Negotiating the price on homes and land in Sequim and Port Angeles effectively can put $10,000 or more in your pocket, or cost you $10,000.  But even worse than loosing money, poor negotiating can cost you the transaction.  As a seller, if you chase that one buyer away when mature negotiating could have brought the buyer to the closing table, you may have the house for many more months (or years), and you could end up selling it for less than the first buyer would have been willing to pay.

Port Angeles Real Estate Negotiating Mistake.  I drafted an offer for a client who was pre-qualified and had a great job.  After going back and forth on counters, my client finally upped his offer to the maximum that his lender would approve, which back in June of 2009 was a quite reasonable offer for a house that had not sold in about two years.  The house had been empty and was ultimately foreclosed on.  Believe it or not the seller killed the transaction over $5,000.  I told the seller’s agent at the time in a friendly way, “You realize your client killed this transaction over $5,000.”  During the negotiations I shared that the price my client offered was the maximum his lender would allow and all the money my client had, and we had made it crystal clear that that last counter was a final and firm offer.  The seller made a negotiating mistake and lost that sale.  My client walked.

I remember thinking at the time that by killing the transaction over $5,000 in the worst real estate recession I’ve seen in 30 years in real estate, the seller risked not selling the home for a long time, would have to pay property taxes again soon, would continue to drain his account paying other maintenance expenses for a vacant home, and by the time it does sell, he might end up taking less than my client offered if the market does not markedly improve.  If you were a seller, would you have killed a sale over $5,000 in this market?

How did things end up?  My client moved on to buy another house and he and his family are living happily ever after.  The seller’s house sat on the market for another three months before it sold, and it sold for $3,000 less than my client’s last offer and $8,000 less than the seller’s bottom line.  On top of that his loss  included maintenance for another three months, which included hiring someone to take care of the place (he could not do so), winterizing the home so pipes would not freeze, paying the second half property taxes, and there was the opportunity cost of not having sold the property earlier.  You can be sure for any normal seller there would be added stress, which you cannot put a price on, but it is a significant negative value.

Sequim Real Estate Negotiating Mistake.  I drafted an offer on a nice home for a client, and without revealing the home or the seller, it was a price just south of $500,000.  In this market my client was quite reasonable when he made an offer that was about $30,000 less than the listing price (about 6% less than the asking price).  The seller foolishly countered with only a $4,000 reduction off the listing price.  My client instructed me to not bother making a counteroffer.  He felt the seller was either not a serious seller, or he was getting bad advice on how to negotiate.  We found out later it was the later.

What was the final outcome for this seller?  He ended up selling the home later for about $25,000 less than his listing price, but not without lost time and a lot of stress and frustration.

Negotiating the price on homes and land is an interesting game.   You know the saying, “A little knowledge can be dangerous.”  As I have written elsewhere, arrogance and pride are very dangerous.  Humility is beautiful when it is combined with knowledge and wisdom.  In these examples, humility (and good advice) also could have helped the sellers negotiate much more effectively.

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• Negotiating Price: Killing the Deal

I recently negotiated a transaction that presents some valuable lessons for buyers and sellers who are negotiating to buy or sell a home in Sequim or Port Angeles.   I represented the buyer as a buyer’s agent.   The lessons I have learned in 30 years in real estate are often full of nuances, small but important.   That’s what this story is about.   It’s about nuances that come from experience.

I read an extensive national study conducted by the business department of a University, and the focus of this multi-industry study over several decades was to address this one question, “How long does it take to become an expert in any industry or subject?”   The answer in every industry was 10 years.   This was true with brain surgeons, auto mechanics, lawyers, school teachers, and even real estate agents.

The study found that while many became very knowledgeable with great experience at the five or seven or eight year mark, those with the depth and breadth of knowledge with at least 10 years of experience broke through barriers that those with less had not.   Wisdom is not something that comes quickly, and the school of hard knocks is a part of gaining experience.   Negotiating real estate takes experience, because   the process is full of subtle but powerful moves and nuances.   The order of events is important, and can mean tens of thousands of dollars for you.

You’ve got to follow this sequentially to get it.   Here’s the sequence of events that led one party to end the transaction. (The specifics have been slightly altered to protect the innocent.)

First, the home was listed at $259,000.   It’s a single level home built by a builder who builds mid-level quality, and it’s a basic 3 bedroom, 2 bath with about 1800 square feet on a small city-sized lot.   It’s been on the market for about 210 days and was originally listed at $269,900, but that may have been too high in this market.

