Friday Freebie: Chapters 11 & 12 from my book Sold Above Market

By
Real Estate Agent with Mosman Neutral Bay Realty, Sydney Australia License #1398412

Sold Above MarketChapter 11: Negotiating and handling offers

AT EVERY property that’s open for inspection, agents will meet a range of buyers who will be in different stages of preparation to buy a home. Some are researching the neighbourhood, the street, the house and the price and trying to see what type of home they can get for their money. Even if they fall in love with a house today, it may be too soon in their research phase to buy a home; they may feel they need to see more homes to understand the area and to see what value looks like.

When an agent meets a buyer, it’s important for a real estate agent to qualify where they are in the buying cycle. The buying cycle includes:

  •        The research phase: This is where buyers are looking at both the area and the types of home and lifestyle choices available to them.
  •        The finance phase: This is where buyers have qualified for a loan and know what they can spend and are now trying to find the best value home for their money.
  •        The decision phase: Where buyers are short-listing homes and making offers to try and buy one.

By understanding their emotional position, the agent can provide buyers with background and educational information that will help them move to the next step in securing a home which is making an offer.

Handling offers

Every real estate agent knows that a buyer’s first offer is probably not their last offer. By making an offer, buyers are initiating a negotiation; they expect the agent to come back to them with questions or even a counter-offer. Some agents simply come back to them with a yes. The agent who is an order-taker rather than a negotiator will rarely challenge the buyer over price, particularly when they themselves feel that the offer has merit.

Many agents behave like the price police and protect the buyer and the seller from the negotiation process. The agent who is working for the seller has an obligation to set their own thoughts on price aside and discuss the offer with the buyer to find out why they offered the figure they did and what would happen if the owner said no. It’s a simple conversation that many agents shy away from. Some are so excited to actually have any offer at all for a home that they suddenly change sides and defend the buyer’s price to the seller as being their best and final price, when in fact they haven’t challenged the buyer at all.

The real estate agent can influence the sale price by simple negotiation between a willing seller and a willing buyer. Equally, a poor agent will leave thousands of dollars on the table by not asking the right questions. Which agent do you want representing your sale: the order-taker or the negotiator?

Conditional offers

Some buyers have a range of conditions that they wish to impose on the seller in order to place their offer. A conditional offer may not be in the seller’s best interests, so the agent needs to discuss and negotiate with the buyer to see if they can remove the conditions. A non-conditional offer has a much better chance of moving forward to completion than an offer which has strings attached. It should also be said that the standard contract of sale has contractual conditions which are at the request of the seller and some buyers want to vary these conditions to meet their own circumstances. Requesting to change a special condition can form part of an offer, along with the dollar amount. For instance, a buyer who offers an above-market price on a home but needs more time to finalise the deal may be less attractive than a buyer who is $5,000 short but can finalise the deal quicker. Each offer needs to be considered on the seller’s terms to appreciate what is most important to them. The highest price with strings may be less attractive than a lower offer without strings.

Responding to objections

Much of an agent’s discussion with buyers is around the home they’ve seen and whether it’s a good fit or not. When a buyer has a checklist and the home ticks seven out of ten boxes, the agent needs to impress on the buyer that the home is actually 70% right for them, not 30% wrong for them. Some buyers get caught up trying to find the perfect home and can’t see that a home that meets more than half of their intended criteria could, in fact, with a few tweaks, be their ideal home; it’s just not perfect, right now.

Every buyer wants to put their mark or stamp on a home to make it their own. They will start with a list of the things they don’t like about the home; often, this is a list of cosmetic changes that they believe will make the home more liveable for them. They also attach a price estimate to these changes and then want to deduct the associated costs from their offer. A good agent will know how to respond to this tactic and keep the buyer interested despite their apparent dislikes.

Opening negotiations

Buyers will often inspect a home and ask, “What is the lowest price the owners will take?” And a good agent will respond with, “Let me ask you, what’s the highest price you’ll pay?” You can see that you need an agent who is working for you at every turn, not an agent who is desperate for a sale.

Your agent should only accept a written offer from a buyer because a verbal offer will often just cloud the negotiation, especially if the buyer is not prepared to put it in writing. There are many myths about making an offer on a home; the most common myth is that if a buyer makes an offer, they have to honour it. In reality, both the buyer and the seller can change their minds at any time right up until the offer in writing is accepted and signed off unconditionally. The only binding offer is when contracts are exchanged unconditionally; up until then, either side can change their mind and change their offer or acceptance.

While your agent is working hard to extract every last cent from the buyer, bear in mind that the buyer has on-costs as well, and if the agent pushes them too far then they may feel that they cannot afford the property and change their mind. In addition to the agreed price, the buyer will pay local taxes, stamp duty, legal fees, re-location and moving charges and may have some immediate remodelling to do, depending on the condition of your home.

When a buyer is stretched to the limit, they enter the buyer’s remorse phase and could easily feel that they cannot afford the home and pull out of the deal. While we all want top dollar, buying a home is a person-to-person transaction and we’re all different, so it’s wise to negotiate with an understanding of what the other person is experiencing to avoid buyer’s remorse and maintain the excitement of a new beginning.

