Category: negotiating

Mass Produced Offer Documents Cost Home Buyers Thousands of Dollars.

You can have any color car you want, as long as you want black. The Model T was built efficiently in mass production assembly line factories,  for anyone who wanted to get from here to there on their own schedule without depending on a horse.  The mass production model groups everyone into the same box. By standardization, the producers have control, and the product is reliably consistent, even if it’s not reliably effective.

The residential offer to purchase documents (including firm crafted addenda) are  inefficient, unreliable, products costing the American home buyers billions of dollars annually.  Real estate values are pushed up and beyond the reach of a large segment of the population because these documents reduce even the most attractive buyer to ordinary. When critical terms of the Offer are equal on paper, the only difference maker in the eyes of a home seller is PRICE.

Smart Realtors know how to customize an Offer for their buyer-clients, to make the document work to their advantage while giving the owner all of the security they desire at a price they are willing to accept. A customized Offer tells the owner everything they want to know about the buyer’s commitment, ability, reliability to make a decision to commit to sell to them.  Oh, sure some people want to know about families, career, where you’re from, what you look like, how much you love their decorating, but they won’t make a commitment to take unreasonable risk because of your personal story.

Customized Offers are the solution to rejection. Customized offers don’t cost you anything. In fact, they are more efficient, more powerful, more fair, more acceptable, and can be the difference in thousands of dollars in the price you pay to own your first choice home. 60 Seconds to a Customized Offer

Feedback. Everything can be used against you.

Everything you say can and will be used against your client to benefit the other side. You know that’s true. Then why do we give the listing firm feedback from our client?  We do it because we always did it, and a long time ago,  we were legally responsible to do it. Licensees, under the old agency law, represented the seller; they had an obligation to share all pertinent information with the seller.  The law changed and made disclosing confidential information an illegal act.  And still, we reveal relevant negotiating information to the other side without the permission of the client.

Everyday buyer agents are responding to showing feedback requests and placing their clients in compromising positions.  A sample of questions include: “Is this your clients 1st choice, second choice, third or fourth choice house?”  “When does your client need a home by?” “What does your client think about the price? Too High, Just Right, Too Low?” “Is your client making an offer on another house?”  “Is this price at the bottom, middle, top of your client’s price range?” “What does your client dislike about the property?””Was the house clean and well presented? Disorganized and unprepared? In need of cleaning?”

It’s easy to see the questions that a buyer is likely to prefer you not answer.  If the house is the buyer’s first choice, advantage seller. When seller knows the date the buyer has to move by, advantage seller. There are other questions which if answered could work against the buyer. A response to a question on condition may not set well with an owner. “They thought my house was not clean???!!  They said my basement smelled musty???!!”  How many buyers want to tell the seller, “We think your house is priced right.”?

Listing agents who ask questions to gather information to persuade the seller the price is too high, or the condition needs attention are using you to do their job. “I didn’t say your house was a mess, the other agents did.”  There is no good reason for a buyer agent to bite on these questions.  Our job is to put our client first, not the listing agent.  If my answer to a condition question is not well received by the seller, it could be my client who loses when the seller connects my statement to this buyer’s offer.

Showing feedback in the day of buyer agency is at least a dangerous practice, and arguably a  violation of confidentiality. Maybe a safe response is: “Nice house. Thank you. The buyer wants us to tell the seller they have a beautiful home.”

 

 

 

 

Is This Really a Price Escalation Offer? Probably not.

Buyer: “Mrs. Seller. You are asking $300,000 for your house. Here is my offer for $300,000.  If you get another offer by 7:00 PM tonight for $300,000 or more, my offer will then be $1,000 more than that other offer, up to $351,000.”   The first price escalation offer may have started just like this. A capable, committed, fearless buyer promising to pay more than any other offer the owner has in hand,  up to a specific amount. That’s a true escalation offer. It’s free of stipulations. No if, and, or but. This buyer is appealing.

