SOME BUYERS WIN, SOME BUYERS LOSE - WHAT MAKES THE DIFFERENCE? THIS STORY QUALIFIES FOR THE "UNBELIEVEABLE BUT TRUE" FILE. HOWEVER, THE STORY YOU ARE ABOUT TO READ IS NOT ONLY TRUE, IT IS A REALITY THAT PLAYS ITSELF OUT EVERYDAY IN THE REAL ESTATE MARKET. THIS IS A STORY OF TWO DIFFERENT HOME BUYERS. ONE HAD A "WINNING EXPERIENCE", ONE HAD A REAL "LOSING EXPERIENCE". ONE BUYER PURCHASED A HOME $20,000 UNDER THE ASKING PRICE, AND ONE BUYER PAID $5,000 OVER THE ASKING PRICE - YET BOTH OF THESE BUYERS WERE SURE THEY WERE WINNERS. HOW CAN THAT POSSIBLY BE? YOU'RE GOING TO READ A SUMMARY OF THE BUYING EXPERIENCE THAT EACH OF THESE BUYERS HAD - AND DISCOVER HOW ONE BECAME A REALLY BIG WINNER.
(For obvious privacy reasons, I've assigned ficticious names to the characters in these case studies. When you are reading the quoted words, phrases, or dialogue of the characters involved, it should be understood that some paraphrasing is unavoidable and quotes from the characters should not be taken as a "word-for-word" account.)
Case Study #1:
Nick Negotiator looked at many properties during his home search. Nick didn't need to be in a hurry, he had the luxury of time and flexibility - he didn't need to jump on the first home he looked at - Nick had lived in the area his entire life - he could always move in temporarily with a friend or family member if the right house didn't come along right away. Nick had retained Eddie Eager, a local real estate agent, and the two had been out together looking at homes many times and they were finally getting closer to finding a suitable home for Nick. Nick was actually starting to get really fatigued with the whole process - and he was becoming less particular about the home he would eventually own. It was on the nineth "shopping trip", at the 50th home that Eddie had shown to Nick - Nick turned to Eddie and said "You know, this is it, I think. The home doesn't have everything I wanted but, if I can get a good enough deal, it could work." Eddie Eager was in fact eager - he pulled out a purchase agreement on the spot and wrote the offer for Nick. He was a little surprised when Nick wanted to offer $20,000 less than the asking price. It didn't affect the eagerness in Eddie much - he was a bit fatigued with the whole ordeal of showing homes to Nick and he was just happy to finally be writing an offer on anything with Nick. He did tell Nick that he didn't think the seller would take such a low offer - he advised Nick that making such an offer could alienate the seller and may result in a rejection of the offer and they could find the seller less willing to negotiate at all with Nick in the future. Nick Negotiator was not convinced and he insisted that Eddie eagerly submit his offer to the listing agent and see what happens. Eddie complied and, the next day, received an acceptance of the offer! Eddie's eagerness was raised a couple levels by the good news - he called Nick and communicated the great news. Nick was happy - sweet affirmation of his significant negotiating skills! Nick and Eddie worked very cooperatively together and were able to close the transaction in less than 30 days.
Nick did enjoy sharing with family and friends how he had virtually stolen the property - and all were fairly green with envy that someone they knew had actually gotten $20,000 off their home purchase. Nick was the "go-to-guy" anytime his family or friends had a question about real estate. Everyone knew Nick was a "winner" when it came to real estate.
It was 12 months after his nearly legendary purchase that Nick decided that he really wanted to enjoy some of the finer things in life - he had gotten $20,000 off his home purchase and he decided that he wanted to turn that "win" into something he could enjoy. He decided to plan an in-ground swimming pool in his large back yard, and complete the scene with a hot tub inside a gazebo. He got extensive estimates over the next six months - he negotiated in true Nick Negotiator form. Finally, he found a contractor to do the work at his price - he signed a contract for pool installation, hot tub and gazebo. He explained to the contractor that he would like for the work to start in about 30 days. Nick just needed to go to the bank and borrow the money out of the equity in the home. Of course he had already explained to the pool contractor how he had stolen the place.
A few days later, the bank sent Albert Appraiser out to Nick's home - who likewise listened to the legendary story about the great deal Nick had gotten when he purchased. Albert took measurements of Nick's home and noted all the other property information that he would need to complete the appraisal. One week later, Nick's world started changing.
Albert Appraiser had remembered Nick's story - and because he did, he decided to go by and see Nick - it was necessary he felt - because he didn't have good news for Nick at all.
At Nick's kitchen table:
"Nick, I came by today because I wanted to share my appraisal with you. I worked on your appraisal, off and on, for the past week - most appraisals only take me two or three hours. This one took longer because I wasn't finding data on comparable properties that will result in the appraisal value that you need to complete your financing for the pool and hot tub. The highest I can appraise your property is about $10,000 LESS than what you paid for it one year ago. In fact, based on the other sold properties in the area, I believe that you paid about $10,000 over fair market value when you purchased the home one year ago."
