Negotiating

Accurate Pricing

We meet with sellers all the time and make estimates on price. We really do our best to provide guidance on what a house is worth. It is a fascinating art.

But what we try to stress over and over is that pricing right is not about finding the estimate and trying to get 5% more, to provide wiggle room. It’s a natural reaction for a seller. If we ask 5% more, we can always come down. If we price low, we leave money on the table. While this may make sense, it is not accurate in reality.

I have a buyer client who is currently attempting to buy a home. This home is priced right. I would certainly not say I think it is priced too low. I don’t think it is priced too high. What I will say is that it is realistic. We made an offer, a very good offer I felt… but guess what… so did someone else. End Result, we just sent a second offer that upped our initial one by 4.5%… Meaning, the seller is going to land up selling their house for MORE than asking, and in less than a week on the market.

Isn’t this what sellers want? If the seller had asked 5% more than they did, I don’t know that my clients would have fallen in love. They fell in love at the asking price… they were willing to pay more, but they fell in love at asking. If the seller had asked more, and my client’s focus had been at the higher number, there would have been a higher comparison. Perhaps there would have not been an offer, or only one offer. No one to push the other up.

Houses priced fairly are moving very, very quickly in the city. Properties that are priced high, are getting very little attention. Why negotiate with someone who is being unrealistic, when you have options with fair sellers?

On the buyer side… be prepared for a battle. Be prepared to offer quickly and a fair number. Gone are the days of you being the only buyer on a property. Gone are the days of stealing a home. This doesn’t mean you need to offer 5% over asking everything, but it does mean that if you think you can slow play an offer and hope to dance to the middle ground, someone else will be willing to do better. If you really want a house, don’t risk dilly dallying. It’s not always worth walking away.

Buyers Agents and Compensation

I received an e-mail yesterday announcing that a builder is offering 5% compensation to buyer’s agents who bring acceptable offers on their homes. The rationale behind such an offer is simple. If the builder agrees to pay 60% more than other builders, perhaps buyer’s agents will be willing to sell their homes harder. Another way to put it: It’s a bribe.

5__selling_commission_on_these_easy_to_sell_homes_e28094_trash-20090305-230659

Buyer’s agents are here to represent their clients. The problem is, some agents never discuss compensation with their clients. When an offer of 5% compensation arises, the agent may be able to then collect 5% on a sale. However, if the client and the agent hammer out a negotiated rate for services, when there is a 5% commission offered, the agent can show the property and let their client know that if they select one of these homes, that they can expect a rebate of any amount above the negotiated commission at closing.

Likewise, if a listing pops up in which the seller is offering a cooperating compensation lower than a negotiated rate, Buyers will know their agent will give fair representation to that property. Clients can know that their agent will want to show them all properties, regardless of what the seller is offering because there is no disincentive to show a specific home.

Negotiating a commission up front is in the best interest of the client, as it puts all listings (listings from the MLS and unrepresented sellers) on an even playing field. It aligns the efforts of the Agent with the best interest of their client, and it provides the basis for establishing expectations between the client and agent.

Top 5 City Deals of the Year

Originally Published February 17, 2009

Taking a quick break from my series on my principles of Nest Realty, I retreat back to some more info on the City Tax Assessments. I have been studying the city tax records and the implications to buyers for a few days now, and I have some fun findings to publish. My hat is off to five agents who negotiated the deals of the year. I have looked at the homes in my prior study, 284 in all, and compared 2008 tax assessments to sales price. While I don’t think this is always a perfect study of a “good buy”, I do think it’s the most objective way to create my top five deals. A quick read of my Parts 1 and 2 in Tax Assessment stories is also a good place to go along with these 5 Deals.

———

#5) 1432 Rugby Road. Sold August 28, and on the market for 350 days, this 3,100 square foot home was assessed for $685,100 and sold for $465,000 or a 32.1% discount.
Original Listing Price: $635,000 (Sold for 73.2% of asking)
Buyer’s Agent: Murdoch Matheson

#4) 801 Watson Avenue. Sold January 14, and on the market for 189 days, this 1,440 square foot home was assessed for $260,300 and sold for $175,000, representing a 32.8% discount from tax assessment. Original Listing Price: $249,000 (Sold for 70.2% of asking)
Selling Agent: George Stone
(Note: George Stone was also the Listing Agent. There is no way to know {without asking directly} whether George acted as a Dual Agent or a non-agent to the Buyer. It was not in the agent notes.)
35 Days after closing, this house went back on the market for $249,000 and sold in two weeks for $239,900.

#3) 316 Meade Avenue. FORECLOSURE. Sold November 13, and on the market for 22 days, this 936 square foot home was assessed for $197,300 and sold for $132,000, representing a discount from tax assessment of 33.1%. Original Listing Price: $144,900. (Sold for 91% of asking)
Buyer’s Agent: Karen Ball

#2) 1216 Smith Street. SHORT SALE. Sold September 26, and on the market for 214 days, this 850 square foot home was assessed for $203,200 and sold for $125,000, representing a 38.5% discount from tax assessment. Original List Price: $203,000. (Sold for 61.6% of asking)
Buyer’s Agent: Michael Vest

and the #1 Top Deal of 2008 goes to 
1009 Rougemont Avenue. Sold May 23, and on the market for only 1 day, this 1,014 square foot home was assessed for $179,400 and sold for $110,000 representing a whopping 38.6% discount from tax assessment. Original List Price: $124,900. (Sold for 88% of asking)
Buyer’s Agent: Julie Gee

What have we learned? Well, a few things.
1) The market isn’t always about the calendar: These sales occurred in Jan, May, Aug, Sept, and Nov. So, it’s not a matter of the “market collapsing” late in the year.

