Category Archives: negotiating

Multiple Listing Services. Do they help or hurt American Consumers?

Some people see the real estate multiple listing service (MLS) business model as a great benefit to the American consumer. Others (Not-REALTORS) have doubts. The Department of Justice and some judges are on the side of the doubters. I favor a competitive environment that allows more brokerage service and fee options for the consumer; the MLS model has room for growth. Essential Real Estate has proven long-held beliefs are myths.

The essence of the issue is that MLS systems are designed for the Seller to pay one commission to the listing broker, and the listing broker then commits to paying half of the commission to a cooperating broker. More often than not, that cooperating broker is working diligently for the buyer’s advantage to the Seller’s detriment and then collecting their fee from their opponent, the Seller. The rules of membership in an MLS result in listing brokers obligating their home-selling clients to promise to pay the highest typical rate of commission to the buyer’s agent in most cases. (I estimate that rate to be 3.0% in 90% of all listings)

Paying the other side to work against you is unprecedented. The closest example might be losing in court with the obligation to pay court costs and attorney fees for the other side. The Seller isn’t losing in a home sale, but they still pay the buyer’s broker. That’s peculiar. 

This article in the New York Real Estate News summarizes the complex issue. I’ll offer a solution suggestion. Split the commission in two. 

The MLS is a Private Club

To understand how the MLS works, consider it similar to a private club for people with specific credentials. In this case, it’s a real estate license. Licensees apply for membership and pay dues to join the MLS. The members promise to cooperate with all members in exchange for the privilege of access to every member’s inventory of listings. Cooperation is guaranteed, while meeting standards earn compensation.

One rule of membership in the MLS can not be an obligation to pay a set price commission to members. Over time, some practices become Standard Operating Procedures. About 88-90% of all listings in an MLS will include a 3.0% offer of compensation to be paid by the Seller. That’s not a rule; it’s the way it is. The following most likely number below 3.0% is 2.5%.  

Split the Commission. Let the Free Market Decide. 

Cooperation between MLS members will not change, and the consumer will not suffer if the practice of one commission paid by the Seller ends. My proof is two years of running an alternative business model with more options for the home seller’s advantage. Instead of obligating the Seller to pay a 6.0% commission expecting half of that commission will be delivered to a buyer’s agent, listing contracts with clients of Essential Real Estate are signed with commitments set less than 6.0%. 

Where the same Seller has an option to sign a listing contract at 6.0% with another broker member of the MLS, Essential Real Estate Clients might sign a contract committing themselves to no more than 4.0% commission and promise to pay the buyer’s agent 2.0% commission instead of 3.0%. This way, our selling client retains the opportunity to agree to pay a higher commission and can decide after seeing the quality of offers. The results are compelling. An uncommon member is a broker who demands a 3.0% commission from the Seller in exchange for their buyer’s Offer to Purchase when the Seller offers 2.0%. 

It’s a Seller’s Market. They should get all of the advantages.

The compensation method we use is the kind of advantage owners deserve in this market. Locking a Seller into an obligation to pay top rate commission for any offer artificially supports the highest commission rate placing the seller at an avoidable disadvantage. Free markets drive prices up and down. The commission is the price of the service. There might be some artificial support for the commission to hold firm at 3.0% in any economy. Splitting the commission into two sides might remove one of those supports. 

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Three Mistakes Devouring Home Selling Profits Today.

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. 

Profit. 

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:

  1.  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. 
  2. 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. 
  3. 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.

Negotiation strategy is worth paying for. Marketing, not so much.

“Hey. My house is for sale”  is an effective marketing strategy today. Drawing a crowd is the easiest step in selling your home. Real estate brokers propose fancy marketing plans presented as THE way to attract buyers to your property. Homeowners pay a pretty penny for those plans. When homes sell in less than a few days, those fancy plans never get launched. Is a fancy, pricey program necessary? Maybe not.

In some neighborhoods, the next person who puts their house on the market is the market. Well qualified people are already poised to jump on the next home that pops up on the market.  

