Procuring cause is a simple concept complicated by replacing facts with expectations—those who wish for outcomes unsupported by reality twist, blend, and blur the rules of order. Is gaining a favorable decision worth the price of integrity the storyteller pays? It depends on the values and fears of wishful thinkers.
Children were once immune from injury by monkey bars, kid-powered merry-go-rounds, and teeter-totters. They grew up to be risk-tolerant young adults. Surviving eight grades of recess on asphalt playgrounds prepared them to be teenagers fearless of Normandy and Pacific island beaches.
In 1976, a residential offer to purchase in San Diego was one page. Having faced instant death from ages three and on, a child of the forties was not going to grow up to fear reverse polarity, ungrounded outlets, and cracks in concrete. Prepurchase home inspections were uncommon until the late 1980s. Late Boomers learned to accept risk, the price of participation. That changed when the Gen X crowd came into the home buying market, but let’s not blame them for their risk aversion tendencies. We boomers saw the opportunity to profit from the rising real estate market without holding a license of any kind. Everyone could be a home inspector as long as you had a pen, pad of paper, and a ladder. A slight fear of a giant catastrophe made the $200 fee look like money well spent to ensure a ready supply of ready buyers for the inspector.
By 1992 home inspection contingencies in an offer became the norm. About that time, another scare was introduced to the process—radon gas. A simple radon test and mitigation system generated about $4,000 of income for radon testers and mitigators. ($300.00 was enough to cover all of the parts and labor, but demand exceeded the supply of contractors, and prices rocketed.) There is at least one radon mitigator per REALTOR today. For $650, you can have your house tested today, and a mitigation system, guaranteed to work, installed on Saturday.
Home inspection contingencies and radon testing contingencies take up at least an entire page of the thirteen-page Wisconsin Offer to Purchase. Five years ago, waiving the inspection was uncommon. Three years ago, radon testing contingencies were added to the standard purchase agreement, and the contingency took off. However, by 2020, home sellers had grown reluctant to accept offers with testing and inspecting contingencies. I believe more offers were rejected over testing and inspecting contingencies than were rejected because of price. REALTORS were about a year slow in catching on to the fact that testing and inspecting were luxuries the market was no longer permitting. Early adopters to the practice of writing offers owners would eagerly accept held a big advantage for a long time.
It appears there has been acceptance of the slimmed-down offer by REALTORS and homebuyers. Where we once thought it was reckless to make an offer without inspecting and testing contingencies, the vast majority of offers are written to appeal to the seller, more than to protect the buyer from something someone fears might happen, but rarely does.
The fast-paced seller’s market has returned us to pre-1990 thinking about risk. There are a hundred protections you could insert in an offer. But every contingency you include is one more reason for an owner to reject your offer and sell to someone else. Four offers came in on one property this weekend. None had a contingency to inspect, test, or obtain a financing commitment. Wrapping a client in bubble wrap will prevent them from experiencing any surprises or elation over getting their offer accepted.
Less is more. Give clients a choice to insulate themselves from anything you can think of that might go wrong. Everyone does not want the same protections because everyone has different tolerances for risk. Remember when you’re drafting an offer, this is the buyer client’s offer, not ours. Give them choices, and you give them chances.
In the Candyland game (ages 3 and up), a roll of the dice that comes up three does not allow a player to move four spaces to avoid landing on the licorice square. The penalty for licorice slows the player’s progress. There are no exceptions for players who wished the dice had come up anything but three, regardless of their years of Candyland experience. The game board does not come with a referee. Players who agree to participate agree to self-regulate and defer to the rules to settle differences of opinion.
An accepted offer to buy and sell real estate is the agreement between opposing parties that set the rules of engagement. Like a game’s rule book, the agreement defines terms, establishes boundaries, expectations of fair play, and consequences for deviations. Players often are assisted by real estate licensees. Prohibited by the license limits from being arbitrators for one side, the licensee is more of a guide.
When everyone promises to abide by the rules, we expect the process from start to finish will be smooth. Conflicts in home sales happen when someone decides the limitations don’t apply to them. I know what I said. I said I would call a plumber to fix the shower and I did. Unfortunately, the plumber fixed a leak in the bathroom instead. Too bad. I’m not going to pay for another trip and another repair. Take it or leave it.
Semantics is a go-to resource for bending rules (I said I’m immunized. I didn’t say I was vaccinated.) Another is illogic. Real estate brokers don’t always know what they have for a client until opportunities for doing the right thing arise. When a person reveals themselves as a scoundrel, choosing to help facilitate the offense is a dangerous decision. Licensees must be fair to all parties, regardless of their client’s decision.
