Your Price is Not a Good Reason for…. Your Price

There aren’t as many reasons to use a local real estate agent in 2016 as there were in 1990. One of the biggest reasons advertised is negotiation. Despite the other garbage reasons most commonly mentioned (like in This Article, even their explanation for “negotiation” doesn’t make a strong case) I believe it to be true that negotiation can be one of the biggest advantages of using an agent, which is why it’s so frustrating when an agent doesn’t seem to know how to negotiate. Being a real estate agent does not magically make you a good negotiator. On the other side of the coin, you don’t have to be an expert negotiator to recognize poor negotiation skills. Forgive my sarcastic humor on this one… transforming into Lewis Black while I write helps me get through it. I hope you’ll be shaking your head, face-palming, and maybe even shaking your fist with me along the way.

I’d like to share with you some of the all too common arguments that I’ve heard during negotiations, why these arguments are some of the most thoughtless and poor attempts at negotiation, and why it upsets me so much. Then, let’s give the perpetrators a small benefit of the doubt. The best way to illustrate this is through an example–stick with me here.

Example. A buyer would like to put in an offer of $200,000 on a home that’s listed at $250,000, a difference of $50,000. Without any other information, the only observation anyone can make is that the offer is a lot lower than the list price. Of course, you and I would not put in an offer arbitrarily, we’re better than that. Even if I suggested putting in an offer at that price, my buyer would want to know why. Of course they would! They should want as much information as possible prior to deciding on the terms that go into their offer. What is incredibly frustrating to me in a negotiation is when the other agent attempts to use these 2 anchor points, offer price and list price, with no other info, as reason for my buyer to pay more. They act as if these 2 variables are the only pieces of information attainable to make a thoughtful deduction. They will call me and inform me that my buyer’s offer is $50,000 below their list price and the sellers were offended, not happy, etc. I already knew this going in. Your sellers were offended? What about my feelings?

It’s insulting to me (us) because they act as if this information is news to my buyer and me; as if we weren’t aware of what we were doing. They want me to respond with something like, “Oh, oh my gosh! I’m so sorry, I thought you were listed at $210,000, not $250,000. I will call my buyers and have them offer something much closer to your list price, because we wouldn’t want to offend you, sorry again.” What I’d like to say is, “umm… no, dimwit. When you opened your mouth to give me information I already knew, and tried to convince us to pay more because of it, how did you think that conversation would go? We are offering you 50k less because that’s what the house is worth. It wouldn’t be so far away from your precious list price if you had done any market research and/or knew how to properly assess a home’s value. Furthermore, if you had the wherewithal to have an honest conversation with your seller before listing their most expensive asset, you might have softened the blow they apparently received when reading our offer.” Agents that hold their list price so dear don’t deserve any compensation, let alone to be an agent. Can we talk about relevant market analysis here? Your price itself doesn’t justify your price itself which doesn’t justify your price itself… …yes, it’s like a never-ending circle of cotton-headed-ninny-muggin-ness.

Even though it’s perfectly okay to say these things to a hypothetical agent in my own blog post, it would be very rude and unprofessional to do it in real life. Not to mention, it would be pretty unproductive; I doubt they would want to accept my offer after a response like that. Despite not being able to truly express my deepest feelings, I don’t let this folly slide under the rug, oh no. Usually when an agent is delicately trying to break the “news” that our offer is a lot lower than their list price, I usually say something like “good thing it wasn’t listed any higher, huh?” or “yeah, my buyers were offended that your list price was a lot higher than their budget”… I usually get a chuckle, and then we can move on to discussing how their anchor point doesn’t matter and why their home isn’t worth what they’re asking, cordially of course. Usually to no avail, because SURPRISE!!! These agents are also stubborn. 😉

Buyers/sellers are not going to feel good moving to your price point simply because you need it.

***Side note… this is a sale. A business transaction. Stop getting offended about offers that are too low. Just decline, or counter, or accept… those are your options. The ‘get offended and decline’ option isn’t a choice but, spoiler alert! It is the same as the ‘decline’ option. Read my article posted about the market HERE. The market is fair, so if you’re getting multiple “low-ball” offers, those offers are probably closer to fair price than your list price. If you’re a buyer low-balling people and you keep losing out on the home, then you’re too low… homes are worth more than what you think. Correct yourselves (and maybe your potentially terrible agent too)… wow–deep breath…

Agents don’t always use a list price comparison. Other examples of terrible reasoning are “the sellers will have to bring money to closing” and “they have more money invested in the home.” Sounds like a personal problem to me. Buyers/sellers are not going to feel good moving to your price point simply because you need it, that’s bad negotiation.