Nick was not shaken too much. He thanked the appraiser for his time and showed him to the door. The next day, Nick chewed out the manager at his bank for sending out such an incompetent appraiser and demanded a new appraiser. The next day, Anthony Appriaser showed up at Nick's house - and a couple days later, Anthony came to the same appraising conclusion that Albert had. Nick immediately withdrew all his money from the bank, went down the street to another bank and started the loan process with his new bank. His new bank's appraiser came to the same conclusion. Nick was now getting worried - very very stressed and concerned. He called Michael Mortgage-Broker, same result. Finally, he started interviewing appraisers - he just knew that there must be a competent appraiser out there who could understand the whole situation - HE HAD GOTTEN $20,000 OFF THE HOME!!! He finally talked to Ace Appraiser - a 35 year verteran of the appraisal business - he asked Ace to appraise his property.
One week later, Nick absorbed the same news one more time. Ace was telling Nick the same thing that every other appraiser had told him.
It was true - unbelieveable but true - Nick Negotiator, one year earlier, had gotten $20,000 off the list price of the home he purchased - problem was, the home was at least $30,000 OVERPRICED! Nick literally OVERPAID $10,000 for the "bargain". None of Nick's friends and family could ever quite figure out why Nick abandoned the pool and hot tub idea - everyone was looking forward to the pool parties at Nick's house.
Case Study #2:
Irene Informed really needed a home. Irene was being relocated by her company - she was uncertain about the move and her confidence level was not especially high.
Irene retained Charlotte Champion, a local real estate agent, who agreed to help Irene find her next home. Charlotte understood how difficult it was for Irene to move to a new city - not knowing much about areas, values, etc. Irene enjoyed all the insights Charlotte could offer about neighborhoods, schools, and the local housing trends.
Irene explained her circumstances to Charlotte in their first meeting: "I'm relocating here because my company is downsizing - I'm taking a pay cut and a lower position with the company - I don't like it much, but I need the job. I need a good home, in a nice area, that is also a good value - my job may or may not be secure as far as I know right now - I'll do some painting and repairs if necessary - I need this home purchase to be a real financial advantage for me - things are pretty uncertain right now."
Charlotte and Irene spent an afternoon together looking at homes - Charlotte asked Irene endless questions it seemed. Irene starting feeling really comfortable because Charlotte was so interested in Irene's wants and needs and preferences. Irene Informed became more informed as Charlotte explained the entire home purchasing process, the advantages of inspections, and home values in various areas.
Two mornings later, Charlotte Champion proved herself a real estate champion. At 7:30 a.m., as usual, Charlotte was working - she was in front of her computer terminal looking at all the homes that had been listed for sale in the past 24 hours. Charlotte noticed a new listing in a neighborhood that Irene had liked when they had been out looking at homes. Continuing reading the listing, Charlotte noticed the home had the number of bedrooms and baths that Irene needed - she noticed that it was a home that had been repossessed by a bank - the price seemed quite good too. Charlotte scurried out of the office to the nearby neighborhood - the new "repo listing" looked pretty good from the outside. The home was only two years old - Charlotte decided to preview the inside of the home - it was actually very nice - a couple rooms needed painting and one needed carpet.
Back at the office, Charlotte researched comparable properties that had sold in the same neighborhood and quickly realized that the home was priced at least $15,000 below the prices other comparable homes had sold for. At 8:30 a.m., Irene Informed was on her way to her office when Charlotte Champion called Irene on her cellular phone:
"Irene, Charotte Champion calling. I just previewed a new listing that I think you need to see really soon. It seems like an exceptional value and I think it may sell very quickly."
Irene took a detour and met Charlotte at the new listing. Irene agreed that the home was suitable. At 9:15 a.m. in Charlotte's office, Irene was becoming more infomed as Charlotte and Irene poured over data from the neighborhood - looking closely at listings of similar properties that had sold in the last twelve months.
Irene: "Charlotte, similar homes have sold in this neighborhood for $20,000 more than the asking price of this home. How is that possible?
Charlotte: "Repossessed homes can be exceptional values. Banks are in business primarily to loan money and help people invest money - when banks foreclose on real estate, they are very motivated to liquidate those properties. And, they are not specialists in pricing property. Consequently, some of those bank repos are very overpriced and sometimes repos hit the market at exceptional values - and this one does look like an exceptional opportunity."
