Steve Tebo Would Be Jealous [Seller Pays]

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by Osman Parvez
Who pays when your agent screws up the deal?   You pay.

7 Lessons from a Recent Real Estate Deal 
A few weeks ago, I helped a buyer acquire a truly stunning condo.   Seriously, I'd rate this one A+ for Boulder real estate.    Sure, it needed a few mostly cosmetic updates, but more importantly it was in the most desirable location in Boulder and featured million dollar views in a protected corridor.    My clients know that I don't usually get that excited about a particular property, so trust me, this one was something special.

Open Your Wallet

Sadly for the seller, they chose an out of state flat-fee, discount broker.   You know, one of those firms with a slick looking website advertising the thousands you'll save by listing with them.

Cost to list?    $299. Money left on the table?  $25,000 to $30,000.'

I'm glad I represented the buyer.  
    
How it Went Down  
I took my client to see the condo within the first few days of it hitting the market.   At the showing, we were surprised to find the seller unlocking the door for us.    Naturally, I took the opportunity to talk to her and she quite happily told me all about her motivation for selling (information I'd later use to my buyer's advantage in negotiation).  

Take Home Lesson #1:   Don't talk to the other agent.   Buyer and sellers nearly always compromise their negotiation when they talk to the opposing agent.  
My buyer loved the place (and rightly so).    As I mentioned, the property represented a once in a lifetime chance to buy an intensely coveted location with views that would make Steve Tebo jealous.   You can sometimes find the location, you can certainly find the views, but rarely can you find BOTH at a reasonable price.  It just doesn't happen everyday. The uniqueness of this asset and hot market conditions would also likely generate competitive offers, so we needed to move quickly.

Loose lips, sink ships.   Zip it, kid.

After the showing, I immediately sat down with my buyer to discuss negotiation strategy.   This is really important because I can negotiate more effectively if I know the boundaries of how hard I can push.   Given market conditions,  I counseled my buyer to expect a negotiated discount of only 1% to 3%.   However, since the seller admitted there were no other offers on the table (yet) and disclosed their time sensitive motivation, I recommended we test the seller with a low offer.   I suggested we start with an offer featuring tight deadlines, no removal of contingencies, and 10% below the asking price.   

My buyer agreed, so I put together the offer, my buyer signed it, and I electronically submitted it to the out of town broker.    He replied the next day (discount brokers don't work nights) and told me to send everything directly to the seller, only CC'ing him.    As Colorado Realtors know, the Commission does not allow brokers to provide less than the minimum required duties.   They can provide more (a lot more, as Silver Fern does) but they cannot provide less.    Since the sellers were being represented by someone who seemed to be offering much less than required, this made me nervous.   That's why I asked the seller sign a working definitions so it was 100% clear I represented the buyer (also stated in the offer).  

Feeling Your Way

Take Home Lesson #2:    Don't go in blind.  Before you negotiate, know the market.  Offers and counters should be based on local market conditions, deep knowledge of specific comparable properties,  and benchmarked against discounts negotiated from recent deals. 
Since the seller couldn't write a counter without their (unavailable) agent, they called me to verbally offer 4% below the asking price.   Other than being cc'd (as requested), their agent wasn't involved, nor would he do anything more from this point going forward.
    At 4% off, we were already well past the negotiated discount my buyer was expecting.    I counseled her that we should see it again before responding.   Accepting too quickly could jeopardize the deal and I thought we could push the price to even lower if we slowed down.  
We went back for a second showing and once again were met by the seller.    While my buyer looked through the property (appearing as disinterested as possible), I continued to negotiate verbally with the seller.   They also had questions about the contract, which I answered (adding that this was the duty of their agent, not me, and they should seek his advice).   My job was to continue to emphasize the merits of my buyer's offer; including more than 20% down, quick closing, a hugely reputable local lending officer having reviewed the buyers credit profile, and promising no hassle on inspection issues.I also let them know that since they were not willing to drop the price further, my buyer was very likely to let her offer expire.   In fact, we were scheduled to look at other property the following day. 

They looked worried.Take Home Lesson #3:   Choose an agent who knows the contract.  It rarely matters if an offer (or counter) expires.   You can always counter an expired offer.  
During the conversation with the seller, I tossed out a possible concession.   "How about an inspection allowance," I asked.   As an example, I suggested that my buyer's inspection issues might be non-objectionable as long as they remained below an agreed upon amount, or ceiling.   Above that amount (for serious issues), we'd return to the negotiation table.  