Second, my buyer makes an offer at $239,000, which is not an unreasonable starting point in this market.   Was that a low price to offer for this home?   Yes, but the home has not sold in over 210 days, and buyers are few and far between these days.   There are many nice homes in this price range, and my client knew that from looking at hundreds of homes in the MLS and many in person.

Third, the seller and his agent counter at $255,000.   (There were some other concessions, but let’s not get too detailed here, or we’ll never get to the main point.)   My client counters at $245,000, and asks me to convey with no ambiguity that his offer of $245,000 is absolutely his top dollar, and he is not willing to entertain any higher counters.   I did that.

Fourth, the seller and his agent counter at $250,000, at which point my client repeats what he had promised, that he would not go over $245,000, and the deal is dead. I report this to the other agent, and casually state in my communication that it appears the seller “killed the transaction” over $5,000.   I stated that I didn’t think that was wise in this market, but that “I could be wrong.”

Fifth, my client and I move on to look at other houses.

Sixth, the seller apparently was offended that I suggested he had killed the transaction over $5,000, and argued that he could just as easily have claimed that my client killed the transaction over $5,000.   I really like this seller.   I happen to know him.   He’s a great person, and pretty sharp, too.   This is not a character issue.   It is an experience issue in the art of negotiating and in the use of negotiating terms.   But it is also acceptance of the common use of old phrases in an old profession.   Killing a transaction is not necessarily bad.   Killing a transaction might be exactly what a seller should do.   In that case, the seller should not have trouble acknowledging that he killed the transaction.   He may feel it was in his best interests, and it may have been.

In negotiating, the sequence of offers and counters determine the legal implications and the precise language used to describe what has happened.   When my buyer offered his highest price at $245,000, that was an opportunity for the seller to cinch the deal at that price by accepting it.   (Don’t get side tracked here by price per square foot, fair market value, or what this house is worth.   The issue here is negotiating tactics and terminology, not what someone’s opinion is about value.)

Had the seller said “yes” to $245,000, there would be a binding contract, and that house that has been on the market for over 210 days would be off the market.

When the seller chose to reject $245,000 and counter at $250,000, it was the seller, not the buyer, who “killed the transaction.”   The buyer announced clearly and without ambiguity that he would agree to a transaction at $245,000.   The seller is the one who demanded an additional $5,000 to make it happen.   So in the long established parlance of real estate professionals (who have been in the business for more than 10 years, and I’ve been in real estate for 30 years), it is standard practice to call this what it is.   “The seller killed this transaction over $5,000.”

To suggest that the buyer killed the transaction over $5,000 would be to ignore the sequence of events and the logical conclusion.   Could the buyer have agreed to $250,000?   Yes, had it been in his budget and had he been willing to do that, but it was the seller who rejected $245,000, which was the last possible price at which this buyer would do the deal.   So it was the seller who blinked.   The last one to blink is the one who kills the transaction.   Now you know why sequence is so important in the negotiating process.   Sequence determines legal rights and responsibilities under a contract, and the last one to reject what would have been a firm price is the one who kills the transaction.

Of course, this phrase, “kill the transaction,” is nothing more than common language Realtors have been using for decades.   But for those who haven’t been in real estate sales for a decade or more, they might think it is a new phrase.   It’s an old phrase, and it’s simply a way of recognizing who blinked last, or who rejected the last price, or who could have taken the last step to seal the deal.   That person is the one who “kills the deal.”   And for decades we have said that person killed the transaction over whatever the difference in price was at the end.   In this case, it was $5,000.

Why is all this important?   It’s important because if you don’t have the experience to know the nuances of negotiating, you can make mistakes, you can misunderstand the sequence and draw wrong conclusions.   You can misinterpret events, and you can feel offended when offense is not justified.

In this case, did the seller make a mistake?   Only time will tell if the seller should have accepted the price of $245,000.   Without this sale the seller is stuck with a house in the worst real estate market we have ever seen in Sequim or Port Angeles, and the seller has to continue to pay property taxes and maintenance expenses while the house remains empty.

But this article is not about what the house should sell for, or whether the seller is right or wrong about the price.   This article is about negotiating and understanding who it is who ends a transaction.   Of course, killing a deal has implications.

Let’s face it–this house could be on the market for six months or another year, and then what will it sell for?   Less?   With interest rates climbing, the cost of buying a home is increasing for buyers.   Would you have sold this house at $245,000, or would you have killed the deal over $5,000?

[Update July 29, 2009:   The subject home is still for sale and apparently has not   sold with 259 days on the market, which doesn't count the prior days of the foreclosure not counted in the MLS.   Stay tuned for further updates.]

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• Negotiating Price on Homes and Land in Sequim and Port Angeles