But, even Irene Informed was a little suprised by Charlotte Champion's next advice. Charlotte explained that properties that are priced significantly below market often have multiple quick offers - and when they are exceptional values, it's not uncommon to have multiple offers OVER the asking price. Charlotte suggested submitting a purchase proposal $5,000 OVER the asking price of the home. Irene made at least $15,000 that day! The following day, Irene's proposal was accepted, and Charlotte found out that the proposal she had submitted for Irene that day was one of five offers the seller had received - three of those offers were over the listed price. Irene's bid was highest by a few hundred dollars. Irene Informed was confident that her decision had been an informed decision. About a month later Irene moved into her home.
Irene enjoyed expressing her own decorating creativity as she painted and changed color themes.
Irene enjoyed her home - and her new position at the company was less stressful and consuming - allowing her time to plan new improvements for her home.
Nine months after relocating, Irene was informed that her company would be closing entirely over the next two year period - Irene would soon be unemployed. Irene knew she had to take decisive action to protect her future. She decided that continuing her education and updating and furthering her existing skills would make her more marketable to employers. There was one hurdle in the way though - money. Education isn't cheap. Irene Informed called Charlotte Champion and discussed her situation. Charlotte referred Irene to a lender who could help Irene tap some of that equity in her home to access money for her education.
Irene started getting insecure - she recalled paying $5000 more than the asking price for the home. She needed about $12,000 for her eduactional goals - she just hoped her past decisions were good enough to meet her need. One week later, the loan officer from the bank called Irene with the news:
"Hi Irene, Louie Loan Officer here, I wanted to inform you that we received the appraisal on your home today from Albert Appraiser - he says that your home is worth at least $18,000 more than you paid for it. We can get you the $12,000 you need for your education - we can approve you for another $6,000, if you think you'd like to have some emergency money to fall back on, just in case you need it during this career transition time you're facing."
Today, Irene enjoys a new, more secure career. The home she paid $5000 over the asking price became her secure sanctuary of sorts through the uncertain times. She has since moved and purchased her dream home. Whenever she hears people talking about buying a home - she loves to share her story - "Let me tell you how paying $5000 over the asking price saved my butt one time!" She thinks it's funny to see the confused looks on people's faces - they always enjoy her story - she's a great example of the high value of informed decisions and sound negotiating strategy.
These two case studies are packed with great lessons that can benefit any buyer. Here are a few that come to my mind immediately:
-Be careful about any "generalizations" about real estate. Every single buyer is unique. Every seller is unique. Every parcel of real estate is unique. Unique literally means "the only one of it's kind". Every situation in real estate is unique. It is only when you're informed as to the unique facts of your situation that you can make the best possible decisions. Your Realtor should provide the personalized attention and expertise that your situation requires.
-There is no substitution for well-defined goals. Commit your real estate goals to writing - they should be specific, measurable, and realistic. This is where an effective Realtor will excel. You'll find yourself with a clear action plan for success that is realistic and focused on your goals. This is the purpose of our "Buyer Consultation Session". It is the first step to happiness with your move - it is an integral portion of our client service.
-Realize that "good negotiating" is literally: the process of arriving at an agreement that achieves your objectives and goals. We see this daily when representing our clients. We negotiate on behalf of our clients - we assist and counsel our clients in this area and subject of negotiating. There is a misconception in some areas of the marketplace that believes that "good negotiating" means things like: getting someone else to do something they don't want to do - or - getting as much from someone else as possible - or - "beating someone else at the game". I don't believe this, because even if I could get other people to do things against their will, even if I could get people to give more than they want to, and even if I could "beat people at the game" - how does that guarantee you will be happy? On the other hand, when we find a suitable home that meets your objectives and goals, and the result is that you are happy in your home for many years, then you have a result that means happiness and satisfaction. Good negotiation means arriving at "win-win agreements". Now, don't misinterpret this explanation - we do a great deal to represent our client's interests and in fact, negotiate on your behalf. We present all of your proposals in their best light and we strive to show the other party how our proposal represents a sincere effort to arrive at a good agreement. In our zeal to help our clients achieve the most advantageous terms possible, we must never lose sight of our client's objectives and goals - those things that will mean long-term happiness and contentment.
-Informed decisions. A Realtor's ability to understand and interpret the activity in the market place is of utmost value to any home buyer or home seller. As part of our service we offer comprehensive market evaluations of property so our clients can make informed decisions based on what is known as "provable market value". "Provable market value" does not involve opinion or speculation. We start with the appraisal process and then continue the evaluation two steps beyond the appraisal process. As our client, you will know the market before you make a buying decision. You'll be less focused on the amount the seller is asking - you'll make your decisions based on the amount that the property is actually worth based on market facts.
-Success in real estate is literally THE JOURNEY TOWARD THE ACHIEVEMENT OF PREDETERMINED, WORTHWHILE GOALS.
We hope the insights and examples in this article have been informative and helpful. When you're ready to move, we stand ready to help.
By: Mark Howe