The Price Escalation clause common in our market is remarkably diluted of fearless commitments from the buyer with weak if, and, and buts.  If we take the written watered down clause and put it in a conversation it looks like this:

Buyer: “Mrs. Seller. You’re asking $300,000. My offer is $300,000. If you have another offer in hand for $300,000 or more, I’ll increase my offer by $1,000 up to $351,000. BUT you have to show me the other offer as proof. AND I get to scrutinize it to see if that offer has credits, concessions, or seller costs which mine doesn’t have. If after I compare to make  sure we are apples to apples, and I’m satisfied, I will sign an amendment to change the purchase price. Oh, by the way; if the appraisal doesn’t support the price, I can rescind my offer. We’ll see the appraisal in oh, 30 or 35 days from now. About 5 days before closing. ” 

Every real estate licensee and attorney  sees the caveat filled contingency is trouble waiting to happen.  The buyer who needs this kind of protection is not the price escalation buyer you want. This buyer is hopeful that you will be so enthralled by the big number that you will overlook the conditions. The game is on and it’s a gambler’s game. You and the buyer are taking a chance that the appraisal will or will not support the Offer price. A low appraisal is a big win for the buyer. You’re 4 weeks closer to closing and your other buyers are gone as is your leverage.  So, before you accept an offer with a diluted escalation clause you gotta ask yourself: “Do you feel lucky?”

A skilled real estate licensee will know how to modify the Offer to protect you when this contingency shows up in your offer. It’s great to have a strong, committed buyer interested in your property. The buyer capable of a true escalation commitment won’t be afraid. You’ll know her when you see her offer.

Letters to the Seller. What’s the intent?

Google will give you 1,040,000 results for “Dear Seller Letter”. From upstart real estate agents to the biggest players in the field, including Realtor.com, love letters to sellers are promoted as the key to success for buyers negotiating in Seller Markets.   A lot is being written about something that has nothing of real evidence to prove its value. There is no scientific evidence to support the notion that the love letter makes a difference. Oh, there are incidents where people believe it made a difference, even THE difference. But those incidents do not qualify as a scientific study.  On the other hand, substantial evidence supports the fact that people who submit offers with the most favorable price and/or terms for the Seller, provide the most definite assurance that they are capable of closing on time, and are committed to honoring the terms of the contract, are highly likely to have their offer accepted.

In spite of the lack of evidence, advice from people in the real estate industry encouraging buyers to write Dear Seller letters continues to pour in.  I scanned a dozen web site stories and saw  versions of this  suggestion often encouraged:  “…always include a photo…” of your family.  Apparently the “family” photo makes your Offer stand out. It shows the Seller who you are. It shows the seller you might have something in common. It tells the Seller you will be good stewards of the home they love.

Could those reasons be faint cover for communicating another message? What is the intent of these letters?  If the intent is to persuade the Seller to look favorably upon the Offer because of the appearance of the buyer, arguably a line has been crossed.  The Wisconsin law says a licensee is subject to disciplinary action “…if it is found that the licensee treated any person unequally solely because of sex, race, color, handicap, national origin, ancestry, marital status, lawful source of income, or status a a victim off domestic abuse, sexual assault or stalking.”   

There is a better way to make a Buyer’s Offer stand out, and we are all capable. The licensee who improves their ability to craft Offers to purchase with terms more favorable to the Seller, while providing the protection the individual buyer desires, is safe and worth their fee and then some. It takes more work. It requires thinking. You will be challenged. And it’s what we are licensed to do.

Are we more than drifting toward Fair Housing violation accusations? Is it time for  a national dialogue on the practice? I think we are, and it’s time to talk. What do you think?

 

 

Closing of Buyer’s Property Contingency…getting from here to there

Still known as the “Subject to Home Sale” contingency, owners in a Seller’s-Market are unlikely to accept an offer where the buyer has to sell real estate before being committed to close.  You’re still going to see these offers so let’s see how to protect the Seller from being trapped and the Buyer from being homeless.

Seller’s Perspective:

First issue to resolve is to know if the buyer has an accepted offer on the real estate named in the contingency. “…contingent on the closing of the sale…” may imply the buyer has an accepted offer on their property, but that could be incorrect. The contingency is designed to allow for any status of sale, including where a buyer has not placed their property for sale. By the way, there is nothing that says this offer is contingent on sale of “buyer’s home”. Any property the buyer owns can be named in this contingency.

