Negotiating the Buyer Agent Fee

[photopress:swan.gif,thumb,alignright] Greg Swann over at Bloodhoundblog wrote a lengthy piece on his feelings with regard to changes that are needed in the real estate industry.

I happen to be writing an offer as I write this, actually waiting for a buyer client to come over and sign it, who was the first client with whom I negotiated the fee at first contact over coffee. That is not my normal scenario of negotiating the buyer agent fee, as I generally like to see at least three homes, of my choice, with the buyer before having the discussion regarding commissions.

I like to see how they look at property, what types of things bother them, how many and what kinds of questions they ask, etc… Just as I need to see a house before I know what I would charge the seller, I have to have some idea of the level of difficulty involved with the buyer attaining his objectives, before I can establish a reliable fee base.

So while I do not totally agree with Greg that a buyer should, or even can, negotiate a fee before seeing any homes, his article is well worth reading. I plan to read it again more thoroughly after this contract is signed ūüôā

I will mention, that this particular client and I renogotiated the intital fee we came up with over coffee. So breaking my rule of not looking at houses first, was not a good thing. Having some experience with the agent and vice versa, is the best way to establish a fee that will work for all involved.

Discounters, FSBO‚Äôs and Redfin – Oh MY! And why they shouldn’t matter

So many recent articles and posts have focused on these “new” real estate practices and how they are all reducing commissions, going to drive the stodgy old guard out of business and revolutionize the industry. I‚Äôve also both read and listened to a lot of ‚Äútraditional

Negotiating the Commission vs. “Discounting”

[photopress:album2.jpg,thumb,alignright]My very first entry here on RCG discussed the manner in which a buyer and their buyer’s agent negotiate the buyer agent commission. Being a “Discount Broker” and Negotiating are not one in the same. A “Discount Broker” usually has a set fee or menu of services with set prices. Many traditional brokers have a set range within which their agents cannot deviate. “Negotiating the commission” is a simple phrase for no carved in stone set amount. It means sitting down with a client and determining a fair and reasonable price for this client given this particular client’s needs and expectations. The end result being an unknown factor until the end of the interview. The end result could be higher than the client’s desire, lower than the client’s expectation and in many cases no change at all from the agent’s expectation. Negotiation is about an intelligent discussion with a mutually agreed upon end result.

Last night before I went to sleep I popped over to Greg’s excellent blog and his article that referenced my feelings on the topic of buyers and buyer’s agents. I was a little surprised to see a “nastygram” comment there aimed at me personally and my feelings on this topic. It amazes me that agents who sit down with sellers every day to negotiate the commission, become absolutely outraged at the suggestion that buyer’s should do the same with their agent.

I would like to dispell the myth that I am a “Buyer’s Broker” who exclusively works with buyers only. Not because there is anything wrong with that business model, but because it simply isn’t true. The only reason I highlight buyers with regard to commission negotiations is because agents negotiating with seller clients is a given. There is absolutely, never a listing appointment with a seller, that does not include the topic of commission. Consequently there is no reason for me to evoke change or explain the parameters within which the seller consumer can negotiate with their agent.

One of the main reasons to highlight the difference between “discounting” and “negotiating” is the fact that Buyer Agent Bonuses are on the rise. Every night I receive emails and “Zip Your Flyers” from agents around the Puget Sound offering “$5,000 EXTRA Buyer Agent Bonus!” and “4% SOC!”

The mere concept that a Buyer Agent will be enticed to lead a buyer to one house over another, because of the amount of money that Buyer Agent will make when it sells, shoud be offensive to every single agent in this country.

The Buyer Agent represents the Buyer. The Buyer Agent is not “Selling a House to Make Money”. The Buyer Agent, in representing the Buyer’s Best Interests, should never be offering advices based on the fee structure of each property. That doesn’t mean that a low fee doesn’t infiltrate and influence the thought process. We are human. It would have to be a perfect match for my client and a great house for me to truly buckle down and recommend a house that is paying five bucks or nothing. But there have been times when I recommended a house and walked away with absolutely nothing, just as there are times when I have represented a seller and found that my walking away with nothing was the only way to achieve the objective. It happens once in a while the same as a lawyer does a pro bono case once in a while. I don’t make a business model out of it, but I don’t rule out the possibility of that end outcome either.

