal rate.

N
N
9 years ago

"Beijing saw sharp declines in home sales in February following the enacting of a group of measures to cool the housing market, local authorities said Tuesday.

The city reported sales of 3,436 new homes, down 70 percent from the sales figure in January, said Beijing's real estate transaction management website run by the municipal commission of housing and urban-rural development.

Existing home sales slumped 64.3 percent month on month to 8,376 units last month, the lowest volume in 25 months."

http://english.cri.cn/6826/2011/03/01/2724s623482

Bear Vancouverite
Bear Vancouverite
9 years ago

#50:

You're right. I don't think its good natured business. But I see this in lots of industries and I think consumers should be more prepared. Think about car shopping. I think car sales has to rate even lower than real estate sales when it comes to scams. Is it coincidence that cars and real estate are the two largest purchases a person can make? Maybe people should spend more time shopping around and educating themselves when doing the largest purchases they will make in their lifetime :(, I've seen grown, educated people spend less time shopping around for a home than they do for a laptop computer.

Bear Vancouverite
Bear Vancouverite
9 years ago

@arit "Is this some new type of masochism? You actually like standing in line?" @scullboy "Only in Vancouver would people stand in line for condos they don’t even want to buy" It's a hobby for me to see new developments and see the buildings and floorplans of buildings in areas where I live. I like to know how the materials developers use change over time, and how floorplans compare. I hate standing in line, and I'm glad that doesn't happen much anymore in Vancouver. scullboy you sound so bitter: Are you saying you shouldn't check out open houses unless you intend to make an offer on the house right away? Do you advocate that buyers shouldn't shop around to learn more about real estate before they buy? Do you walk into a record store intending to buy something no matter… Read more »

coastal
coastal
9 years ago

@vreaa:

Why do you think Christy's hopping the next plane to Asia ? Payback for the house humpers who ponied up her cash account.

Best place on meth
Best place on meth
9 years ago

@vreaa:

So, Clark and Falcon both got $25K from the Aquilinis did they?

And Krusty got a further $30K from John Redekop construction,$15K from Rennie and $40K from Wall and his group.

We certainly know which side her bread is buttered on.

Let the corruption continue.

Patiently Waiting
Patiently Waiting
9 years ago

@Responsible Y: One thing I notice with GenY is they take pictures of food and put them in social media like Facebook. If anything, they seem more likely to order food for its presentation than older generations, which is part of what fine dining is about.

Responsible Y
Responsible Y
9 years ago

The second is the demographic shift. I don’t think Gen-X and the Millennial’s enjoy ‘fine dining’ the way the Boomers do.

****

Lol – you really don't get Gen Y or the Millennials do you?

If you ever visit fine restaurants, there are a lot of twenty somethings in them. Why – because the same sense of entitlement that motivates them to get a new house as their first place motivates them to eat at the best places – because they deserve it 🙂

That is what cheap easy credit facilitates.

VanRant
VanRant
9 years ago

@specialfx3000: Been to a lot of smaller chinese restaurants and I have notice there were very little paper trail so I suspect that most are not reporting everything.

Patiently Waiting
Patiently Waiting
9 years ago

According to a survey conducted by Leger Marketing for BMO Financial, roughly 40% of Canadians with an RRSP admit they have made withdrawals from their plan before reaching retirement.

The primary reason given for early withdrawals was to cover emergency expenses (35%), followed by paying off “everyday debt” like credit card balances (26%).

The survey found that those between the ages of 35 and 54 were the most likely to raid their RRSP, and that nearly half of British Columbians had done so (48%).

http://www.advisor.ca/news/industry-news/canadian

YIKES

Patiently Waiting
Patiently Waiting
9 years ago

@specialfx3000: Maybe this happens, but don't assume it. They are often avoiding excessive banking fees. These are store-front operations that would be easy to investigate to estimate income, and the penalties are severe.

Anonymouse
Anonymouse
9 years ago

@fixie guy:

"Sorry if this implies the patience of Meth but fuck off and come back when you want to discuss this like an adult."

So anybody who disagrees with you gets told to fuck off? It's you who needs to grow up, son. My explanation was 100x more plausible than your bullshit unproven conspiracy theory.

space889
space889
9 years ago

@scullboy: Uhmm…I think a cab ride in this city costs a lot more than $10 or $15. The few times I taken a cab i was always a bit surprised at how quickly the tab was going up.

vreaa
9 years ago

52% Backed By Real Estate –

Analysis Of Contributions To Campaign Of Christy Clark, New Leader of the BC Liberals

http://wp.me/pcq1o-1UX

Percentage of all contributions coming from contributors with known RE industry affiliation: 52.1% ($267,250 of $513,200)

Comment:

We anticipated that the RE-affiliated portion would be large, but 52% is substantially larger than we expected, very much more than the percentage of our GDP made up by directly RE-related industry (20-22%, we believe).

Powerful vested interests means ongoing misallocation of resources.

The provincial and municipal governments will likely continue to do everything possible to perpetuate the speculative mania in Vancouver’s housing markets.

Dave
9 years ago

@scullboy:

It's a big assumption to attribute restaurant closures to a lack of disposable income.

I think there are a couple other reasons ahead of that one. The first is the new drinking and driving laws which have reduced alcohol sales. The second is the demographic shift. I don't think Gen-X and the Millennial's enjoy 'fine dining' the way the Boomers do.

As long as I have to wait in line for a latte at Starbucks, I will believe that there is plenty of disposable income.

specialfx3000
specialfx3000
9 years ago

@patriotz:

No real evidence but I would suspect some of the 'cash' only restaurants (ahem, a number of Chinese restaurants) may still be doing ok as they do not report 100% daily sales and as a kicker, pocket a portion of hst proceeds

patriotz
9 years ago

@HappyRenter:

The HST is just a scapegoat for your problems and those of other businesses.

The real problem is that the BC consumer is maxed out.

scullboy
9 years ago

Didn't Supratard used to go on and on about how restaurants were packed, therefore the economy was booming?

As a lot of you know I attended culinary school in Van in 2009. Even then it was known in the school that staf hiring was way way way down from earlier years. Students at the school usually had no trouble getting spots in the top restaurants but by 2009 many just weren't able to secure work. In fact part of why I left Van was that I couldn't find any work in IT, IT management, IT project management or working in fine dining.

I think the drinking and driving law excuse is convenient bullshit. I mean, you can afford to drop 200 bucks on dinner for 2 but not 10 – 15 bucks for a cab ride home?

HappyRenter
HappyRenter
9 years ago

I own a resturant. I used to earn between 10-15k a month; now, thanks to the HST, and 0.05 rule, I am losing around 5k a month.

Kosta
Kosta
9 years ago

From Sun, rather sounds like a wake up call or… what happened to that "world class city" mantra?

"At any rate, Vancouver is not New York or Beijing or Singapore where the moneyed still have piles of it and where a $400 for a dinner for two is not a big deal."

http://communities.canada.com/vancouversun/blogs/

Patiently Waiting
Patiently Waiting
9 years ago

Disgruntled homoaner loses shirt at realwhore convention:

http://www.youtube.com/watch?v=rP_FOuS9iPc