Category: negotiating

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

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.