2) It’s not about the size of the property: Two of these houses are under 1,000 s.f. Two between 1,000 and 2,000 s.f. And one property is over 3,000 s.f.

3) It’s not about time on market: These properties were on the market 1, 22, 189, 214, and 350 days. You can’t wait until the home has been vacant for 6 months to make your move. You are just as likely to find a deal on day 1 if you are vigilant.

So, how did these deals come about?
Well, I think it has to do with the buyers and their agents. None of these deals would have happened if the buyers hadn’t been willing to make an offer that might have seemed a tad ludicrous to others. They took the chance, and now they are happily owning property for a price that, at least on the surface, seems mighty impressive.
I have told more than one of my clients in the past: “If you don’t make the offer for 25% below asking price, I can guarantee you that you won’t get it for 25% below.”

An Agent Representing the Agent, aka Dual Agency

Originally Posted February 17, 2009

To understand how Dual Agency has come about, one needs to think just over a decade back two decades to the days where every real estate agent worked for the seller. There were numerous reports done that showed that most buyers thought their agents worked for them, but they were wrong. Every agent worked for sellers, either as the listing agent, or as a “Sub-Agent” to the seller. This also helps to explain why commission is typically paid by the seller to both the listing agent and to the selling agent. (Look for an future post on Divorcing Commissions) Read on to see why Dual Agency should be called Non-Representation

In these days, a buyer would find an agent to work with, and would then go house to house while the agent representing each seller, not their buyer. Technically speaking, it would have been unethical to suggest a lower price than asking, it would have been unethical to point out deficiencies in homes such as Quest Pipes, Asbestos tiles, Masonite siding, highways that might bisect the neighborhood and more. The reason is simple, the agent’s responsibility was to the seller, and getting the highest price possible.

Buyer’s representation was born of the need for buyers to have protection. Buyers required that their agents be open regarding pricing, home condition, and other factors that affect home values. Hence, buyer’s agents were born. A new breed of real estate agents, buyer’s agents represented the buyer, and worked for them to find the best financing terms, the best legal counsel, the best home, and to get the lowest price possible.

In the days of Seller agency only, it was routine that an agent could receive double commission by bringing a buyer to the contract and handling both sides. In all honesty, this was fine. Because, the buyer was never represented, and thus, no ‘additional’ disservice was being  performed. But, when buyer’s agency was born, it didn’t take long for agents to say that they could represent both parties. Herein lies the problem.

If you are a listing agent and you are selling a home with Masonite siding, you are required to list this in the MLS. However, you don’t add a disclaimer that says you have Masonite siding and all of the issues that are inherent in poor installation of that product.  Why? Because it is not in the best interest of the seller. Plain and simple, Masonite homes are harder to sell than Hardi-Plank because they can have problems. If I am a buyer’s agent, I should always point out that a home has Masonite and explain what this means to maintenance and resale values and resale time. I explain that many companies will not allow their employees to purchase homes sided with Masonite if they are part of a company funded transfer. Why would I point out things that might make my buyer pause before buying? Because it is in the best interest of the Buyer. I represent them, and only them.

In Dual Agency, the real estate salesperson tells both buyer and seller that they represent them. But they can’t. Instead, they land up representing neither. A Dual Agent cannot help both seller and buyer in determining a fair price for a home. They cannot assist in working through home inspection items. They cannot represent either client when one becomes unreasonable. If my client is unreasonable, I still go to the mat for their issue, even if I disagree… because I am hired to represent their every issue.

At Nest, we have in our Policy Manual that no agent can ever act as a Dual Agent. If I am representing a Seller and someone calls me to see that house. I will show it, and I will do my best to sell the positive features of that home to the prospective buyer. And if that buyer decides to purchase the property, they will have two options: to work with me as a “non-agent”, or to contact another Realtor and ask that they represent the Buyer. Regardless of which choice that buyer makes, he or she will make it as an informed buyer. Not all buyers require representation, but none will be denied.

Open House Agency

Originally Published January 5, 2009

15 years ago, real estate agents all represented the Seller, no matter what. Times have changed and more and more agents are representing Buyers. When you hire an Agent to represent you, you have a very frank discussion of what that Agent is going to do, and why you should be represented. But what about the agents that you stumble upon, say… at an open house. Sometimes it is the listing agent, and sometimes not. Who do they represent?

Quick info for clients out there: Open Houses are a way to find buyers. Period. The number of homes sold as a result of walking into an open house is tiny. So, the only other reason to hold homes open is to attract potential clients. Sellers want their home to be open, and buyers want to come see it, so everyone’s needs are met.

But frequently, listing agents have too many homes on the market to hold open houses at every one of them, so them employ other agents to hold them open for them.

If this agent is sitting in the house and a Buyer comes in without an agent, the goal is to procure them as a client, not to sell THAT house. But this is contrary to agency law. The seller has a listing agreement with a real estate firm, not a specific agent. Technically speaking, any agent who works for that firm should be representing the Seller unless agreed to in writing.

I went to show a house to a client a few weeks ago. Our schedule that day happened to coincide with an open house. It was being held open by a non-listing-agent. I knew her well, and she knew that my client was just that, my client. And yet, within 15 minutes of my being in the house, she began telling us where the Sellers were going, why they were leaving, how much work they had done to the house and what they still wanted to do. I’m not sure why she was telling us these things, but it certainly put the Seller at a disadvantage had we decided we liked the house.

If you are a Seller, ask your agent who will be holding the house open, and who they represent.

Back to top

Twitter links powered by Tweet This v1.8.3, a WordPress plugin for Twitter.