Principles of negotiation. Books have been written about it. Speakers travel the world lecturing about it. Millions have been spent trying to uncover the secret. For some, it will remain an abstract principle they will sadly never master.
A few weeks ago I had the chance to speak with a fellow for whom negotiations had not bee
n a kind mistress. This fellow, we'll call him Stanley, set out to buy a home for his family and ended up outmaneuvered by a more skilled negotiator into a contract he now wishes he had never signed.
Stanley and his family had been renting a small house in Fairbanks for the past couple of years. It was comfortable and the price was right but with the changes in the housing market, he hoped to make the transition from renter to owner. A yard for his children to play in... a place in which to make memories of opening presents on Christmas mornings and birthday BBQ's on the deck. Reasons which we can no doubt all relate to.
When Stanley found 'the house' he sat down with his lender and later the seller to hammer out the details of a purchase agreement. The seller was ready to sell... he and his wife had plans of moving to be closer to their grandchildren and were ready to take the house off the market.
"Let's get this done and get you moved in." Motivated seller. That's good, right?
Having watched HGTV's endless parade of real estate programming and read every real estate article he saw on MSN, he had a plan. Take the purchase price, slice 10% off the top and negotiate up from there, if necessary. Armed with his offer strategy, Stanley and the sellers put pen to paper and in short order had a mutually agreeable contract.
"10% off the asking price and the seller agreed to pay $5,500 toward our closing costs if we would waive any contingencies and close in three weeks." The anguish was palpable as he told me the story. He ddn't need to continue... I knew the house and where this conversaton was going.
"Earnest money was placed in escrow with the title company. An appraisal was ordered and we were planning furniture placement." Imagine Stanley's surprise when the lender calls to say the appraisal came in... well... a little low. Seems as though there's a near $37,000 difference between appraised value and the contract price.
A call to the seller turns the butterflies in Stanley's stomach to catapulting, trapeze-flying monkey's trying to 
claw their way through his belly button. No re-negotiations. "You agreed to remove the contingencies for the 10% price reduction and the $5,500 in closing costs I'm paying" replied the seller. Hmmm. Now what? This is where Stanley begins his search for answers and where he lands on this blog and calls us for answers... guidance... absolution... something.
Unfortunately the only truly helpful advice I could offer is a referral to a reputable real estate attorney. Where and how did the train heading to paradise go so far off the tracks?
Representation - Stanley had none. No buyer-agent representation. No legal representation. Nothing. Mano-a-mano as it were. Given the complexities of contract law, finance, discovery, disclosures, etc. representation is key. A buyers-agent is the buyers advocate in a transaction. What a concept, huh? Their primary responsibility is to protect and promote the buyers interests. Most of the time said representation comes at little to no cost to the buyer.
Research - If you don't know the local real estate market, you need to hire someone who does. A sellers asking price is simply a number. Unrepresented sellers are notorious for having an inflated opinion of their homes worth. What are comparable homes selling for? How long is it taking to sell those homes... and how does that compare to the subject property? You need detailed market information... and someone to interpret that data.
Last but not least, forget the hype. Not even HGTV, your Uncle Bob in Poughkeepsie or Donald 'Combover' Trump will be much help in crafting a negotiation strategy in Fairbanks, Alaska... or in any market they're not well versed in. When the time comes to buy a home for your family, and now is a pretty good time, rely on a local expert. As luck would have it, I happen to know a couple.
(gold man image courtesy of Guido Jansen)
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56 Comments on The art of the deal...or not
I've had to deal with the buyer who insisted on putting in really low offers, based on advise of the Realtor her mother knew at church that basically the banks were desperate and all the investors where paying $75,000.00 under asking. After tons of work she dumped me when no one accepted her offers. I saw latter she did buy a home and she did not get it that cheap. My satisfaction is that it didn't look that great, the neighborhood has gone done, and she bought last year before the real crash began.
Educating buyers that there may be multiple offers and they might need to go higher than asking for a bank owned home is one of the toughest parts of my job.
What a brilliantly written post - albeit sad for Stanley - but very cleverly presented indeed !
Buyers without representation are simply gambling with their future ...
Cheers Jesse !
Sheldon
What a crazy story. Bad things happen when you have a rookie go up against a pro.
I enjoyed reading your post. Sometimes we need to demonstrate our value to the consumer and your story got me thinking of how many things we do that greatly benefit our clients which I should really be including in my buyer consultations.
Great post. I bet this happens a lot more than we know of simply because some people will not admit to being taken advantage of because they "didn't need representation". Hopefully the e/m wasn't very much.
