Negotiating price is a major part of any real estate transaction.  I’ve written elsewhere on this blog about negotiating (Negotiating Price), and the techniques learned in the school of hard knocks over many years.  But today I want to raise a very important aspect of negotiating that very few people think about, and to my knowledge, no one has written about.  What is this element of negotiating that is so important in order to have a successful negotiation?  You may be surprised at my answer at first, but I think you’ll agree as you think about this and your own experiences.

What can either kill a transaction or facilitate its success?  The professional maturity, or lack thereof, of the opposing real estate agent can either facilitate or kill a transaction.  Let me explain.

Let’s assume you have a great Realtor, one who has a deep and broad real estate education, who has decades of real estate experience negotiating hundreds or even thousands of transactions, who is competent and trustworthy, and who is diplomatic but assertive.  You have confidence in your Realtor, and you know he will do a wonderful job in every aspect of your transaction, including negotiating price.  But even if your Realtor is this kind of professional, if the Realtor representing the other side of the transaction is professionally or personally immature, you have a problem Houston.

Childish behavior is often found in adults.  Immature behavior is not a function of age.  Realtors and other professionals are not immune from dysfunctional behaviors.  None of us are.  I have seen opposing Realtors make all kinds of mistakes, mistakes that actually killed transactions.  Now you might think, “Why would a real estate agent kill a transaction when he or she only earns a commission if it closes?”  Good question, but now you’re being logical, and immaturity is not logical.

As a Realtor I’ve had opposing agents swear at me, not return phone calls, not communicate at all when an offer expiration date comes and goes, whine like a baby about an offering price, repeatedly try to justify a higher price even though the listing has NOT sold in two or three years on the market, compare apples and oranges when arguing price, tell me that the comps are higher even though they refuse to show me any of those comps (because they don’t exist), and literally kill an offer on their own listing, contrary to their own client’s interest and contrary to their own interest in earning a commission.

I kid you not.  In 30 years in the real estate business from Fairbanks to Spokane to Las Vegas to Seattle-Tacoma and to Sequim and Port Angeles, I’ve seen some of surprisingly immature behavior that ultimately did not serve the clients’ best interests.  I’ve watched some of these properties subsequently grow stale on the market, and I’ve seen  subdivision lots that hang on the verge of foreclosure on properties that had good and reasonable offers rejected.  What a difference maturity can mean to a real estate transactions on both ends.

While you have no control over the opposing agent’s maturity, you can carefully select your own Realtor.  Don’t underestimate the importance of maturity.  It could be the variable that facilitates or kills your transaction.

Possibly Related Posts:

• Negotiating Price on Homes and Land in Sequim and Port Angeles
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• Negotiating Prices for Sequim Real Estate and Port Angeles Real Estate
• Financial Trouble in Real Estate?
• How To Negotiate Like An Expert

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.

Possibly Related Posts:

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• How To Negotiate Like An Expert

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.]

Possibly Related Posts:

• Negotiating Price for Adults Only
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• How To Negotiate Like An Expert

Buying or selling Sequim real estate or Port Angeles real estate? How you negotiate can mean $10,000 more or less in your pocket when the dust settles. Imagine two card players. One has spent a lifetime learning how to play cards, has become an expert on mathematics and statistical calculations, on human behavior and psychology, and has studied and practiced for decades. The other is a school teacher, a good and honest person, who has taught 3rd grade for 22 years, but has never played cards, and has had no interest in the technical skills required to be a good card player.

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Some Sequim real estate and Port Angeles real estate owners are looking at serious financial trouble on the horizon. Many property owners refinanced not once but several times in the past five years as the mortgage industry reduced rates and standards. Lower rates created the motivation to not only lower the monthly payment on a long term mortgage, but to keep pulling out cash.

While all that sounds like a free lunch, we all know there’s no such thing as a free lunch. Refinancing to lower the monthly payment is great, provided the term of the amortization is not increased, and provided money is not taken out that could go toward reducing the mortgage balance.

Alas, some local businessmen and homeowners are now concerned about their debt service, and this really hits home if the current state of the economy has reduced income. It has for some businesses. In any slowdown, cash is king.

This will present a rare opportunity for real estate investors with cash, and it will also give home buyers with cash or good credit a rare opportunity to buy homes from those who are in trouble. This spring will see new buyers coming from California, Arizona, and the Seattle area shopping for good deals. One aspect of buying and selling will become more important than any other: negotiating experience in this kind of market. The difference could be $10,000 to $50,000. That’s not pocket change.