When a licensee calls to tell me their client twists to interpret an agreement to an illogical conclusion, I am speechless. Well, that’s not true. I know what I want to say, but when I’m at my best, I bite my tongue. Why a professional real estate licensee would make a call to try to persuade me to persuade my client to accept this irrational position is beyond my comprehension. Agents who think they must facilitate conversations as their client or client’s attorney demands don’t have to make a phone call, text, or email. They could use a proper form—a Notice from Seller to Buyer or an Amendment signed by the Seller. Drafting may take longer than texting, but drafting is far better for placing accountability where it belongs.
When I say agents talk too much, I don’t mean they can not communicate. I’m saying when you speak, and your client doesn’t, the only documentation of ill intentions comes from you. If a client wants to be a scoundrel, it’s unnecessary to tie our integrity to his sinking reputation.
Market conditions are fluid. We’re all familiar with seasonal, supply and demand, and consumer confidence changes that swing the pendulum of advantage between buyers and sellers of goods or services.
We consider today, 9/21/2021, to be a Seller’s Market in the Madison, WI area. But that’s a large geographic area, and within that area are thousands of mini-markets with more or less potential to increase your profit and decrease risk when you put your home up for sale.
We hear about people paying over the asking price to get offers accepted. Those offers increase the profits of home sellers beyond their expectations. Would you care to know even when you get a bid over the asking price, you may not be getting the maximum profit available? How much, you ask? I will show you:
- Promise to Pay a Set Commission to a Buyer Agent. Ninety percent of sellers in a non-scientific review I made recently reported that they paid a buyer agent a 3.0% commission to represent the buyer who purchased their real estate. Three percent is a high-water mark that’s been around for decades, with few exceptions. The most costly mistake home sellers make is promising to pay a set fee of 3.0% when they sign a listing contract, which is well before the day they see any offers. Homeowners who offer 2.0% to a buyer agent and reserve their opportunity to negotiate a higher rate will most likely increase their profit by decreasing their selling expenses. A four hundred thousand dollar house has at least $4,000 of commission to negotiate in favor of the homeowner.
- Agree to fees that the seller always pays. Offer to purchase forms and contingencies are pre-written for convenience. Buyers and sellers have some expenses related to financing, closing, and transferring ownership. In a regular or buyer’s market, the buyer gets off easy, and the owner pays most of the costs to sell. Negotiate to move expenses from you to the buyer, and you can quickly reduce your selling expenses by $2,500 to $10,000. The high costs that the buyer could pick up are Title Insurance, Transfer Fee, property tax prorations, and commissions.
- Agree to Contingencies. “The rest is just standard terms.” The presentation of the offer to the home seller by the licensee or the attorney gets overlooked. Those standard terms are mostly contingencies. Contingencies are included in contracts to allow the buyer to complete their due diligence before being committed to closing. That accepted offer with contingencies is the buyer’s opportunity to eliminate competition and shift time to their advantage, setting the stage for renegotiating everything, including price. All contingencies are not crucial to everyone. As long as a person can leverage you into negotiating, the terms of your offer are at risk. Contingencies are often satisfied to the favor of the buyer by the seller making a financial concession. Two thousand dollars is a typical concession.
Let’s do the math.
Mistake 1. Promise to pay a 3.0% commission before seeing the quality of the Offers. $4,000 (or 1% of the sale price)Mistake
2. Agree to pay fees that the seller typically pays. $2,500 +
Mistake 3. Agree to unnecessary contingencies. $2,000
A conservative estimate of profit to be made by avoiding three common mistakes made negotiating is $8,500. I know people are making unusually high profits due to accepting offers well over the asking price. It’s not my business to decide how much profit is enough. It’s my responsibility to show you where you can make a profit, so you have the choice to determine the amount of money you keep from the sale of your home.
These three mistakes are easy to avoid when your agent knows the contract.
There are hundreds of things a real estate firm might do, but not all of the activities are for the benefit of their clients or customers. And only a few activities are services that require a real estate license. The majority of tasks done in the process of a consumer’s interaction with a real estate firm are administrative chores. A smooth transaction and satisfactory experience results when all of the work is done timely and with skill. The end result is intended to be more than just good. Because good-enough is not good-enough, the admin work is important. It’s just not essential real estate work.
The duties of the real estate broker and licensed agents are spelled out in the Statutes. Admin work is selective, the duties prescribed by law are not. The consumer participates in the chores. Hourly employees conduct many of the activities such as staging a home, pricing, photography, paper processing, scheduling appointments. Handling admin chores poorly is not acceptable, but they may be hardly of any consequence to whether or not the sale closes.