Structuring a contract to give a home buyer leverage to walk away is simple. Eight out of ten buyer representatives will draft offers with little thought and many boxes checked. The standard purchase agreement is a fill-in-the-blank form. It’s intended to give the buyer exit opportunities. That’s fine in a buyer’s market. We do not live in a buyer’s market. You do not want to accept an offer that’s less safe for you than you can negotiate.

It takes smart work to craft offers that commit buyers to their promise. Some agents and attorneys know how to prepare a proposal that shows the buyer is committed to closing. If you’re a buyer, you want to have the choice to choose to have an offer that sellers are eager to accept. Home sellers will surely regret accepting a poorly written offer when their buyer exercises their opportunities to force a renegotiation. 

The agent who knows all people are not standard and standard offers are weak will make sure their client knows the consequences of contingencies and has alternative ideas to shore up the most capable buyer’s commitment. 

Beat The High Bid At a Lower Price with Greater Safety

People who lose in home buying competition will assume they were outbid on price. They may be right. Often they’re not. If you’re going to finish anywhere other than first trying to buy a home in a seller’s market, you’re going do so because you didn’t use your strengths. Everyone has strengths. Before you can use them, you have to know them. 

Something Other Than Money

Even people who can count money as one of their strengths have other advantages to tap. So why does the accepted offer not always go to the highest price bidder? Because they failed to see the transaction from the seller’s side of the table. Money matters; after the money comes security. Specific and simple terms with a safe amount of money are better bets than an offer heavy on cash and light on safety.  

Hedging Is a Strategy

It didn’t take long for consumers and real estate agents or lawyers to see a high price would capture home sellers’ attention. A high price offer, appropriately peppered with buyer-safe contingencies, was a potent recipe for outbidding the competition just enough to renegotiate later in the process when seller options have vanished. An owner who identifies a hedged offer will save themselves the pain of discovering the truth behind “too good to be true.”

You’re Stronger Than You Think

High-priced offers come with contingencies unfavorable to the seller because the buyer is not committed to closing. Every contingency is a reservation. Each contingency protects the buyer from being in a position to honor their commitment. A firm offer has promises without exceptions. 

Decide You Are Committed

Overpaying for a property is a choice. If you prefer to pay reasonable prices (and there are no undervalued properties in a seller’s market), you have the first necessary strength: A grasp of reality. From here, we build your arsenal of assets. A person who is fully pre-approved for financing is a match for cash buyers. A person who can make repairs won’t fear the unknown how a person who needs to hire a contractor for simple maintenance. The person who sees risk as an opportunity has an asset. Knowing the truth about the consequences of conditions allows a person to operate without fear. Knowledge and the exclusion of fear are assets. 

Be The Offer To Be Beat

Know your strengths, know market values, and you can commit to being the next owner. Take all of your strengths and put them together in an offer that makes you the offer to beat. Leave no room in security for anyone to nudge you aside. The safest offer is more likely to get a second chance from the seller in the situations where another offer exceeds the safe offer’s price. And when you have a counteroffer, you have a choice. to own or walk away. Flipping the power to you is the goal. To have the choice to accept an offer or give the seller another chance to come to terms with someone else is where you want to be.   

Those who depend on money to tilt the playing field to their advantage are the easiest competitors to beat for the person who negotiates on strengths. And their agents will still think they got beat on price. 

Evaluating an Offer on Time, Money, Security,Commitment.

Full price offers capture attention and soften senses to the rest of the terms. The desire to get all of the money, or more, causes a seller to accept insecurity, release control, and commit to people who are not committed to the transaction. Helping a client evaluate the Offer based on all of the factors that matter most at some time in the transaction begins with expectations.

Maybe we spend too much energy on establishing a price when much of that energy could have been spent on aligning our expectations with reality. Reality is subjective (OK to disagree). A person’s goals and tolerance level are never in line with the terms of the current nine page Offer to Purchase in Wisconsin. We use a standard form to match unique expectations and we are surprised when we have conflict. Watch a seller sink from thrilled to a puddle when the full price offer is loaded with if, and, but, maybe, and high standards. As listing agents we have our work cut out in these cases but we can turn this frown upside down with patience and smart thinking.

