Submit Your Best and Final Offer…the first time.

“I hope the offer is written well enough to get my buyer’s the home that they very much like.”

The agent who made this statement takes responsibility for the outcome. Their client is in good hands. We like to think about the buyer’s ability, the state of the market, or the field’s unfairness as the reasons our client didn’t get the accepted offer. When you take that thought to the next logical step, aren’t you saying you and your ability are not essential to success? Are you sure you want to admit you’re along for the ride, and your skill is overrated? I don’t think we want to say that. 

I once thought that way. I was a highly effective buyer agent in a buyer favorable market. A lot of people were. When the market turned to favor the seller, more offers returned as rejected than accepted.  Eventually, I became motivated to find a solution I could control to give my clients a chance. By learning the purchase agreement and the contingencies we agents add to our clients’ offers, I discovered the owner’s decision to accept or reject my offers was already determined when I handed it to the listing agent. The skill I developed was shared with agents I worked with as far back as 2014. From time to time, I see their offers come in on homes I have for sale. Everyone is not going to hire me as their buyer agent, I know that. I’m glad to see people benefit from the work other agents did to learn and apply the skills they learned.

Awareness and Acceptance. Before we can stop doing stupid, it helps to become aware of our part in the outcome. When we then accept our responsibility, we become open to change things that don’t work. Get to here, and the change will come from learning. To learn, we can’t just accept the opinions of other people. Knowledge happens to those who participate in the process of challenging beliefs, their own, and those of others. 

Please Submit Your Best and Final Offer. If you get this message after you’ve submitted an offer, you are playing with fire if you expect a counteroffer will come or if you doubt that the seller has a strong position. What do you do if you are lucky enough to get this message before the house goes to someone other than your client? A better question is, what can you do to make sure your client has submitted their best offer the first time? If you don’t know how to craft a better offer or guide your client through their options to write their best offer the first time, you’re not going to be able to do any better with a lucky second chance. 

Your Best and Final Offer. A learning experience for buyer agents. In February, I will introduce an online learning opportunity for agents who aren’t going to wait for the market or their clients to get better. If you can read a real estate contract, you can learn my method other agents are using to win the accepted offer. I promise, if you develop this skill, you will never again depend on your client’s ability to outbid everyone on the price to win the accepted offer. Let me know if improving your ability to affect the decision to take your client’s offer is for you. 

We protect our clients from the consequences of flawed contract Contingencies

Every firm has a library of prewritten contingencies to include when they draft offers for buyer clients. Sometimes a contingency that starts with one firm gets picked up and repeated in the next drafting of another company’s addenda. A flaw in the initial version infiltrates the contracts of the copy cat firms. The chances of the flaw being corrected are directly related to the probability that someone will read the contingency with a critical eye.

Listing agents see offers from multiple firms. When you have ten offers on one property you can expect to see at least three versions of an inspection contingency, two appraisal contingencies, three radon testing contingencies, a couple of modifications to the financing contingency, and a variety of random contingencies for the buyer to complete due diligence.

Do listing agents read the contingencies of each offer, every time, before they present the offer to their home selling clients? Some do. Rarely have I met a REALTOR who is in the business of real estate because they love contract work. For some reason, this contract dependent field is loaded with contract averse practitioners.

Protect Yourself. Poorly written contingencies put you in a bad spot when the problem they created comes to a head. At Essential Real Estate we make it our business to know the terms of every member firm’s contingencies. Our clients reap the benefits our knowledge and they avoid the headache of being trapped in a flawed contract.

drafting flaws. the avoidable cause of rejection.

Beyond the price and closing date, a typical offer to purchase might include ten to thirty pages of standard conditions. Attorneys participate in building the form REALTORs use to draft purchase proposals. Attorneys know every word and every sentence, and every punctuation matter to the interpretation of the parties’ intent. Brokers, licensees, and government officials on form committees have input too. With so many cooks in the kitchen, there’s a good chance the soup they produce will have flaws. 

Given the choice home sellers are wise to commit to buyers who submit offers that can become enforceable contracts. Ambiguity is one reason for a judge to determine an agreement is not a contract. Alternative meanings the parties didn’t agree to is another. I’ve seen enough to know four out of five offers have a flaw that may render them unenforceable, or insufficient for the owner to accept. A counteroffer to clear the deficiencies or errors is unlikely when an acceptable alternative offer is in hand.  

Company Addenda are frequently modified to fit with the current versions of an approved Offer to Purchase document. The creators have the best intentions in mind. And still, the forms go into use with flaws that will cause some sellers to accept another Offer over one that would have been accepted had it not had the defect. I’ll give you a few examples from a 2020 Version of one firm’s Addendum.

  • Financing letter: Buyer shall deliver to Seller written verification that Buyer has been Preapproved for financing, which may be based on criteria such as satisfactory credit history, employment verification, buyer income, and debt ratios. 

