Blog : Negotiations

Discernment

Discernment

A few weeks ago, I wrote an offer on a property on behalf of a buyer. This is no feat. There is no trick to this. It’s just a form written by a gaggle of attorneys and I’ll I’m charged with is the ability to fill in a few blanks. My son, at age 15, if given a few practice runs, could handle the document just fine. This buyer had looked at a few houses, decided he liked one of them, and we made the bid. Then we waited.

Sellers in 2018 are not uniquely motivated,  so this property that had sat on the market through the season now ended.  Our bid came in low, relative to the asking price, but high, relative to the actual lasting value of the house. We bid, we negotiated, the seller stalled, and in the midst of this another buyer materialized and purchased the home. My buyer was left out, in the cold. Disappointed, sure, but aware that other properties will, and must, exist.

There are brokers today feasting on the new market attitude. Many of these brokers are newly initiated, fresh to this game and racing to gobble any scraps that they find.  Some have held “clinics”, or so they’re called, to advise buyers on how to craft the winning bid. Others take the social media to explain how they maneuvered to get their buyer’s offer to be the one that the seller accepted. They are the victors, the capable and skilled sherpas who have led their buyers to the top of the heap and who will now rightly claim their commission based prize. All of this is fine, but it’s exactly what’s wrong with the business of real estate and the market of 2018.

We are programmed to want to win. My daughter wants to win her volleyball games. My son wants to be the valedictorian. I want to lead in the year end volume tallies (spoiler alert, I won’t win this year).  Buyers, well, they want to win, too. They want to win that house with the imperfect floor plan and the leaky basement. They want to win because they think the house will work for them, sort of. But mostly they want to win for the sake of winning.  Their agents prod them on, pushing them to bid higher, cleaner, quicker. The goal is the house, after all.

What house? Well, that doesn’t matter. Any house.  It’s just the pursuit that we find motivating. That brings us back to my failed bid and my buyer who very well might have felt great disappointment over not buying a house that they indeed liked.  Was it a big deal that we didn’t get this particular house? Not really. Would I have liked them to buy the house? Sure. But the market today isn’t separated by those agents who succeed in securing the house and by those who fall short, it’s separated by the agents who know the difference between a house worth pursuing and one worth leaving for the uninformed, undiscerning masses.

When the market was soft, discernment was key. Negotiating tactics were key. Timing was key. Today, with a heated market and throngs of buyers clamoring for lake homes, these prior skills are brushed aside in favor of urgency.  A few weeks ago, I wrote a contract on behalf of a different buyer and we were met once again with a stubborn, inflexible seller. We pushed forward and bought the house anyway. Why?  Because the house was worth the pursuit. The house will have lasting value in the market because it is unique, rare, both in setting and in style. Is it nice to win every bid? Of course it is. But there is contentment in knowing when to walk away and let someone else buy an overpriced house.

Multiple Offer Sadness

Multiple Offer Sadness

When I dream, I dream of the good old days. Of the days before these days. The days when things were worse.   I dream of anxious sellers and opportunistic buyers. Of numbers. Of $3.95MM asking prices that yielded $3.25MM sales prices. I dream of the days when agents were leaving the business instead of charging into it. I dream of aged inventory, of sellers begging. I dream of buyers who’d buy something as long as they were buying it cheap. What was that something? It didn’t matter. I dream of these days, of the days that everyone else thought were bad. There’s just something quaint about a poor market.  I’ll forever cherish the memory of those darker days.

But today there’s nothing dark at all. There’s only light. Bright, screaming lights. The market is hot, which you already know because I’ve told you too many times. There are plenty of dangers in this hot market, and unfortunately, those dangers are dismissed by buyers who either don’t know better, or by buyers working with agents who don’t know better. I can’t be certain which is the chicken and which is the egg. In this new era of hurried activity, the multiple offer situation has returned. Buyers bemoan this development. Sellers delight in it. Agents? Well, we hate it.

Over the past few months, I’ve been part of more multiple offer situations than I had been involved in over the previous several years. What’s a multiple offer situation? It’s just like it sounds. The house is listed. An offer is written. The seller starts negotiating that offer.   The agent, doing the agent’s job, tells some other agents that there’s an offer in on the property. Another agent writes an offer. Now there are two offers. The seller is thrilled, as his negotiating capital just increases dramatically. The buyers are anxious. Angry. Hurt. Hate-filled.  The agent is playing them, they think. The agent is taking advantage of the situation, they think. The agent is doing this to ruin their lives, they think.

Newsflash. Agents like selling houses. That’s because we chose this profession, if it can be called that, to make money. I sell real estate because I’m good at it, and because I’m good at it I make money to pay for such extravagances as a mortgage, and taxes. Also, groceries. Agents do this job because we make money at it. To assume we do it because we like “people” is to assume a hedge fund manager loves his job because he likes to create liquidity. We all do jobs to get paid. In the case of a multiple offer negotiation, agents will hopefully still get paid, but there’s a significant amount of work that accompanies this situation. Pop Quiz: If Jimmy the agent makes $100 for working one hour, or $100 for working two hours, which would Jimmy prefer?

Multiple offers are once again common in this market. There can be only one buyer for any given house. This means one buyer will be happy and another buyer will be sad. Did the agent contrive this situation to make someone angry and sad? Don’t be ridiculous. The agent, no matter how convenient it is to assume, is not the bad guy. Sure, there are awful agents. Terrible, horrible agents. But I’m writing this from my position, as an agent that isn’t either of those things.

The other condition that is increasingly prevalent is the secondary offer. This differs from the multiple offer situation, in that the secondary offer is only written after a primary offer is accepted. This is akin to walking into a furniture store and stumbling upon the most beautiful couch. This is the couch you’ve spent your whole life waiting for. Nothing else matters, except this couch.  You ask the sales lady for the price.  It’s within your budget! And for such a couch as this! But the sales lady notices the tag hanging next to the price. SOLD, the tag says. She tells you that sometimes these couch deals fall apart, and that if the buyer for whom the SOLD tag was written doesn’t make good on the purchase, then you, YES YOU, can buy that couch. You agree to these terms, and you wait by the phone.  Sleep is for those who have never laid eyes upon this couch.

A week goes by. You’ve heard nothing. You call the store. The sales lady is at lunch. You call later, and she says the couch is still in the store, and the primary buyer is supposed to come in tomorrow to pick the couch up. Not liking this answer, you lash out. You tell the sales lady how awful she is. How she must be lying to you. How this isn’t the way things work.  Ah, but this is the way things work. This is the way real estate works. The primary buyer is the primary buyer until he isn’t. If you’re a secondary buyer, please relax. The agent is not doing this to ruin your day. The agent, in fact, hates this almost as much as you do. Why? Because this creates extra work for the agent, and as our prior example states,  agents dislike extra work for the same pay.  Just like hedge fund managers and furniture store salespeople.

 

Above, my Basswood estate listing, offered at $9,750,000