Bargain hunters

Every home for sale will attract its share of bargain hunters –buyers who are prepared to buy any house as long as the price is low. They have little emotional commitment; they are only interested if they can buy the house below market. They may plan to flip or resell the home with minimal input, so the only interest they have is in getting it cheap enough to make a profit with little effort. Unfortunately, some agents do sell bargains and will befriend these buyers to get a sale, believing that any sale is better than no sale. At least they’ll get paid, and the buyer might give them the house back to sell again, once they’re ready to flip it. Anyone can sell a house; only a great agent will achieve a premium price above market.

A bird in the hand

You put your house on the market and seven buyers express interest. One buyer makes an offer that’s at an acceptable level but it’s just not an exceptional price. You have a bird in the hand. Many of the other buyers are looking and talking but none are making offers. What do you do? The buyer who made the offer wants to move forward and is getting anxious because you won’t give them the go ahead but you’re hoping that one of the other buyers with interest will jump in with a better offer. What if you lose the bird in the hand while waiting for another offer? This is a good example of where you want a great agent representing you who’s an experienced negotiator, not just an order-taker. As you know, the agent you choose will influence your final sale price.

 

 

 

 

Chapter 12: Expect the unexpected

SELLING A property is not without its risks. When you choose an agent, be aware that how the agent manages all the ups and downs along the way will determine the final sales result. You need an experienced agent who understands the risks and manages them to a successful outcome.

Every property sale starts with a contract of sale which is the basis of the transaction. From that moment on, anything could happen. Your location and local laws will determine the legal process and the delivery and interpretation of what is required to bring a sale to a successful close.

Some of the unexpected obstacles that could present themselves might create some tension, possibly some argu -ments and even some tears. Many of them are outside your agent’s usual scope of business. However, a great agent with a clear head and experience will work for you to deliver the very best result, whatever happens. Settlement or closing day is the day everyone is looking forward to; it signals the end of the sale. The seller will have vacated the property and be living somewhere else by now, sometimes in a rental property while they are looking to buy again and sometimes they have already moved into their new home. Settlement day is the day the money changes hands and there’s nothing more exciting than that.

The buyers will also be excited; they are waiting for the cleaners to finish and to get the go ahead to move into their new home and start their new life.

The agent is excited because they are about to hand over the keys to their new client, the buyer. They are starting a new relationship in their selling area with a new family and maybe one day this buyer will become their seller and they will start the whole process again. It’s also exciting because the agent will be getting paid in a day or two.

Until settlement is finalised, it’s important to remember that the property is still the legal responsibility of the seller. They must maintain the property to be able to hand it over as good as when the buyer saw it last and they must maintain insurance cover and continue to handle utilities to ensure a smooth handover.

What could go wrong?

Where do I start? Any number of things could go wrong. Here are a few drawn from my experiences: The buyer dies before settlement/closing

Yes, it does happen from time to time, either as the result of an accident or if it’s just their time. Although this will be a very stressful event, remain calm and be sensitive to individuals’ needs and worries; you can expect your agent to do the same.

Not all the paperwork is provided

Sometimes this happens. There are lots of papers involved and any one of them could go missing or be perceived to be missing. Stay logical and work through the process to ensure both sides have what they need to proceed. There is no point blaming anyone; just focus on the end goal and let your professional support team do their job.

Unexpected delays

These can occur on either side. Sometimes people are travelling and not physically able to sign a document or attend a meeting, or they’re waiting on a report from a third-party that’s not forthcoming. There are so many legitimate reasons for delay and yet some buyers and sellers get a little crazy and want to impose unrealistic deadlines on the other side. Deadlines don’t help. Sometimes it is nothing more than a delay. Everyone is still on side but they are just being held up, so take a deep breath and imagine you’re in their shoes. Poor pest or building report

When selling their home, most sellers want to believe that everything about their home is fine; they believe there’s nothing to worry about. They know there’s a funny smell after heavy rain but they ignore it; they know the floor slopes downhill a little in the hallway but they put a rug down; they know that they’ve let the pest inspections lapse because there was no problem five years ago. However, lawyers like to insist buyers have a pest and building inspection as part of their due diligence, even if one is provided by a seller, as it may not be deemed to be ‘independent’. Building inspectors are entrusted with reporting back if they find anything that isn’t quite right. Even brand new construction is going to have things that aren’t quite right. It can be an emotional rollercoaster for a seller to be told that the home is less than perfect and an equally emotional ride for a buyer to be given a list of defects.

The agent then becomes the meat in the sandwich, mediat -ing a potential disaster where the buyer is discounting the price by their own calculations depending on the report and the seller is not acknowledging any problem or issue. It could get worse; if live termites and insects are found, that takes the disaster to another level altogether. The agent is the only one authorised to speak with all parties, that is both the buyer and the seller, both their lawyers, and the inspector, so the agent has to mediate to ensure the deal moves forward. In this case, your agent is like an airline pilot. Flying the plane looks easy until there is a problem and then it’s experience that really counts.

