Published: 28 March 2009.

Contributed by Ian Brooks of Platinum Resort Brokerage

  Many years ago as a naïve twenty year old, I embarked on my sales career. Armed with some basic knowledge and a willingness to learn, I thought I had the ability to match my rather large ambition. During my previous years as a counter jumper in spare parts, I had seen several slick salesmen in the adjoining showroom spruking immaculately polished boats under ridiculously bright lights to dreamy eyed punters and their bewildered- but seemingly supportive wives. Here I was, working for retail wages six days a week driving an old rust bucket, while the show ponies in their classy suits were pulling six figure commission incomes. It didn’t dawn on me at the time that their retainer was less than half of my measly retail wage, or that they worked on average thirty hours more per week than I did! No sir. I was hooked it looked easy to me - money for nothing and chicks for free! Now if only the boss would have given me a crack at it. I could have been driving one of those fancy Holden Statesman’s just like the ‘men in black’.

Eventually, the boss gave me a chance at the big time, so I bought my suit and away I went. Six months down the track, working seventy hour weeks for little more cash than I was earning before, I was starting to realise that commission selling wasn’t as easy as it first looked. Selling requires in-depth product knowledge and people skills that have to be acquired over many years, skills that can’t be taught or fast tracked. So what has any of this got to do with Management Rights you ask? Well, not very much, except for one small concept that I managed to grasp way back then. I had a customer who wanted to trade his  runabout on a new twenty foot half cabin cruiser. Poking my head into the sales manager’s door, I posed the question- ‘What is a three year old Haines Hunter17R with a150hp mercury that’s done 100 hours worth?”  His answer has stuck with me all these years. Looking up from his desk with a puzzled look on his face he asked “Are we buying it, or, selling it?” I paused for a moment and wondered how the question could possibly have two different answers. Surely it must have the same value regardless?

On face value, Management Rights appear no different to that boat or anything else. Every item has a value and for every seller there has to be a buyer at an agreed price. It is obviously a lot easier to make a profit on something if you buy it at the right price. So therein lays the dilemma for the commission agent, every buyer wants to buy low and every seller wants to sell high .In a simple world where everyone paid cash, the underlying mechanics of a sale would be simple supply and demand. We need look no further than the local fruit market to see this system at work in its purest form. When there is a glut of supply, prices are cheap. When nature intervenes through drought or flood, prices skyrocket.

Grocers sell fruit and veggies to buyer’s everyday! These purchasers manage to complete the transaction without assistance from a banker, lawyer, agent, valuer, accountant or body corporate. They need it, they want to buy it and the grocer wants to sell it to them. Prices are determined by supply and demand if we can afford to pay five dollars for an apple we don’t need a valuer to inform us that two weeks ago a similar apple sold for only $1, or that the industry standard formula for apples picked and packed a two person management team is $1, Nor do we need to borrow money from a bank that will only lend us 65% of the industry standard valuation of apples based on historical sales! No sir it’s your money and you want that apple so $5 it is! Sold.

Unfortunately, for those of us who derive a living from the sale of Management Rights, the world is far from perfect and cash transactions are as rare as six correct numbers in power ball. Unlike the grocer who can price his product subject only to the forces of supply and demand the poor old Management Rights Vendor has to position his property not only subject to supply and demand, but also has to structure the asking price in a format that will enable a willing buyer to obtain sufficient finance to fund the purchase. Having secured a buyer and a contract for sale the broker and Vendor then have to jump into the boxing ring and withstand fifteen rounds of punishment and scrutiny from the buyer’s accountant & lawyer, the body corporate committee, the body corporate lawyer, the valuer and ultimately the last link in the chain,- the finance lender. We as brokers derive our professional fee by way of commission paid upon completion of a successful sale. Failed contracts mean the Vendor doesn’t get paid the broker doesn’t get paid and most often both buyer and seller are considerably out of pocket, frustrated and angered by the whole process.

The first step in selling your property is to select an experienced broker; selling Management Rights is considerably more difficult than selling general real estate.
What a joy it would be to only have to wait thirty days to get paid, subject to pest inspection and finance approval. A good agent will be able to provide you with a long list of past sales, they will also be able to supply you with testimonials and contact phone numbers from managers whose properties they have previously sold. Be wary of brokers who only tell you what you want to hear! You need to be aware of what is happening in current market in order to make an informed decision about what you need to do to achieve the best possible outcome. An agent who tells you only what you want to hear may just be doing it to ‘buy your listing’ .When a property is listed for sale one should ensure that any potential problems or deficiencies are addressed prior to marketing. Good brokers have an in-depth knowledge of what industry standards are expected in relation to every facet of the sale. Remember, we only get paid when your property settles. We don’t get paid for signing contracts, crossing our fingers and hoping for the best.

Returning to the story about my past sales manager and his response about are we buying or selling? I find that this concept is alive and well today, most accountants and lawyers who deal in Management Rights are regularly engaged on both sides of the contract transaction, and that is to say sometimes they are employed by the vendor and sometimes by the buyer. We find it quite amazing that some accountants will insist that when acting for a buyer, certain costs need to be included or increased. Yet, when preparing sale of business figures for their own clients, these same costs are excluded! Likewise, we find some lawyers will insist that the body corporate make some minor change to the caretaking or letting agreements when acting for a buyer. In similar situations, when acting for a seller, they deem it to be unnecessary. Just to clarify this statement and to avoid the collective wrath of the legal and accounting fraternity, I suspect that in most cases they are being instructed by the Vendor to present the property in the best possible way with the least amount of unnecessary cost.

So can we learn anything from all this? Well for a start selling your Management Rights is a very different ball game to selling boats, cars or apples. The market value will be determined by the contract price but will have to be confirmed by lender valuation. The’ are we buying or selling? question has no influence on valuation for finance purposes, so it would be prudent be properly prepared. When you go to your Accountant, ask him to present your sale of business figures to encompass all costs and amounts as he would expect to see them if he were acting for the buyer. Make sure the disclaimer is worded to industry standards and don’t disclaim out of additional wages ‘for lifestyle purposes’. If you pay out money on additional wages because you cant or don’t want to do the work yourself, then ask your accountant how he would view that if he were acting for the buyer and not you? Chances are, he would expect those costs to be included.

It is also a good idea to go to your Lawyer with a copy of your caretaking and letting agreements. Ask the lawyer this question after you have stated your intent to sell: ‘If you were acting for a buyer, would you want any changes made to these agreements? If changes need to be made then it can be handled in one of two ways, you can approach your body corporate and have them addressed before going to market, or wait till you have a contract in place. It has been my experience that good Managers normally don’t have any problems getting reasonable changes effected to agreements prior to settlement. Extensions to agreements or module changes are quite often deal breakers so it would be best to have that all sorted before going on the market.

Given the current economic state and the depressed real estate market it is also worth getting a written valuation of the Managers real estate. Make sure you use a recognized Management Rights valuer and have the manager’s lot valued including the commercial premium for office, reception and exclusive use areas. This leaves your broker free to concentrate on the business side of the negotiation.

As a foot note to my previous article ‘The Glass is Still Half full’, - it sure is taking longer than usual to get a top up around here!.

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