To find common ground we have to align more than money between the parties. Time, money, security, and commitment aligned are indicators of the road ahead. Time of course is closing date and length of time a person has to wait for the other party to decide. Money is the purchase price and related costs to sell. But what is security and commitment? They are a series of the most important provisions of the Offer at some time or another from acceptance to walking out with a check. Sooner or later in the transaction, the security or commitment of the parties will stress or relieve one side or the other.

Let’s take security first. When you know the Offer to purchase has contingencies (risks, exit doors) easily identified and others laying in the weeds you are on your way. When you can interpret AND explain the purpose, impact, consequence, and maybe even the origin you have a chance to eliminate peril before the parties become entangled. Your client wants an opportunity to pick and choose what sentences of the Offer make them uncomfortable, will cause them to worry about the uncertain outcome (cause of worry). We can give them that chance by understanding what we are seeing, and really reading what we are seeing. (Paragraphs are made of sentences. Seeing one sentence and disregarding the rest is the common cause of problems. Words matter and skimming for what you want to see won’t expose the intentional words and those are the ones we regret not seeing when we see trouble.)

All sentences and all contingencies do not have to be used and in most instances using all contingencies is certain death to the Offer. A surgeon knows which pieces of the body can be taken out to keep us alive and she has the tools to cut and sew so the body works. Risk lives in the contract document. It’s either mine or yours. It’s either risk or not. It impacts time and money. The trick is to look at the risk from the other side of the transaction when you are on this side of the table. The question isn’t always what’s best for me? But instead, what’s more appealing to you. “Ask not what your Offer can do for you, ask what your Offer can do for the other guy”.

Commitment is the tie that binds buyer and seller. The shared belief that you want to accomplish the goal of the Offer by staying inside the boundaries of the agreement is apparent when you see it, and obvious when it’s missing.

Commitment looks like this: Prepared: person knows what they need to know before they start. They are informed and don’t require contingencies which allow them to change directions while the other side is left waiting. A prepared buyer has an underwritten letter of approval from a legitimate lender. She puts something more than typical in as earnest money. He does his research before so he doesn’t add contingencies he doesn’t need. Exit Clauses are doors. Some are two car garage wide. Others are scuttles in the closet ceiling. If a buyer can fit through, it doesn’t matter how wide the opening. An uncomfortable exit is still an exit.

A committed seller knows what they can tolerate, where they are going, when they are going, and understands the relevance of time, money, security, commitment before they see an Offer. A committed buyer does not dress the same way as the typical, risk averse buyer. Customization of their Offer shows who they are in terms of commitment. A person either has reservations, wants opportunity to reverse course, or is certain and driven to stay the course. If the Offer is extended by contingencies for issues which could have been resolved before the Offer was made, you have an indicator. When the earnest money is typical the commitment might be typical. When the terms eliminate the fear that causes stress for the Seller we can see commitment.

The licensee and attorney who take the time discover their client’s true security needs and commitment will customize an offer that speaks clearly to the seller and exceeds their expectations. Happiness and appreciation grow side by side. Expectations kept in check and expectations intentionally met will get your client the love they want. The closing date to an expectation matched client is easy to see. It’s right there. Every person who wants to provide a value in real estate can do that y learning the contracts. The one who does more to learn isn’t always the most experienced person in the process, but they are the most instrumental.

Objections are to be understood, not overcome

Sales is a cliche driven enterprise with each having the half-life of carbon 14.  (Always be closing.)  The Wisconsin Real Estate Magazine December 2018 edition has a feature article titled The Art of Overcoming Objections. Sales industries have the same human nature challenge with objections as as we all do; we resist hearing them and endeavor to overcome them until someone else listens  and delivers. 

Our industry has Zillow as a fantastic example. In 1995 Realtor.com had the opportunity to own the public real estate information market. The public wanted more information. The modern tool for delivering the information to satisfy the demand (internet)  was here, the industry attitude was still in 1983: data was not to be shared with the public. We overcame the objection to our right to proprietary information  so effectively that Zillow became the solution and leader in real estate data trust. 