Possibly Related Posts:

• Negotiating Price for Adults Only
• Negotiating Price on Homes and Land in Sequim and Port Angeles
• Negotiating Price: Killing the Deal
• Negotiating Prices for Sequim Real Estate and Port Angeles Real Estate
• How To Negotiate Like An Expert

Whether you are buying or selling a home in Sequim or Port Angeles, you want the best price you can get. Of course, price is one of many negotiable terms, and you want a clean transaction that closes as soon as possible. Buying or selling a home is not like going to a garage sale where you might get that used paperback for 50 cents or 75 cents, but either price is acceptable. A typical 3 bedroom, 2 bath home can easily be priced at $325,000 or $600,000, depending on the location and the market, and the price you ultimately negotiate involves big stakes, perhaps the biggest you have ever played.

Knowing how to negotiate the price and each term of a transaction could mean 10 to 50 thousand dollars to you. This is no time for a garage sale mentality. The last thing you want to do if you are representing yourself as a buyer or seller is to go up against someone on the other side who has 20 or 30 years of experience negotiating. You will lose, although your opponent will make you think you won. By the way, if you have a real estate agent representing you, don’t assume your agent is a master negotiator. Most are not. It takes years of experience to acquire the skills.

One of my favorite movies is the classic, “The Princess Bride.” Early in the movie the two stars face each other in a thrilling sword fight. They are both extremely good, and leap and dance with grace and skill that is delightful to watch. At one point in the battle, one of the swordsman asked his opponent why he is smiling, and the response is, “Because I know something you don’t.” “What is that?” The answer from the left handed swordsman is, “I am not left handed. I am right handed,” at which point he quickly tosses his sword into his right hand, and the battle continues.

A master negotiator will smile while he negotiates, but he will not reveal he is a master negotiator. In fact, he may have practiced a bit of a stutter or slow talking, and he will appear so average. He learned not to seem too smooth. He also knows something you don’t. He knows how human nature negotiates. He knows the patterns. He’s seen the pattern hundreds of times, and your behavior is quite predictable, although you don’t even know that he knows how you will respond and counter.

You may say, “No one knows how I will negotiate. Even I don’t know yet.” Oh, but he does know. He is often able to predict with an accuracy of 70% to 90% how negotiations will proceed and what the final outcome will be. But of course, he will not reveal any of this to you . . . ever.

Here is a simple example, which actually occurs regularly, but there are many nuances that an expert negotiator learns. The nuances are a function of the parties’ motivation, experience, and financial status.

A home is listed for sale at $425,000. The actual FMV (fair market value) is only $405,000, but the seller thinks that he has to start high to negotiate down. Almost all sellers make that mistake. A lot of real estate agents do, too. The buyer happens to have an expert negotiator in his corner, and knows the FMV is in the range of $395,000 to $410,000. The buyer is not going to pay more than FMV, and would prefer a little lower price since the market has stalled and prices may drop a little in the months ahead.

The buyer’s negotiator writes the offer at $380,000. The buyer is willing to pay more, but his negotiator knows the seller will typically meet them halfway in a counteroffer, $400,000. While the seller is having all kinds of discussions at his end about how this is his lowest price, yadda yadda, the buyer’s negotiator doesn’t care, because he knows something the seller doesn’t know. He knows the seller typically will come down again.

Buyer’s counter now meets the seller halfway again at $390,000, and seller (after agonizing) counters at $395,000. Buyer’s negotiator had already prepared his client for this eventuality, so this has all played out just as planned for the buyer. Unfortunately, the seller thinks this is all new ground, and that he has everything under control. That’s precisely what the buyer’s negotiator wants the seller to think.

Are we done? No. The buyer’s negotiator had a discussion with his client in the very beginning about the carpet in the living room. The buyer would like new carpet. Continuing to implement their original plan, the buyer now counters one last time, accepting the price of $395,000, provided the seller gives the buyer a $2,500 credit for carpet in the living room. The seller now exhausted emotionally by this whole process, and having already gone through the negative experience of having his house on the market for 216 days with no offers, is not going to kill the transaction over $2,500.

The buyer wins, and the buyer wins precisely as his negotiator had coached him. To this day the seller still does not know how this was orchestrated, or even that it was. The seller found the whole experience very stressful, and of course it would be, because one of the greatest sources of stress is uncertainty. The buyer had a very pleasant experience throughout, because he knew what to expect and what he was willing to do, and he knew the outcome he wanted. He got that outcome, and so the buyer lived happily ever after.

Do you have a master negotiator in your corner? I hope so.

Possibly Related Posts:

• Negotiating Price for Adults Only
• Negotiating Price on Homes and Land in Sequim and Port Angeles
• Negotiating Price: Killing the Deal
• Negotiating Prices for Sequim Real Estate and Port Angeles Real Estate
• Financial Trouble in Real Estate?