Undisclosed items

Different suburbs and states have different rules about disclosure but, generally speaking, sellers and their agents have an obligation to disclose anything that may adversely affect the buyer’s desire to buy the home. Even with the best intentions and checklists, sometimes something isn’t discovered until it’s almost too late, so be aware that buyers have rights. Withhold -ing knowledge can be a very costly decision for many reasons.

Weather damage

Recently, my area was hit by gale-force winds, hail the size of your fist, and torrential rain that left hundreds of properties physically damaged, many of them uninhabitable. Electricity was off for days, food spoiled in refrigerators, roofs were blown off and ceilings collapsed. There were broken windows and water damage throughout homes, including damage to carpets, floors, cupboards and walls. I noticed at least a dozen homes in the area had For Sale signs and another dozen had Sold signs. This was literally an unprecedented and unexpected disaster that affected every buyer and every seller who could not proceed with their plans until restoration was complete. Can you imagine the conversations the agents were having with buyers and sellers? The buyer changes their mind and does not proceed

Yes, it can happen. The buyer can be spooked by discovering things they didn’t expect to find and they can pull out. Most states have contracts that are either final or pending closure. Buyers may have the choice to move forward conditionally or unconditionally, so there is always a chance that they could simply change their mind. Buyer’s remorse can be costly; the buyer might not proceed simply because they feel that they have paid too much. Buyer’s remorse is real. The agent has negotiated the buyer to the highest price possible and if they are really uncomfortable at that level, they may cancel the sale altogether, sometimes with a small financial penalty, some -times without any penalty.

The home doesn’t meet valuation

Unless a buyer is paying cash, they are likely to be borrowing money from a bank. The bank will require a valuer to appraise the home to ensure their loan is safe. Depending on the size of the loan and the buyer’s deposit and ability to repay the loan, if the valuer decides the risk is too great, then the bank will not proceed and the buyer is unable to finance the home at that level. It’s a risk you take if the buyer is paying too much and can’t afford the home. Your agent might float the idea of vendor finance with the seller. It’s not ideal but it might be an option. Everyone’s circumstances are different and often you don’t really know who you are dealing with until the chips are down.

Bad luck

Nobody wants to admit it, however, luck plays a role in every property transaction. Sometimes luck has a significant role and other times not. When you decide to sell a property, you open a window of opportunity for several weeks and promote the property to the available buyers. If luck is on your side, then you find and engage with several buyers who are ready and willing to compete with one another to secure the property. If your luck holds up, they do just that and the property is sold for an outstanding price and everyone is happy.

Sometimes, however, you can have no luck at all and go through the whole exercise without finding a buyer who shares the value of your dream. Worse than no luck is bad luck, when you do find a buyer but for some inexplicable reason they are unable to complete.

Changing agents

I’ve seen homes for sale for so long, even the signboards are looking tired! Either the agent is not doing their job by not finding a willing buyer to buy the home, or the seller is not listening to the market and still wants a price that the market is not willing to pay.

If the agent is not doing their job, then, as the seller, you should fire them and you should interview and appoint another agent to do the job. Check your sales agreement to see how long you have engaged the agent for; if you are unhappy and the agent can’t resolve things to your satisfaction, fire them.

On the other hand, if the seller is not listening to the market, then the agent should fire their client and they should interview other sellers to find one who is motivated and willing to listen to the market.

Either way, the seller is changing agents and the tired signboard will soon be replaced by a fresh new signboard and the whole process starts again.

A satisfying selling experience

The reason you decided to sell your house was to achieve a great result. The real estate agent you chose to go on this journey with you is the one who demonstrated that they were the best agent for the job. With the agent’s strategy and process and your fair share of good luck, avoiding the pitfalls above, you’ve now sold above market and have enjoyed a rewarding and satisfying selling experience.

Real estate agents love testimonials. They’re only as good as their last job and every happy client that tells a friend brings them one step closer to being hired by someone that seller knows. If you’ve been happy with your real estate agent, don’t hold back – write them a great testimonial to say how happy you are. Your kindness is appreciated and your real estate agent will share your testimonial with their next potential seller as part of their presentation. There is nothing more powerful than good word-of-mouth support. You can also leave comments on independent websites that rate real estate agents’ success so that others can see at a glance who is delivering results.

Spread the good news and make it easy for the agent to be recognised for their excellent results.

Posted by

Geoff Grist

Mosman Neutral Bay Realty, Sydney Australia

Comments (2)

Mark Loewenberg
KW of the Palm Beaches - Palm Beach Gardens, FL
KW 561-214-0370

wow way to detail what is going on with buyers and sellers during offers!

Mar 27, 2016 07:03 AM
Geoff Grist
Mosman Neutral Bay Realty, Sydney Australia - Sydney, AU
Author of Sold Above Market book

Hi Mark if you wish to buy my book it is available through Amazone online

http://www.amazon.com/Sold-Above-Market-Geoff-Grist/dp/0994256035/ref=sr_1_2?ie=UTF8&qid=1459200484&sr=8-2&keywords=geoff+grist

  thanks for your support

Mar 28, 2016 07:30 AM