As it later turned out,  I touched on one of their primary (unspoken) concerns.  They had recently sold a property where the buyer was unreasonable and difficult on inspection.  The aggravation it caused them was still fresh on their minds.   
Take Home Lesson #4.   Sometimes it's not the price.   A good negotiator speaks to the concerns of the counter party and looks to find secondary concessions that matter.   Sellers are always worried about the deal falling apart on trivial inspection issues and wasting precious time.
After we had the second showing, my buyer agreed with my advice to let the original offer expire.  It was scheduled to automatically terminate at 5pm.    This way, we wouldn't look so desperate and we already knew we had breathing room.   I had learned from the seller that no further offers were coming in and no further showings were scheduled.   In the morning, we were planning to write up a new offer with a slightly higher offer price - perhaps as much as 6% below asking and include the inspection allowance because it seemed to resonate well with the sellers.   
A little later that evening, we got a surprise.   A BIG surprise.
Surprise!  You're Under Contract

Say What?

At 4:59 pm, my email beeped with an incoming message from DocuSign (my digital contract management system).     With one minute left to expiration, the sellers had accepted the original low offer, a whopping 10% below the asking price.    
Although I had vastly exceeded my buyer's expectation on price, I had only discussed the idea of a inspection allowance with the Seller.  It wasn't in the contract.  After signing, the sellers called me to express how important it was. In theory, we could have hammered the seller on this but my buyer agreed to let me put it into the contract - even though it had only been verbally discussed.     Importantly, it also wouldn't remove any contingencies (including inspection itself), so it was acceptable.    
Take Home Lesson #5.   Ethics matter.   Chose experienced, local agents with a reputation worth protecting.   You'll be surprised how well issues are handled. 
The deal closed a few weeks ago (which is why I can talk about it).   In the end, my buyer ended up even more than 10% off the asking price because we found inspection issues which exceeded the inspection allowance.   We documented the issues carefully and provided estimates from reputable contractors, which is why we got 100% of the inspection items agreed to be credited with an even lower sale price.

Once again, had the sellers chosen a listing agent with good negotiation skills and who was familiar with current market conditions, they might have gotten away with a 50% credit.    Heck, this property was so desirable and our negotiation turned out so much better than expected, that we might have even let the inspection issues slide entirely if push came to shove.

Gold Star! 

When The Deal Is Too GoodNot surprisingly,  when the dust settled from the negotiation, my buyer was a little nervous.    I had managed to nearly triple the anticipated discount.   Deals that are "too good" tend to raise red flags, so to help alleviate her worries, we sat down to analyze market conditions before the inspection period elapsed.    
Sellers probably don't like the idea that an under contract buyer will use the inspection period to go see other available property and even revisit valuation, but smart agents know how to use the contract to protect their clients.  A few hours with my laptop to examine historical comps and a few hours going to see similarly priced available property was time well spent for my buyer.     In the end, we concluded that we had negotiated a fantastic deal. Take Home Lesson #6.  Due diligence doesn't end when the property goes under contract, it begins in earnest.    A good agent helps their client maximize the value of the inspection period. 
The Realtor representing the seller has a Colorado real estate license and is subject to the laws governing real estate in Colorado.    The $299 he earned for entering the property on the MLS, setting up call forwarding back to the seller (for appointments), and being "cc'd" on emails pertaining to the deal is precisely the value provided to the seller.    In my opinion, he did not provide even close to the minimum service required.    That's a post for another time... 
Take Home Lesson #7.   You get what you pay for, just like Momma told you.
At the end of the day, I far exceeded the anticipated negotiated discounts for this deal.   By choosing a discount broker, the savings the seller hoped to have for themselves went mostly to my client.   Had they chosen a good negotiator, familiar with market conditions, they likely would have netted far more at the closing table.

Real estate is a funny business.   I've learned that sitting down with my clients to work on real estate analysis together is time well spent.  Usually, these work sessions occur before we write an offer but this time, we had to move quickly to snatch up an exceptional deal for an exceptional property. 

I call these lap-top centric meetings, "work sessions."     Over the years, I've found a few hours spent together in the office is better than many days of driving around looking at houses.     Call me if you'd like to learn about how I can help you make a smarter real estate decision.   303.746.6896.
---Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.  


images:  Steven Depolo, Opheliac9,  Johnny Goldstein, Thomas Sleuthard   D. Sharon Pruitt,  Vicky Brock