What is VPA? Investment terms explained

Vendor Paid Advertising, or VPA, is a term that affects you when you’re selling your home directly, and yet isn’t often discussed in the consumer space.

Essentially, it’s the advertising that is done to sell your property, usually decided upon or discussed with you through a real estate agent. When you’re the one footing the bill, it’s “vendor paid”.

This counts for anything around advertising your property – a signboard, the cost for listing it on a website, newspaper advertisements, and so on. And it comes right out of your pocket. For this reason, you’re right to be astute about what is spent, where it gets spent and the results of your payment. You do not have to agree with a real estate agents approach, particularly when it is your own money on the table. If you want to solely market your property in one form, or ignore print advertising, then that is your decision.

When you give your funds to an agent for vendor paid advertising, they should be put into a trust account. You also have the right to be given receipts for this as well, to ensure the money is spent on what you are paying for.

In fact, vendor paid advertising is now so common that most people will pay for it without thinking about it.

The ongoing debate

There are some vocal commentators against the concept of VPA, as well as some real estate agencies that already practice it.

Earlier on in the debate was Neil Jenman, who said that this is a system designed to “dupe” home sellers into “spending millions of dollars on unnecessary real estate advertising”.

“Since the introduction of [VPA], real estate advertising has reached record levels. There is now approximately twenty times as much advertising being done, yet there is no noticeable increase in the number of sales being made. In fact, in most areas, the number of home sales is declining,” wrote Jenman.

“Agents rarely advertise to attract buyers. The buyers are already in the area. Think about it. What is the one thing all home-buyers do before they buy in an area? They come into the area. They choose the area and then they choose the home.

“Take the advertisements away and the buyers won't disappear. Homes would still be sold because buyers would do what they have always done – visit an area before they buy.

“Granted, advertising brings some buyers to an area. But, again, the questions must be asked: At what cost and at whose cost?”

While, Real Estate Mastery’s Terri Cooper told Elite Agent that VPA helps agents determine the motivation of the seller, attracts buyers, builds your profile, takes away any conflict of interest the agent has if they pay for the advertisements (that is, looking to sell quickly to recoup loss) and attracts new clients. It appears Cooper sees it as a win-win for the agency and the buyer.

In March last year, observer Terry Ryder wrote, “I have published four books on the real estate industry, the first of them in 1998, and they have all warned sellers to avoid agency pressure to spend thousands on unnecessary newspaper advertising.”

“If you’re selling your home and your agent tells you that you need to budget thousands for newspaper advertising, you have appointed the wrong agent. Sack them and find an alternative that has buyers looking for property in your area and therefore doesn’t need to waste your money on advertising,” he said.

Just Think Real Estate's Edwin Almeida also believes that VPA is just costing the sellers more, often not receiving any better results.

How much is being spent?

Figures vary dramatically from property to property. RealEstateMentors note that of their Future of Agents Commissions 2010 survey, 55.2% of agents were spending more than $1,000 to market/advertise a listing, which they deduced meant that many were therefore getting VPA to enhance marketing campaigns. Some, however, include marketing within their overall fee.

Of those in their survey, 28.1% noted $501 to $1,000. Then, 21.9% said $1,001 to $1,500. In this same stage, sellers were increasingly being noted as reluctant to pay VPA due to the rise of the online space and the marketing that can be done online. Many people consider online advertising to be cheap or even free, increasing the number of agencies absorbing the costs of listings websites themselves.

VPA has long been sought out by agents - in 2011, the REINSW ran a course entitled Winning listings and vendor paid advertising, that described itself as the following:

"Every agent wants more listings, more sales and more profit. They also want more vendor paid advertising. This course will show you how you can unlock your creativity and create a better campaign to produce consistently better results!" Much of this did also revolve around using advertising more effectively.

Pros

• You have more control over what you allow the agent to do if you are paying for it upfront.
• Agent will not be encouraged to rush your sale to recoup losses.
• Splashier marketing campaign than you might get from solely relying on the agency's funds.
• The agent knows whether you are motivated or not.

Cons

• Can be said to advertise the agent, not just your property, using your own funds.
• If you can't afford it upfront then it can be tricky.
• Expensive - and despite increased control, the agent may try to encourage you to spend in a certain way.
• If the property doesn't sell, you may find yourself paying out increasing amounts.
• What other pros and cons would you add to the list?

Note: Overseas, the term VPA may refer to a "Verified Professional Agent".