I believe objections accepted and respected will take us a lot further than objections overcome.  In fact, has anyone ever overcome your objection? I doubt it. More likely we end the defense of our objection, let the conversation move on, and find common ground with the next person who gives our objection some respect. 

Sure there are some objections which are not legit, but seriously do we have to win over all objections?  Is there some value in conceding the consumer just might have a good point? Of course.   Instead of becoming the quick wit with all the answers to every idea we don’t accept, it’s much easier and reasonable to find the relevance and sincerely accept the objection as a smart solution to a concern of the customer.  

Given the opportunity to overcome an objection, stop and ask yourself, “Why can’t this objection be legitimate?” and ask the next question of the consumer, “How can we resolve your objection in our solution?”  Find a way to legitimize concerns, wishes, expectations, and move on to a cooperative relationship.

If more money won’t guarantee an accepted offer, what will?

Every home seller wants something so they can be somewhere by some date.  Knowing what they want most is the key to getting your offer accepted.

More money is likely a want of every owner.  Less stress is near the top of a person’s wants.  Stress is related to risk and perceived consequences.  Fear and worry are relatives of stress. We are safe to assume eliminating fear and worry about undesirable consequences will be recognized and valuable to a home seller.

Every REALTOR should have at least ten good ideas for you to consider, to present you and your offer more risk free, safe, and sound for the seller.

The ideas we have for you are simple to understand. You can think of a few by simply switching your perspective to the view from the Seller’s side of the table. If you were her, what would you want to see in an offer?  Before committing to be represented by a Buyer Agent, find out what smart strategies the agent has to give you an edge in a competitive market. If the first and last idea is more money, they have no idea.

Seller-Buyer and Buyer-Buyer. One of them will own the house.

Real estate negotiations are identical in that there are two buyers and one seller every time an offer is presented to a home owner.  One of the two buyers is going to be successful in ending the negotiations with the house.

Every day buyers make offers on real estate and without expecting they have competition. Buyers are always competing with seller-buyers.  Every negotiation ends with someone getting the property. It’s only when offers are written do we see who wants the property most. Most transactions involve sincere offers to sincere owners from sincere buyers. In those situations where the negotiation ends with the seller-buyer outbidding the buyer-buyer, it’s not that the seller-buyer didn’t want to sell; they just wanted to own the property more than the buyer-buyer.

Olive Branch Inspection Contingency

Given a choice, without being told of potential consequences, a Buyer Client is 99% likely to include a Buyer Favorable leverage an inspection contingency, over the one on page 9 of the Offer to Purchase.  The people who created the Inspection Contingency in the Offer intentionally tilted the advantage to the Seller. Obviously the Seller has more to risk in negotiations after acceptance. The party with the most on the line should have a reasonable opportunity to cure defects, and  keep a transaction together when unexpected conditions are identified. During the Buyer Market run we had in and after the recession, more Firms began using a Buyer Favorable Inspection Contingency as standard practice. Sellers had no choice but to allow the Buyer to have the leverage which was intended for them.  That happens when the market changes.

Well, the market changed again. Licensees stuck in the new habit of using a company crafted Buyer Leverage Inspection contingency gave no thought to the consequences to their clients and went right on checking the box without discussing the difference between that contingency and the one on page 9 of the Offer.  Sellers and listing agents  were quick to identify the high risk condition of the Buyer Favorable contingency. For no reason other than risk, Sellers will reject Offers which give the inspection advantage to the Buyer.  It’s a shame when  a person loses a house because they weren’t given a chance to make their offer more attractive to the Seller by simply being kinder, gentler, and safe.

Knowing the difference between a Heavy Hand and an Oliver Branch allows the licensee  to  give the client a real opportunity. It’s a magical thing  watching a licensee earn the confidence of clients when they explain choices and think through a choice with clients.

Become a part of the conversation, a part of the thinking process by learning to find the trips  and traps of contingencies.  Some people will always do as they always have because that’s the way they learned it. But those people will never have the results they could have by learning why  something is as it is, and learning how to make the contingencies work for their client.  And by working for their client I don’t mean wrapping them in unnecessary protections.

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