This is a 2-fold annoyance for me. The first, is the caddy insult described above; the second, is that someone hired this person to negotiate for them instead of me. I hope that this infuriates you just as much as it does me, especially if you are the client—you might not even know that the agent you hired, paying them a least 5% of the sales price, is not properly negotiating. Now, although these are horrible justifications for price, it doesn’t mean that they are untrue. I have had several conversations with agents that are much less insulting, because the other agent is simply informing me of the situation. They are not using their anchor point to play a pity card of persuasion, but rather an explanation of their position. There ARE times when the sellers need a certain price because they will have to either bring money to closing or because they want to make all their invested money back on the sale. Nonetheless, this is almost an admission of guilt to over-pricing a home, but it results in a much more cordial and realistic conversation between agents and their respective clients. The deal may not get done, which isn’t great for anyone, but my blood pressure is much lower, and there’s no burning bridge.

Something worth pointing out—which… now that I’m writing it out, might be a 3rd fold of frustration for me—Is that we, especially agents, have much more information than the 2 anchor points of offer price and list price. Why aren’t they using it!? Many companies have several departments that all work together to get a product out to the public with the goal of maximizing profits. Pricing, marketing, cost structures, supply chain, R&D, etc. All these things have been carefully researched, planned out, forecasted, etc. And… Several employees and salaries are required to do so. In real estate, the market research, pricing, R&D, etc. has already been done for us! How much is my house worth? How long will it take to sell? These questions can be answered by looking at what ALREADY happened at the neighbors’ houses. If you are not basing your list prices and offer prices on the comparable properties in the neighborhood, I’m not sure what you’re using, but the research has been done and you need not discount it—or else you may be in for a rude awakening. If you missed the link in the side note, click Here.

If you are not basing your pricing on comparable properties in the neighborhood […] you may be in for a rude awakening.

I mentioned that we would give these terrible negotiators the benefit of the doubt. The only thing potentially saving the reputation of these agents that think list price matters is their fiduciary duty to represent their client. A fiduciary duty legally obligates an agent to put their clients’ interests ahead of their own. Sometimes, as agents, we may disagree with our clients’ positions, but need to carry out their requests anyway. Despite this duty (haha… duty), carrying out their stance without anything to back them up is either laziness or stupidity. “My clients need you to pay more” is a foolish tactic. By forgiving them for this blunder is also accepting that they are an order-taking robot. It’s a catch-22 so this really isn’t a benefit of the doubt; because they are either someone who lacks enough sense to come up with some ammo to back up a price that they themselves have put their name on, or they are instead diminished to an order-taking messenger. To these agents, I say… pick your poison: stupid or robot? Or both if you want.

Thank you for letting me share my frustrations up to this point. Instead of leaving you frustrated and angry that a lot of agents suck, I’d like to encourage you with how I get behind my clients during a negotiation. It all comes down to price. At every point of the process, whether it is listing, writing an offer, or negotiating, all variables and needs of the client need to be assessed to determine what kind of price is fair and possible. Finding out what has recently sold is the biggest factor. Sometimes this can be difficult because most homes are different.

Two general rules of thumb and safety nets to stand by are:

  1. Trust the Law of Averages
  2. Listen to the Market

What does this mean? Well, I don’t know if I can put it all into words, but to give you an abridged version, here goes. As I mentioned above, we need to trust the R&D that the market has already done for us. Therefore, we need to look at comparable properties. Obtaining those can be tricky sometimes, but I digress, and move on to the data. I look at averages of everything for all the comps. Total market time, time to contract, time to close, price per square foot, high and low prices for the neighborhood, acreage, basement situation, beds, baths, etc. All of this data is where the law of averages comes in. I try to get on the same page as my seller in regards to whether their home is above, below, or average. Once we determine that, we can look at the averages for all of the data and price the home accordingly based on whether the home is above, below, or at the average. Of course there are many factors that go into determining whether a home is above, below, or average, and it’s important for an agent to know what buyers are looking for so they can help the seller determine this.

Now, listening to the market is a piece that comes in after the house is listed. As agents, we have access to a lot of info regarding who the property has been sent out to i.e. the number of hits on Zillow, Trulia, Realtor.com, Homes.com, my own website, etc. Along with those numbers I can see how many people have marked the property interestedmaybe, or not interested in the MLS. We not only look at who it’s gone out to, but consider the level of interest by looking at the number of showings and how quickly they’re coming to see the home since we listed it. All this data will tell us whether we need to be patient or drop the price; furthermore, whether the price drop needs to be minimal or drastic.

The law of averages is a great starting point to be sure we’re in the appropriate range, but we still need to listen to the market to determine what to do while the home is listed. This information will also help in determining whether to accept, counter, or decline an offer. All this information should at least be at your agent’s disposal and should give you something to back up your stance in regards to price… not the garbage excuses I hear all the time.

This is my process. And you can be damn sure I’m going to fight for the price we believe in; I’ll find all the reasons to justify our price and do my best to convince the other agent and their client that our price is fair. You can also bet that I will never rely on our price as the sole reason of justification, because it is simply the most thoughtless version of negotiation possible. We’re not selling t-shirts at Target people, we’re selling houses for hundreds of thousands of dollars. If you’re an agent, get some sales experience. If you’re a seller/buyer, call me 🙂

Thank you for reading! Comments and questions welcome!

Joe

 

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