Then they’ll email the details to their database and pay the property portals to have it listed online. Next, they’ll take calls from prospective buyers, followed by meetings and viewings from interested parties. Finally, they’ll receive offers and work with the vendor to agree on the best one. And yes, this is a broadly accurate description of the agent’s Plan B.
But here’s what Plan A looks like. Having secured the instruction (and often before), the agent will ring around a handful of ‘hot’ buyers they know will be interested in the property. This is the famous ‘black book’ that all agents have. The conversation is short and to the point: “Look, I’ve got this great property that we’re putting on the market tomorrow, and it’s exactly the sort of thing you’re looking for. If you’re interested, I can get you in there first thing in the morning to look around before it goes on the market. I’m only mentioning it to a handful of my best buyers at this stage. Are you interested?”
So, no measuring up or photos, no advertising fees or emails. Just half a dozen calls and a handful of viewings, and the deal is potentially done within 24 hours. Happy agent, happy vendor, and if you were one of the agent’s hot buyers, happy you. And what if you weren’t in the agent’s black book? Well, you’ll only get to see that deal, along with everyone else, if none of the hot buyers wanted to buy it.
In reality, then, the best deals are being sold through the black book, and you’re only getting to see the deals that the hot buyers didn’t want. That’s why you need to have great relationships with agents to ensure you get that early call.
3. They get their numbers wrong
Even a small-scale development project can generate significant profits, but with some chunky numbers involved, even a simple spreadsheet error, pricing oversight, or miscalculation can dent your margins.
You’ll start with ball-park pricing estimates, but before the deal goes ahead, you should be getting accurate pricing for the project from your quantity surveyor/cost consultant. A common mistake is to fail to firm up all your pricing estimates in this way or to assume that the price you were quoted on the last project won’t have changed much.
Not allowing for a contingency fund is another biggie. Always allow for 10-15% of the construction costs as a contingency because you will almost always encounter unexpected costs. Too many new developers either fail to have an adequate contingency or dial too many of their pricing assumptions to ‘optimistic’ to get their numbers to work. Real-life rarely does ‘optimistic’; ‘realistic’ or ‘prudent’ are far more likely outcomes.
Finally, make sure that you’re targeting a profit of at least 20% of the gross development value (GDV). That way, even if you encounter some unexpected bumps in the road, you should still end up with a profit.