Handling the essential real estate services poorly carries tremendous consequences. If the job requires a license you can assume there are skills required, and rules of engagement. Failing to exercise skill or play within the rules can be catastrophic to the transaction’s outcome. And if not catastrophic, expensive in loss of time and money is almost certain.
We created Essential Real Estate LLC to be the firm that strives to make better use of the contracts, and negotiating opportunities for home sellers and home buyers. The advantages a consumer can experience when their broker knows the contracts and contingencies are significant. Giving away leverage because you agreed to a condition that your agent didn’t comprehend happens every day, but not with us. We make it our business to help our clients get into a commitment with well qualified, and highly committed people. We work smart to identify the people committed to closing on the terms they agreed to and separate those who aren’t.
The essential real estate work is contract work. It’s negotiations. Confidentiality is a contract and license law responsibility. Our clients should expect a higher level of attention to the work that requires a license. They should also expect to see a more satisfactory profit after the closing.
You’re never competing with multiple offers… I’ll pause while you ponder that.
When an owner has a dozen offers on the table, more often than not, they have one offer that’s acceptable as written. Even if a few of the offers have exceptional prices, at best, one offer is acceptable without requiring changes. Most offers can’t be accepted without a counter offer. Those offers aren’t necessarily rejected, they’re simply unacceptable. You don’t have to compete with unacceptable offers. As a listing agent, it’s sad to see a person lose the opportunity to own a house when, except for flaws, and poorly drafted terms, their offer was the better choice.
Contract Drafting Skills are essential in this market. They’re also not a high priority subject of education. That’s too bad. Many years ago I decided I would make sure I was never at a disadvantage to anyone…broker or lawyer, in my knowledge of the Wisconsin purchase agreements and forms. I’m not saying I know the law better; I’m saying I know what’s in the purchase agreements, what’s not, what works for clients, and what works against clients.
Acceptable Offers are easier to craft than the ones that are peppered with errors and omissions. All of my clients can’t outbid the highest bidders. But none of my clients are submitting unacceptable offers because I missed something, or they weren’t given proper choices. Rejection is a fact of life. Acceptance is the goal. Submitting offers that can’t be accepted is avoidable.
Years of experience and ability do not go hand in hand. Some REALTORS get into the field because they like houses, or like working with people. Few people are inspired to get a real estate license because they love contract work. When you’re interviewing agents to represent you, take some time to discover their contract drafting ability and comfort. If you have a choice, expect higher standards.
We’re not in a hurry.
What do you think a home owner means when they tell a REALTOR, “We’re not in a hurry”? We hear statements like that during the early meetings with home owners. I think those are just words and they don’t mean what we think they mean. Could it be we’re not in a hurry to be disappointed? Who wouldn’t be in a hurry to be ecstatic?
Facts show you will be disappointed with the selling process once you pass day 11 on the market. Out of 742 homes sold on the West side of Madison since July 1, 2020, Five hundred and fifty four (554) sold in 11 days or less. Of the 554 sales, 87% of the homes sold for the asking price or greater. Mostly greater. How important are the first 11 days? Only 17.5% of the homes that sold after the 11th day were sold for the asking price or more. The window of opportunity to take advantage of this red-hot seller’s market is 11 days. Maybe the question isn’t, “Are you in a hurry?” but rather, “Would you prefer to be thrilled?”
There has never been a market like this. Because we’re more familiar with a balanced market, we still think that we have to negotiate as sellers. We think we need to price higher and prepare to give a little on price. Consumers still believe a low price will invite lower prices. That may be true, I don’t know. But I do know when you have multiple offers, the person who is going to give you the best price and terms has a reason to give you their best price and terms. Without competition you lose the motivation factor. Fear of loss is real. No one knows the price of any of your offer. Apply logic and tell me what you think. If you hear the seller has 3 offers, do you take a chance of offering less? If you hear the seller has no offers, do you take a chance? Three low price offers are motivating factors because only you know the price.
Results show pricing where you hope the price will rise to is the wrong approach today. People who price their homes at or near prices supported by an appraisal are getting the higher prices and the terms they need to close at those higher price. On the other hand, if you see the high prices and price at the limit, you’re pricing for that one buyer who will overpay. They may be there but they aren’t overpaying if they’re not competing. Draw a crowd.
Leverage. Whomever has leverage controls the outcome. After 11 days on the market, patience is wearing thin. Unmet expectations quickly take a toll.
