Blog : Negotiating tactics

Expectations

Expectations

By now you know I have a problem with cars. I like cars, but I don’t like the process of buying a car. I don’t even like thinking about cars. I’m young enough to see a car I like and think, “I really like that car”. But I’m old enough to not pursue the purchase of such a car.  Men tend to track their lives by the cars they drive. I remember when I met my wife I drove a black Cadillac (don’t ask). Then, later, when my girlfriend became my wife, I drove a black Volvo. It was a nice car. Later, my wife almost decapitated our dog by sideswiping a telephone pole in a red Jeep Grand Cherokee. Life is most easily tracked when the memory places you behind the wheel.

The problem with these nice cars is that they’re expensive. Super expensive. And so earlier this spring I found my way to a car dealership and before my timid financial self could win the internal argument, I agreed to purchase a car. I negotiated for this car as best I could. I feigned the walk away. I stood up and paced. And when all of that was over I had raised my price by dollars and the dealer lowered theirs by pennies. I decided I wanted the car and so I had to pay for it. To walk away meant to repeat the process at a later date, and I was weary from so much anxiety. Later, when I think back about the spring of 2017, I’ll remember driving home in the rain with my wife who pretended not to like the new car until the seats started massaging her back.

This experience relates quite closely to the home buying experience.  The desire. The negotiation. The decision.  The decision, after all is said and done, is what this is really all about. I desired to buy that car of mine for about $1000 less than I paid for it. I could have stood my ground and hoped they called me the next day to accept my price. I could have done that, but I didn’t, because what I wanted to pay and what I had to pay were two different numbers.  This is the situation at Lake Geneva today. If you’re a buyer, there is likely the price you want to pay, which is likely the price I want you to pay, and then there’s the price the seller is going to make you pay. You know which price is more important.

This lake is rife with stories of would-be-home-buyers who stood on principle and stood until they were the only man left standing. The buyer who looked at that lakefront in 1998 and said, no. $575k is just too much for that lakefront. Or the buyers who stood with me on properties in  2011 and 2012 and said, no, the price won’t work. These are the buyers who today look at this market and wish they had the conviction needed at the time they needed it. It’s easy to harness buying conviction when it’s too late. I would have paid X! They say. But it’s too late, because someone already paid it. The practices that helped my buying clients purchase lakefront property at significant discounts to the market five years ago are, for the most part, no longer working.

That’s because we know what we’d like to pay, but the seller knows what they’re going to take. That’s why these last few months I’ve stood on many properties with many buyers and discussed the price I’d like them to pay and the price they’re going to have to pay if they actually want the house. Would I want you to pay $1.9MM for the house? Of course. Are we going to try to pay $1.9MM but realize, after a heated and skillful negotiation that we’re going to have to pay $2.1MM? Again, of course. Because in this low inventory environment sellers have the upper hand, and this is an undebatable fact.  There are some properties that have accumulated enough market time that they will succumb to our negotiating pressure but these sellers are the outliers today, not the standard bearers.

This summer, approach the market with caution. Certain properties are wildly overpriced. Others are not. Know the difference. Don’t approach the market with reckless, fevered abandon.  But when the time comes and you find the house you want, just remember not to get too hung up on a few percentage points.  Those few points will be long forgotten when you’re lounging lakeside, blissfully unconcerned with the slightly larger hole in your bank account.

Lake Geneva Negotiations

Lake Geneva Negotiations

I could have negotiated this deal in 10 minutes if you had put me in a room with him. This is what I hear. I hear it often. This is the refrain of those negotiating pros who buy and sell real estate through a broker. When a deal comes together, I hear this. When a deal falls apart, I hear it then, too. I hear it so much I hear it when I close my eyes and I hear it again when I open them.  That one kid heard dead people, I hear this.

Many buyers and sellers feel that the deals could come together if only they had a chance to handle the deal directly. This might often be the case- that the deal would come together in spite of a broker, not because of one. But this assumes that the deal was an easy one to put together, that neither side needing the convincing that can only come from a market backed perspective. This also assumes that both sides are in a hurry to make a deal, which is generally far from the case.  Consider, some of the best deals I’ve put together have come together only as a result of long enduring negotiations. Time might heal most wounds, but it also bridges many negotiations that might have failed if they were on the clock.

In 2010, I negotiated the purchase side of 1014 South Lakeshore Drive, Fontana. That deal started slowly, as many do, and after a few months of negotiations, we had an accepted contract. Then we negotiated throughout the deal, over another three months, and finally closed on the transaction. What a fantastic deal that was. And many more like it have come about the same way- only through buy side patience, as a seller is worn down through a recognition that his or her property is just not quite as desirable as originally thought.

The problem with this, of course, is that 2010 was a year void of an abundance of buyers and 2016, though the year has started ominously with indices in an funk, has an abundance of such vacation home buyers. Long enduring negotiations only work in the absence of a competing bid. Lately, there have been competing bids.

Two weeks ago I was going to show a listing on Bonnie Brae to a buyer of mine. We set up the showing, we were ready to pounce on a property that was purported to be able to be bought right. We ended up canceling our showing, because the property sold earlier that week to a buyer that had just a bit more motivation, or schedule flexibility, than we did.  A year ago this month I negotiated an offer on a lakefront listing I had on Oriole Lane. That humble, odd home, didn’t sell in 2015, but throughout the year my buyer reaffirmed their earlier offer. The sellers didn’t bite.

Then, a couple of weeks ago, a change in seller sentiment, and our deal was ready to be locked. On Friday, we had a deal in principle, on Saturday, the seller took a bid from another buyer.  I had negotiated patiently with a lakefront buyer for exactly 12 months, and when victory was nearly ours, the property sold to another buyer. Sniped, again.

This week, a deal on an off-water home in Glenwood Springs was apparently nearly complete. A buyer of mine who had seen that home in the summer of 2015, inquired of the property. It was available, I told him, but nearly under contract. He jumped, we offered, we have the property under contract and the other buyer, the one who was patiently working the seller to his favor, is on the outside looking in. This is the trouble with negotiating slowly. It leaves open too many variables beyond the negotiator’s control.

Of course, the most important aspect of any negotiation is in sensing the direction of the market and its response to that particular property. That’s not quite as easy as it might sound. In the case of the Oriole Lane property, I wrongly assumed that time was on my side. I assumed that a property that had languished on the open market for years would not sell in the dead of a Wisconsin winter, on the heels of a volatile week in the markets. I was wrong. So today,  a quick admonition. If you like a property, watch it with me, and we’ll work to strangle the seller together (figuratively, of course). If you love a property, buy it, before someone else does.