In the most recent post in this buyer representation series, Buyer Representation ~ Finding the Right Home for the Right Price, it was discussed that buyers that have their own representation are entitled to counsel from their buyer agent. Part of the counsel was offering advice, and the other part was providing a comparative market analysis (CMA) to buyers to help them to determine their offer price.
This counseling is based upon the educated opinion and factual data compiled by the buyer's agent. Both of these tools are very helpful, although the counseling does not end there. Buyer clients are also entitled to the disclosure of any facts that can give them leverage during negotiations with a seller.
If you have not yet read the article in the series addressing the client vs. customer relationship, I would suggest doing so to fully understand the fiduciary duties that are owed to each. In short, a buyer agent has a fiduciary duty to a buyer client, but buyer customers are working with an agent that has a fiduciary duty to the seller. The difference between the two is that buyer clients will be armed with information to help them in negotiations, while buyer customers run the risk of divulging information that will be disclosed to the seller and used against them in negotiations.
So what kind of information can buyer clients expect to receive?
Home Seller's Motivation - Home sellers, and even listing agents for that matter, often times divulge information about the home seller's motivation that cannot be shared with customers, but must be shared with clients. As a buyer, would you like to know why the seller is selling the home? Do you think that certain information could be useful in trying to negotiate a home purchase for the lowest price possible? Do you know what kind of information is typically the most helpful to buyers? The following is a list of factors that buyers can use to their advantage in negotiations if they are aware that they exist.
Divorce - It's no secret that many relationships today end in divorce. Often times when this happens, couples are forced to sell their home so that they can divide the assets. This is especially true when neither party can afford to buy out the other to keep the home. Since the parties getting divorced are trying to move on with their lives, they can be very motivated to sell.
Estate Sale - When a home is being sold to divide the estate between heirs, there is motivation for a quick transaction. Aside from the emotional issues and the need for closure, the heirs also must maintain the home until it is sold, and dividing this task is not always easy. This is especially true when the heirs live out of town. Another reason that the heirs are motivated to sell is because they must continue to pay real estate taxes and the mortgage if there is one.
Financial Distress - Foreclosures and short sales are on the rise, and this is likely to continue for the foreseeable future, especially since so many adjustable rate mortgages are about to reset to higher interest rates in the next few years. Sellers that have equity, but can no longer afford to keep their homes are going to be forced to sell. Often times, they will wait too long, and put themselves at a disadvantage in the negotiations, especially if they run the risk of having to do a short sale.
Dead Deals - When a deal dies it can put the sellers into a desperate situation, particularly in markets where home prices are declining. This situation is not that uncommon in today's market. Having knowledge of any deals that died, including the timeline and pricing information, can be very helpful for the next buyer to have.
Relocation - While most of the information that can give buyer clients leverage is negative, this situation could be a positive for the sellers, yet still put them at a disadvantage in negotiations. Many times, people that are relocating are on a tight timeline to get a deal done. When dealing with a relocation company, the sellers are usually given the opportunity to sell their home for the highest possible price by a specified deadline. Once the deadline is reached, the sellers will have the choice to sell privately, or sell to the relocation company for a pre-determined price. When the clock is ticking, sellers are generally more motivated, and buyers can use this information to their advantage.
Seller Bought a New Home - In today's market, this situation is not as common as it was during the peak of the seller's market, but it does happen. Whether it is because the home seller had the financial security to own two homes at once, or they were just very confident that their home would sell quickly, the fact of the matter is that home sellers in this situation have very little leverage when it comes to negotiating. Aside from the holding costs, there is also the issue of maintaining two homes, and the security risk of having a vacant home. Knowing this information gives a buyer client a distinct advantage in the negotiations.
Listing Status - Buyers that are new to the market may think that a home is a new listing, but it is very possible that the home has been on the market for some time, at various prices, and with different brokers. Knowing this information can give the buyer leverage in negotiations. Other information that will be shared with buyer clients is the length of time that the home has currently been on the market and the history of price reductions. Listing agents also mistakenly put confidential information in the remarks that only other agents can see. This information will be shared with buyer clients, but must not be shared with buyer customers.
Bottom Line Price - In their zeal to get the home sold, home sellers will sometimes divulge their bottom line price to agents during showings. It is a mistake to divulge this information, because it can be used against them by a buyer's agent. Listing agents also make this mistake, especially if a home has been on the market for a while, and they are starting to feel pressured to get the home sold. Again, it's a mistake, but one that could work to the buyer client's advantage.
As you can see, buyer clients can use information to their advantage. It should also be noted that buyer customers often divulge confidential information that can be used against them, due to a false sense of security, and the relationship that they've built with the agent that they are working with. The most common mistake that buyer customers make is telling the agent that they're working with how high they are willing to go on the offer price.
This series has provided a lot of reasons why buyer representation is advantageous for homebuyers. However, it is still not the norm on Long Island, and many homebuyers will have concerns about signing a buyer broker agreement. When this series continues, the common concerns that Long Island homebuyers have about buyer representation will be addressed.