Second issue: Closing of buyer’s property is typically written to run to the date of closing. This keeps the buyer flexible to walk away right up to the time of closing if their sale doesn’t close. To balance this risk, the contingency allows the Seller to deliver a Notice to remove this contingency provided the seller accepts a secondary offer. Buyer’s who need the protection of this contingency run a high risk of being homeless unless they have protection in this Offer or the one they accepted with their buyer.

Buyer’s Perspective:

As long as the seller can serve notice to me to commit or step aside, I have a risk of being bumped from the home I want to buy, and still committed to the buyer who wants my house. To keep me safe, I want to negotiate some protection with you the seller of the house I want to buy. Here’s a suggestion:

When the Buyer accepts an offer on (address of property) which is not contingent on the sale or closing of any other real estate, buyer shall notify Seller in writing. From the time of delivery of said written notice, the provision of this Offer providing seller the right to deliver Notice of Accepted Secondary Offer to buyer shall be suspended.

Now that’s all fine for the buyer, but what about the seller? If the buyer’s offer becomes void, the seller should be able to exercise the Notice provision, right? We need some language to reinstate the Notice/bump right for the seller.

Buyer shall keep seller reasonably informed of the status of the offer on their property. The right of Seller to issue Notice of accepted Secondary Offer shall be instated immediately if buyer or buyer’s buyer breaches their contract or this accepted Offer.

I don’t represent this language to be perfect. Certainly an attorney could craft something more definitive. Use my idea to help you think through the steps and precautions your clients want.

 

 

 

The Contingency is the instruction for what to do if this or that happens

When concerns arise in a transaction the licensees have only to look to the contract to see what the Buyer and Seller have already agreed to do to move forward together or by parting ways.

Contingencies are the agreements between the Buyer and Seller of the steps to take as the parties satisfy their obligations under the contract.  Notices and amendments are the methods of communication between the Buyer and Seller when real estate licensees are involved.  Conversations between licensees on behalf of the buyer and seller are NOT acceptable alternative communications to amendments and notices signed by the Buyer and Seller.

The “Title Not Acceptable for Closing” contingency tells licensees exactly what to do on behalf of the buyer and seller.  Let’s walk through the contingency.

TITLE NOT ACCEPTABLE FOR CLOSING: If title is not acceptable for closing, Buyer shall notify Seller in writing of objection to title by the time set for closing. In such event, Seller shall have a reasonable time, but not exceeding 15 days, to remove the objections, and the time for closing shall be extended as necessary for this purpose. In the event that Seller is unable to remove said objections, Buyer shall have 5 days from receipt of notice thereof, to deliver written notice waiving the objections, and the time for closing shall be extended accordingly. If Buyer does not waive the objections, this Offer shall be null and void. Providing title evidence acceptable for closing does not extinguish Seller’s obligations to give merchantable title to Buyer.

Notice how simple the directions are. 1) Buyer sends a written Notice. (2) Seller either removes the problem condition of the title or sends a written Notice to Buyer. (3) When Buyer receives that Notice from Seller, buyer decides to waive the objection and of course does that with a NOTICE to Seller. (4) If Buyer does not waive the objection prior to the closing, the Offer is Null and void. Certainly in these days between Notices, the parties can negotiate by amendments.

Licensees are prudent to draft notices exactly as the contingencies specify.

Find The Good In Every Offer

Every Offer we receive is better than the Offer that was not submitted.  I think I am a logical thinker  when my client receives an Offer to purchase from one person who looks at the house and no Offers from five parties who also looked at the house, the one offer in my hand is better than any of the Offers that were not written.  Regardless of the terms, this Offer is a good thing and here’s why:

  1. There is at least one favorable term in every Offer. The Offer is an invitation to talk about terms.
  2. The Offer the seller will not accept has terms only the seller and buyer will know. Any buyer sitting on the fence will be told “An Offer is in.” What’s more likely to inspire a person to move off center better than anything known to man? The fear of loss.
  3. Zero Offers leave you two Offers short of a competition. One Offer is half way to a seller’s market.

I have a chuckle when listing agents refer to Offers as “low-ball”. That comment is driven by unmet expectations, and  likely some fear of the seller’s displeasure. In the hand of a Realtor with an attitude of abundance,  that unacceptable Offer can be the most important piece of the puzzle for a client to go from here to closing in a hurry. Be grateful for any Offer and let the buying side know you appreciate what they’ve given you.