What does the company mean by “…which may be based on criteria…”? Is the better word SHALL? I don’t know if may means, might be, or is permitted to be.  Is this ambiguous? Ask a lawyer. The answer might depend on which side is paying the legal bill. 

  • Personal Property: Parties agree that all appliances and personal property included in the sale will be in working order at the time of closing…All personal property in the Offer has no monetary value…

Check with an attorney to decide whether it is safe to prepare a document where the parties agree that personal property left on site has no value to either party. Is it logical to assume if a person wants the thing to be in working order that it does have value if it’s working? I don’t know. I have an opinion. And if the parties do believe there is value, why am I having them sign a form that says something contrary?

  • Earnest Money: If this offer is rejected by the Seller, withdrawn by Buyer prior to acceptance…then the Earnest Money shall be returned to Buyer within 3 days of rejection, withdrawal, or termination. 

A licensee must promptly deposit Earnest Money in a trust account. Let’s say a buyer submits an offer for a property and includes a $10,000 Earnest money check. An agent receives the check. The clock begins ticking on the time the broker has to deposit the check. Assume the check is received on January 11 and deposited on January 12. Later on January 12 the Seller rejects the Offer and accepts a competing offer. Buyer and Seller agreed the $10,000 will be returned by the end of the day January 15. Who has the money? The Seller doesn’t. Maybe the listing broker has the $10,000. Maybe the check has not cleared within 3 days. Can the Buyer take action against the Seller, and does the Seller have a complaint against the listing broker?

An agent who reads and comprehends the terms of the contract should catch these issues. When I present offers with suspicious terms I suggest the Seller get a lawyer’s opinion. As a broker, I will protect my firm from any complaint arising over a dispute related to drafting. These issues may appear to be small. They’re not small when they cause the Seller to move on to the next Offer. That’s unfortunate for the clients. 

Review your addenda and the addenda that comes with an Offer for flaws and ambiguity. Sure it could get cleaned up on a counter. To be the Buyer to beat, you want to be the Offer that doesn’t need fixing.

pay the seller’s share of property taxes. nobody Thinks of this. So use it.

When you realize how to outbid the competition requires more than just the purchase price, you look for places where you can take advantage. No one thinks of this idea. If you use it, a seller will undoubtedly take notice. The Seller’s attention is what you want, and forcing all other buyers to beat you is the way you want the conversation to go.  

Property taxes that accrue from January 1 through December 31 get prorated at closing. Assume the annual property taxes for a house will be $7,000.00. The monthly proration is $583.33. To close on February 28 there will be $1,167.00 in taxes due. The standard language of your real estate purchase agreement might call for the Seller to pay taxes from January 1 to the day of closing. That’s a negotiable item. 

Buyers who have cash on hand advantage can consider changing the contract from Seller paying to buyer paying the two months of taxes. For the small price of $1,167.00, the return could make the difference. Remember, the price is where the attention is, until the Seller looks at selling expenses. An owner decides between one offer and another by comparing Net Equity and the commitment of the buyer. (Security of getting to closing). Increasing the Seller’s net equity this way has an exponential positive impact on the buyer.   

  1. Grabs the attention of the Seller because it’s unique
  2. Causes the Seller to see your offer beats the others on this point
  3. When you have what they don’t they don’t look as good as you
  4. You just gave the Seller a gift of $1,200 
  5. Let’s the owner feel they were clever negotiators shifting their bill to you
  6. If property taxes are deductible on your tax return, you get the write-off 

The difference between first and second place is most likely minimal. Any advantage might be enough to put you in first place.

I Agreed To What? Be Sure You Know What, BEuyond the price, you agreed to permit and accept.

We think about the Offer’s price before putting our signature on the paper to confirm that we accept. I’m reasonably sure every home seller knows the price and closing date they agreed to when they accepted an offer. Many of the other commitments they made and escape avenues they granted to the buyer may not be unknown, but they are often not understood when they say YES to a price. 

We get one shot to get it right and avoid the kind of worries that wake a person at 3:00 AM. Watch for these conditions:

  1. Earnest money of 1.0% might be common, but this is an uncommon market. Maybe earnest money should be enough to cause the buyer pain if walking away became an option.
  2. Property Taxes. If your standard offer form requires you to pay a pro-rata share of property taxes, make sure you know. Tax is a negotiable item.
  3. Financing Contingency. This contingency is not always what it says it is. The buyer may not have promised to prove they have the money in hand before closing. A commitment to lend might be all a buyer gets and uses to verify they satisfied the contingency. If you want more assurance before closing, decide what that is and prepare the proper condition to include before you commit.
  4. Did you agree to permit an inspection of the house and testing of anything? Inspection and testing might have different definitions in a purchase agreement. Inspecting the furnace to see it’s working is one thing. The methods used to determine air quality, lead, mold might be defined as tests. Did you agree to allow a test when you decided to permit inspecting. The presence of some conditions stays with the property for the life of the property. A positive lead test must be disclosed at the next sale and on and on. You can calculate the financial cost a positive test has on the value of a house. It’s more than you’ll like.
  5. Appraisal. The appraisal contingency made its way into purchase agreements when buyers had the upper hand during the recession. Like a tax, contingencies like an appraisal hang on long past their useful life or intent. There was a time when a buyer had a real reason to fear they might overpay. When few sales occur, the value of any property determined by comparison may go down quickly if a couple of people sell below value. In today’s market, buyers are pushing prices to new levels. Who’s responsible for the property not appraising for the purchase price? It may not be you, the seller. Be careful that the contingency doesn’t allow the buyer to bring you back to talk about the price should the appraisal be anything less than the purchase price. A thousand dollars of leverage open everything for discussion. 

It’s still a seller’s market. As long as it remains, you can get a great price and easy terms. The kind you won’t worry about every night for a month. 

Negotiate Fearlessly.

Negotiate Fearlessly. Buy your house in a Seller’s Market.

What do you think is the number one reason given to explain why the home seller did not accept your Offer? If you said price is the deciding factor, you might be right. A proposal to purchase can be 10, 20, 30 pages long. Price takes up part of one line of a standard purchase agreement. Get that one little thing wrong, and you’re going to get rejected. That is true if everything else is equal. Your Offer should never look like all of the other Offers, and a lot of the other Offers will look a lot alike. 

Exploit the FEAR advantage. Clients of Essential Real Estate have the benefit of their REALTOR’s expertise with the purchase contracts. By knowing more about you, your ability, commitment, and lack of fear, we give our clients more ideas to improve their Offer without increasing their price. Understanding the consequences contingencies have on home sellers allows our clients to decide if the contingency belongs in the Offer or not. You need to know that all contingencies are solutions to a fear somebody has. When somebody is not our client, the contingency has no place in the Offer. Something that’s a risk to me might cause me to be afraid and in need of protection. If you don’t see the same thing as a risk to you, protecting you from it only weakens your Offer. 

Change the conversation. Change your thinking. Owners are focused on price one time in the transaction; when they first review offers. Their concern for the rest of the study is the one that will keep them up at night for the next four weeks until closing. Fear of failing to close on the terms agreed upon will stick with a seller long after they commit to a price. Essential Real Estate clients receive ideas to alleviate fear for the home seller by wiping the Offer clean of nonessential conditions. We call this strategy changing the conversation. If beating others on price is not your strength, but flexibility and commitment are, we want to change the conversation from price to security and safety…for the seller. 

Competition is an Illusion. At Essential Real Estate we see our clients as the people other people have to beat. Real estate is a standardized form of business. Standardized forms make it easy even for contract averse agents to write Offers. Therefore we expect eight out of ten offers will look the same enough that when the owner says no to one, she’s saying no to all but two. At worst, you might be competing against one person. Our objective is for the best scenario. You always have some advantages to write into your Offer to make it the one everyone has to beat. We find those advantages by asking questions and listening to your answers. 

You can buy a house in a seller’s market. The talk on the street is 2021 will be another hot seller’s market. Hire Essential Real Estate as your buyer agent and expect to change the conversation to your advantage.

When Interviewing Agents, Ask Better Questions.

When interviewing real estate agents to sell their homes, owners have been asking the same questions forever. Even in modern times where our resources to possible questions go way beyond books with a moldy copyright date, we still get the same dribble. Google the phrase “Questions to Ask a Realtor?”

About twenty-two million hits include top answers like:   How long have you been a realtor? Have you sold homes in my neighborhood? What’s your list price to sale price ratio? Can I see your real estate license?

I could list more, but they get more pathetic. No one wants to read this stuff. There are smart questions to ask a Realtor if you want to find out if and how the agent can help you accomplish your goal. These rarely asked questions will reveal if you are talking to a person who thinks and solves issues. I come prepared to bring these questions into the conversation because making a decision on facts that require thinking and matter to the outcome are more useful. Consider these:

  1. From what you’ve heard today, please tell us your understanding of what’s important to us. 
  2. What problems have you encountered with your clients in a situation like ours, and how did you resolve them?
  3. Considering what we need to accomplish, what should we be aware of in an offer? What are the things that will be risky for us?
  4. Describe what happens once the information goes into the MLS and take me through your plan to the day we look at offers. 
  5. Multiple offers are likely. Please tell us how multiple counters work and your experience using them. 
  6. Please share an example of something you spotted in an offer brought to the seller’s attention, and they avoided it.
  7. What examples do you have of how you cooperated with other brokers, and the results were good for your client?
  8. How did you and or your firm decide your commission rate should be _____?
  9. Will you agree to a lower rate? If the answer is NO, ask, Have you or your firm ever charged a lower commission?
  10. I was hoping you could give me one idea that you know that other agents probably don’t that you know will either increase my final net.
  11. OK. I know you want to show me your company’s marketing plan. I’d like to see it. How much will it cost your firm to run this plan?