As for the jab at the end of the “nastygram” comment “NOTE: Ardell is NOT a REALTOR”, it is absolutely true that I “stepped out of the pew” after having been a member for 14 years or so. I have given NAR over ten years of those 14 years I was a member, to raise the status of the buyer to CLIENT level. I am disappointed that Buyer Agency has not progressed further than it has, and clearly I have given them sufficient time to meet my expectations.

Does anyone really think it matters if I go over and slap my $500 or so over at the Board of Realtors on Monday to “become a REALTOR”? Does taking five minutes out of my day and $500 out of my pocket really make any difference in who I am or how I do business with my clients? I think it is more honest and ethical to be true to myself, and stay out as long as I agree with the DOJ’s position. I think it is more honest and ethical for me to stand outside the fray until our basic thinking is more in line, than to be a member who dissents from within. I’m the one who has to look at myself in the mirror in that regard, and make a personal choice. At present, this is the one I can live with.

As long as the buyer is not expected to discuss commissions when they meet with an agent, the same as a seller – no more, no less, I will remain where I am. Discussing commissions with a seller does not automatically translate into discount nor does discussing commissions with a buyer automatically translate into discount. It is a matter of equal treatment and respect, pure and simple. How can that possibly be wrong?

ON A LIGHTER NOTE – THERE WILL AGAIN BE A PRIZE, ON BOTH SITES, FOR NAMING THE BAND AND ALBUM TITLE OF THE PICTURE IN THIS POST. Same era, late sixties, fabulous Rock and Roll band from the West Coast that might have done better on a different label. Not a One Hit Wonder, with many albums in our collection, and one of Kim’s favorite bands of all time. There are other clues to the band’s name in the photo itself, but this one should not be an easy ,”googleable” answer. Good luck!

Negotiating The Offer Part 1 – The “Homeless” Seller

[photopress:250px_Tug_of_war.jpg,thumb,alignright]It is a popular perception that every seller wants top dollar as their primary objective.¬† In my experience that is not always true, and in fact is often not true at all, at the time the offer is being presented.¬† Let’s take a step back first to see where the perception comes from.¬†

When a seller is speaking with agents before the home goes on market, it is true that the discussion focuses on selling the property at the highest price, in the shortest amount of time and with as little inconvenience to those occupying the home, as possible.  Agents are trained to speak in these terms, and so that is how the discussion generally goes.

At the time the offer is presented however, if there is a lengthy discussion, that discussion is often not about the price at all.  Even when the discussion is about price, the underlying pressure on the price is often about something else entirely, like the cost of temporary housing for the seller.

For many sellers, the minute they accept an offer on their home, they are immediately, though temporarily, homeless.¬† I can’t tell you how many times a seller has looked up at me after signing the offer and said, “I guess I’m homeless now”.

Often when a seller is picking on every minutae detail of the offer, it is because they do not know where they are going.¬† This is a dangerous situation for a buyer, as the seller often wants them to “make it worth their while” to leave.¬† You might think it was obvious to them when they listed their home for sale, that they would have to leave.¬† Trust me, the reality in that moment when they pick up the pen to sign your offer, that the minute they sign it they will behomeless”, hits them like a ton of bricks IF they do not know where they are going.

Any good negotiatior considers the factors on the other side of the table when¬†preparing the¬†offer, or during the give and take of the negotiation process as new information becomes available. While 30 day¬†escrows have become the norm, does that really give a seller the time they need to find their next home?¬† Often¬†the seller¬†can’t make an offer on their next¬†home¬†until their home is sold, or at least in escrow.¬†If you are willing to give them the time they need to know where they are going, and match up the closing dates so they don’t have to go to temporary housing, you¬†often will win out on price.

If you are currently renting, adding an extra couple of weeks¬†or more to the escrow time¬†can actually save you money.¬† Go out to the date where you will not be paying rent and interest on your mortgage simultaneously.¬† Giving the seller time to negotiate the offer on his next home can be a winning strategy in multiple offer situations and even get you the house you want at a lesser price than other offers on the table.¬† Consider a longer close or a post occupancy agreement when writing your offer. (Some lenders will not permit a post occupancy to exceed 30 days on “owner occupied” financing, so check with your lender before agreeing to anything longer than 30 days past close of escrow, even if longer is only by a couple of days.)