When you don't really know what you are doing, it's very easy to get in over your head.
I guess they watched too much HGTV and thought they had every angle figured. Too bad. This is a stellar reason why real estate agents have significant value to offer in a property transaction.
It hurts just to read the story. I read this and wonder how many people are in or have been in this position that we don't read about. Great example of why a real estate agent is valuable.
These stories scare the crap out of me.
YO-YO-YOOOOOOOO,
My friend you do need to do your research before removing anything from any contract it is your second chute, your safety net. Don't go off willy nilly without a realtor by your side either!!!!!!
Congrats ont the feature.
Hi Jesse...Like Liz, I'm re-blogging.
Hopefully many, many future buyers will read this and realize that "Yes indeeed, a seasoned REALTOR does bring great value to a real estate transaction!".
I am sure Stanley will advise all his friends and family members to seek your advice and representation prior to looking at property.
Kate
You know what? I have been buying and selling Real Estate for over two decades. I think it is safe to say that: Yes! If I were unlicensed I might attempt to sell my personal home myself; However I would never and I say NEVER try to buy a property without the representation of a good Realtor. With all of this said. I have looked at the current situation our Real Estate Market is in and have come to some small and overlooked conclusions. Now what I’m about to say may need to be debated and I’m open for discussion. I feel the Majority of the problems we are now facing were caused by and continues to be caused by allowing unlicensed individuals to Practice Real Estate. Licensing is not only away for governments to collect fees, but an attempt to protect the public at large from unscrupulous acts. No one should be allowed to Sell, resell, buy or otherwise invest in Real Estate without using a Licensed Real Estate agent. Banks should not loan money for Real Estate investment to unrepresented individuals. Practicing Real estate without a License is and should be illegal. We must insist that individuals use a licensed individual. to give advice on or buy or sell Real Estate. This goes for all these investment books, tapes, CD’s and the like. Other professions require a strict licensure. Attorneys, Doctors, Pharmacist, Insurance, CPA’s. Heck the Termite Company must be licensed and bonded. It’s not a fundamental Right to sell Real Estate. I say make the laws stricter and not continue to allow this. Think this over and really look at it. Banks schemed with a lot of unlicensed investors to loan money to the to buy and Sell Real Estate without a licensed entity involved. They called in creative financing? When a Real Estate Agent looks at a “Deal” they should see it for what it is and ask themselves is it Ethical and is it Moral. I have made a lot of money just doing business right. I have backed my clients out of deals that just were rotten and had the potential to cause harm. I take a lesson from my former profession. ”First to do no harm”. Let’s straighten out our industry. Make it mandatory to use a Professional when buying or selling Real Estate. Lets Hold Real Estate Agents to Higher standards and in the long haul we’ll all make money, The investors, buyers, sellers and yes the Mortgage Companies.
Fantastic post! Just sold a home the other day belonging to a seller who had transitioned from "unrepresented seller" to "unrepresented seller who has paid a fee to be in MLS" just the day before. When I presented my offer (at the real market value) he told me he didn't need to respond because he had only been in MLS for a day and was confident he could get his price.
OK, I told him. But let me share with you that the ONLY REASON you got this showing was because you are now in MLS. Further, my thirty years in the business gave me the experience to be able to explain to him why my buyers offer was worth responding to. He was unimpressed. I told him it would be very unwise to discount my buyer because now that Realtors were going to be involved in his sale, he would not be doing himself any favors by pretending that any potential buyers would NOT be getting better advice than he was getting.
He called the next day. We're under contract and he and I are doing just fine!
The Stanley's of the world think they are smarter than the average bear and that's why Real Estate Attorneys charge so much to unwind their"deals" if it's possible.
Jesse and Kathy,
What a story; I agree with Lenn, did these people not have have a "Subject to appraisal" clause?
Jesse & Kathy - Just a superbly written post. The pitfalls of going it alone. I smell a reblog.
When will those buyers learn!?! Why wouldn't you want a Realtor to help you, especially when it won't cost you a cent for professional advice???
Excellent post. I'm not currently a lic. Real Estate Agent, even after going to the classes, getting lic. years ago, I'm not up to speed in the Residential Market so there is no way I wouldn't use a Real Estate Professional when buying a home. This Buyer learned his lesson the hard way, which is what some of us do. I believe that the Seller was asking only what he believed his home was worth so it is not his fault the Buyer took it upon himself to play Real Estate Agent. Good story to use as a reference in the future.
This post was so famiiar that I actually searched for "claw their way through his belly button" and found it had been posted a couple of other times earlier this month. I guess a good post is a good post!! I'm just glad I'm not losing my mind. :-)