 We are Essential Real Estate. The insight you will get from a conversation with us will change your outcome for the better. We’re also going to increase your final net by at least 2% compared to brokers who charge a commission of 6%. Simply by charging a fee tied to the power of the market.

We will show you our value is in our ability to represent you with smart negotiation strategies. We show you how important it is for you that we keep your business confidential. We show you how the terms of offers unless modified, are dangerous/risky for you. We show you how we will prepare for a smooth transaction by eliminating buyer opportunities to surprise us late in the game. 

You don’t just want your home sold. You want your home equity for your next plan. The more of your equity you keep, the better. We make sure you keep more equity by charging a better rate and protecting you from things that can go wrong at the worst possible times. 

You’re home will be sold regardless of who you hire. What you keep and what you lose are determined by the skill of your agent and the cost of the service.

Escalation Clause Deficiencies

At a young age, we learn to compare apples to apples. Sesame Street taught generations of kids to find one of these things that’s not like the other. Law schools teach students to make oranges appear to be apples and make anything look like something other than what it is. Versions of the real estate escalation clause (sometimes called acceleration clause) are either poorly written or crafted with cunning.  

Pay More Than The Net Purchase Price of a Competing Offer

On page 1 of my Offer, the purchase price compared to the purchase price on page 1 of another offer compares apples to apples. Purchase price on my page 1 to the Purchase price on the competing Offer’s page 1, MINUS credits and concessions, compares apples to anything but apples. 

My Purchase Price Compared to Your Net Purchase Price. Did you think the comparison was purchase price to purchase price or net purchase price to net purchase price? Look again. Here’s how this comparison might play out:

My Offer is $300,000, and I say I will pay $2,000 more than the Net Purchase price of a competing offer, up to $310,000. 

The competing Offer has a purchase price of $308,000 on page 1. Net purchase price is defined as any monetary contributions by the seller outlined in the competing Offer: purchaser closing costs, credits and property prorations.

The first glaring red flag is property prorations. If property proration means property tax prorations, and the tax proration is $10,000, the seller shall credit the buyer $10,000, reducing the competing Offer to $298,000. ($308,000 – $10,000) By comparing e my purchase price to the competing Offer’s NET, my price is not moving from $300,000. (Nothing for the seller to worry about as long as the listing firm’s commission can cover the $10,000 error. )

Define The Terms. Do The Math.

Listing agents who do the math exactly as called for in the story problem escalation clause will protect their clients from stumbling into this mess. Buyer agents who know their clause are comparing anything but apples to apples will protect their clients from paying more than the parties agreed to or getting their Offer rejected because it didn’t do what the agent thought it did. 

One idea—If the escalation clauses are not what they say they are, avoiding them might be prudent.  Consulting an attorney is your first level of protection.

Love Letters to Sellers: Fair Housing Violations Slip in; Knowingly or Otherwise.

*A letter to the seller: We are Brittany and Kristopher Austin. Our daughters are Elizabeth and Michaela. The crowd of people at your open house today is a sure sign you will have more than a few offers to consider today. We just sold our home, and we know it is challenging to know you’re selling to the right family when all you have is an offer to purchase to consider. Our realtor suggested we add a letter and a photo to our proposal to help you see your home will be a perfect fit for our family (Our two girls might be the same age as yours were when you bought the house.) The photo was of our family volunteering at the Save The Lakes day last summer. It was fun to see it’s a cause you’re interested in too. (We also distribute Thanksgiving turkeys to less fortunate families each year.) We would love the opportunity to join the neighborhood of West Elm. I noticed your girls graduated from St. Mary’s Academy, where our girls are in the 3rd and 5th grades. We are St. Paul’s church members, and living just two blocks away will make it easy for Kristopher to continue leading Bible Study for adults. P.S. Like you, we are graduates of UW Madison, where we met 15 years ago. 

*A fictitious letter from a fictitious couple made from actual sentences I’ve seen in letters to sellers.

National Association Of Realtors on Love Letter Liability

Since 2017, I’ve written about this practice as trampling on Fair Housing Laws. The messages contained in letters like this, intentional or not, take the conversation of the transaction into Fair Housing Violation territory. REALTOR members who disagree with me tell me “Love Letters” help their clients get their offer accepted in competition. I see what the members are saying. And that’s why the practice has no place in real estate transactions.

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.