Giving the seller the peace of mind that they can stay in their current home until they are moving into their new home is generally worth up to at least $5,000 in price and sometimes as much as $10,000.  If the seller has two offers on the table, one with an escalator up to $460,000 and one at $450,000 straight up with no escalator, they often will accept or counter the lower offer, if it provides them with the ability to find their next home before having to leave the house.  Sometimes something as simple as letting the seller keep some things in the garage for a week or two can make the difference.  Sometimes giving them the entire weekend to move can make the difference.  Sometimes splitting the weekend, giving them all day Saturday to move out and leaving you all day Sunday to move in is sufficient.  Often these little things prevent the seller from pulling extra had on the price to compensate for his uneasiness and inconvenience.

The perception that the highest price on the table always wins out, is erroneous.¬† A seller who faces being “homeless”,¬†will often select the offer that affords him the option to stay until he closes and can move his belongings into¬†his new home, even if that offer is not the highest price on the table.

Is Your Earnest Money Protected By The Finance Contingency?

 

While the purpose of the Finance Contingency is to protect the buyer in the event they are not able to obtain a mortgage, more and more the buyer is not covered all the way to the day of closing.

In a perfect world, the buyer submits an offer with a Finance Contingency that runs through the day of closing.¬† If the buyer’s loan is rejected, the sale becomes null and void and the Earnest Money is returned to the buyer.¬† The seller puts his property back on the market and finds a different buyer.

Finance¬†Contingency addendums are two pages long and much more complicated than the simple explanation above, and much more dangerous to the buyer than they often expect.¬† I have not met a buyer in 15 years who did not expect to get their Earnest Money returned if their loan is not approved.¬† I also have not had a buyer client in 15 years whose loan was not approved ūüôā¬†¬†

It is becoming common¬†practice in the last few years for the seller to counter the offer by shortening the timeframe on the Finance Contingency.¬† Often this is deemed a minor date change, when in fact it is a major change for the buyer.¬†¬†I have even seen buyer’s agents write offers with a 30 day escrow and a¬†15 day finance contingency because that is “common practice” :0¬†

If you have a 30 day escrow and a finance contingency that expires in 15 days, you are not likely covered if the loan is rejected on the 23rd day.  You are also not covered if you did not apply for your loan on time or if you did not submit the documents to the lender in a timely manner.

VERY IMPORTANT, you are also not covered if you do not have enough cash to close. 

I am hoping the attorneys here will have something to add, or will have something on their blog explaining this further.  In the meantime, suffice it to say that just because you have a Finance Contingency, that does not mean that you will automatically get your Earnest Money returned, if you can not close due to financing issues.

How do you get a bargain?

How do you get a bargain when purchasing a home in a hot market, without getting a lemon?

I have thought about the many times over the years that I have helped people purchase property at less than fair market value in all kinds of markets. Up markets, down markets, buyer’s markets and seller’s markets. I have used several different means to accomplish this goal for my clients. Today I will talk about one of the most recent transactions where a buyer achieved a true bargain price.

My partner, Kim, and I recently helped a buyer purchase a property so undervalued, that appraisers have called asking how we were able to acquire the property at that price. Answer was terms. A property came on the market in North Seattle at such a low cost that agents swooped on it like vultures. The seller’s agent was from out of the area, and the property was difficult to value, and so it came on market at a low price. But it would have bid up to “fair market value” or beyond, if we didn’t stop the other bidders in their tracks. We offered terms, or as we Italians like to say “I made dem an offer dey couldn’t refuse!”

One of the things agents do is “pre-negotiate” before they write an offer. I called the listing agent and let her blab on and on about anything and everything. I gleaned a few gems of significant data. The seller was buying new construction out of the area and they were scared about having to leave their current home before their new home was completed. Bingo!

We wrote an offer that did not compete as to price, but allowed them to stay up to a month after closing. This way the sellers had the comfort of knowing their property was sold, they had their equity in the bank three weeks before they needed to close on their new home.That gave them a whole lot of peace of mind.

The sellers did not consider any other offers and accepted ours hands down before several agents even had time to write an offer. Complaints from the trenches? “Why did the seller accept an offer without waiting for us to submit an offer? My buyer would have offered more!” The answer. Terms! Never presume when it comes to terms. Fast closings are not always better, if it forces the seller to pack and move before they are ready. Always base terms on what you know this particular seller wants and needs. Not on what you presume all sellers should want and need.