Take advantage of the market with smart pricing. Prices escalate with demand. Attractive prices drive demand. When we present multiple offers to home sellers, the most likely scenario is most of the offers will be at the asking price or just a little above. If you’re going to get a ridiculously high price, you’re going to get that from ONE buyer. It’s the five offers you don’t accept that cause the one buyer to make the Offer you’re thrilled to accept.
Knowledge is power. We can all agree negotiations favor the side with knowledge, and information is knowledge. The outcome of a real estate transaction hinges on the information a person acquires. Real estate license laws require agents to provide fairness to other licensees. Whether or not a person is playing fair depends on which side of the question we’re on. Fairness can be objective, but it’s most often subjective. The surest way to trigger an accusation of unfair practice is to exercise a client’s right to confidentiality.
How many offers do you have in hand? Why do real estate buyer agents ask this question? What difference will it make to their client if I have zero, one, or ten offers in hand? Is the client’s decision of price and terms to offer (or even make an offer at all) dependent on the answer? Of course, it does. And depending on the buyer’s perspective the answer could be detrimental to the seller. Why do agents expect sellers to disclose the existence of offers? I heard this recently: “Why can’t you at least just tell me if you have any offers!?” You know why, right? Because the direction from the seller is to not disclose the existence of the number of offers and one offer is a number.
Confidentiality exists for a reason. Your expectations of me are driven by your opinion of what’s best for your client. That’s true from my side of the conversation as well. The decision to keep the information confidential is the right of the seller, as long as the disclosure is not required. And that’s a problem for buyer agents who are frustrated by the advantages held by the sellers.
What information do you want to be held confidential? The existence of offers might cause someone to make their best or better offer. The knowledge of other offers may cause some buyers to drop out. When we don’t know how a person will react to the answer, does it make sense to confirm or deny other offers are on the table?
Is history about to repeat?
Inman.com didn’t get it right in ’05: Real Estate Bubbles Bubble May Deflate 1/28/05.
Better luck this time: A Real Estate Bubble Mythical at Best May 2021.
Inman.com is the go-to source whatever it takes to move real estate.
Sixteen years later, we know the bubble was real. It didn’t deflate. It burst. Was it an economic crisis or a humanitarian crisis? It depends; did you lose your job, your home, your family, your dignity? Or, did you experience a temporary inconvenience before being bailed out by the federal government?
There is no doubt that history does indeed repeat itself. Wouldn’t you think there would be a few generations between one disaster and its second coming? Having been around long enough to see how easy it is to forget painful lessons, Inman.com publishing an article saying a housing bubble in 2021 is mythical at best is no surprise. We humans have short attention spans and shorter memories, or we are the most optimistic creatures on earth.
How different is this? For history to repeat itself, we don’t need the same players. (Afghanistan plays the role of Vietnam in the 1950s and ’60s in the 21st century.) Subprime lending, low interest rates, and too few homes created a surplus of buyers in the first decade of this century. Low rates and a shortage of homes for sale, and high land prices have accelerated the price a person has to pay to own a home again. The players may be different, but is there evidence to expect the outcome will be?
I don’t know if we are growing a bubble or not. Is it safe to say there are sound financial principles we might be ignoring and might be wise to consider before we rush into the mystic?
The National Association of REALTORS and member associations across the country should pay attention to the voter suppression consequences gaining momentum in States where Republicans hold power. Through the Political Action Committee arms of trade associations REALTORS are heavily invested in politics. By choosing to support candidates who vote favorably on real estate issues, Association PACs are pumping money from members into voter suppression efforts which the members do not support.
The Associations are not misleading members into funding unconstitutional efforts. Enabling unconstitutional laws to be enacted is a consequence of supporting candidates on narrow criteria of a favorable position on self interests.
If members believe it is best to elect lawmakers based on their support of our narrow interests and disregard the consequences of giving these same people the authority to tread on constitutional rights, giving money to a PAC is one way to keep clean hands. For those who don’t seek to hide behind walls of plausible deniability, giving directly to candidates is a responsible alternative. Expecting politicians to agree with everyone on conflicting opinions is what we do and what politicians tell us they will do when seeking votes and money. When the time to vote comes, they have to pick a side. If we like a candidate because they support property tax deductions on income taxes, we better know where they stand on civil rights.
It’s time we see that we’ve elected a significant number of politicians who are not interested in the Constitution of the United States. REALTORS are smart enough to make their own decisions on candidates. Giving money to a PAC reduces the impact of your vote and fuels the efforts to restrict your rights.