BEWARE: The Most Overlooked Aspect of Real Estate
“Eric, if you could only do one aspect of your business daily, what would that be?”
I was having a conversation with a fellow business owner and entrepreneur, someone whom I consider a friend and mentor—Teresa—when she asked me the question.
Let me set the scene before I share my answer.
Teresa is one of the most successful “Bank On Yourself” advisors in the country and employs five “advisors/support staff” directly under her. Teresa is someone to whom I talked about hiring my executive assistant, Susan Martin, and she assured me that it was the correct move. She was right.
Teresa does not do the day-to-day operations of her business. She doesn’t write the policies for her clients. She doesn’t send the paperwork to the investors, but what she does do is have the consultation with the client and properly structure the investment.
These are the two most important aspects of her business and that is all that she does on a daily basis, so when she asked me what I would do if I could only do one thing daily—what do I love?— my answer was, “Negotiating! I get the most pleasure out of winning for my clients.” This was my knee-jerk answer. Now, in reality, I can’t negotiate all day. But her larger point was to do what you do best and what is the most beneficial for your clients, and hire people to do everything else.
Negotiating is an aspect of real estate that is often overlooked but is the most important aspect when it comes to the “bottom line” for the client—you. If selling, you could put multiple thousands of dollars in your pocket. If buying, you could save on the amount needed to buy your home.
I’ve often wondered why, when people are getting ready to buy or sell, their first questions to the agent aren’t, “What is your philosophy on negotiating? What strategies do you employ in your negotiating? Give me examples of how you helped your clients’ bottom lines using your negotiating tactics.”
The next question—and this blows my mind, if you are dealing with a “team” or a group of agents within the company—should be, “Who will be the ONE person negotiating my contract with the other party?”
This is an important question, as your agent is negotiating on your behalf, and having an unskilled negotiator working for you could dramatically impact you financially.
An agent who can win in negotiations is worth far more than what they are actually paid. And an unskilled negotiator can cost you hidden profits.
Did you know that there is an art to negotiating, and when you are in the middle of negotiation, WHEN and HOW you call the other party back to counter offer can actually cost thousands of dollars if not done strategically?
Negotiating Correctly is a Skill that Must Be Honed…
Just in the past two months, I have had transactions with the largest producing agent locally, the largest producing agent in the state, and one of the top agents nationwide, and I was SHOCKED at how the negotiations transpired. I was the buyer’s agent on both transactions and thought that I was going to be outmatched because these were well-known, large-volume agents. Both of these agents have a TEAM of agents and assistants who work for them, but I was amazed that they didn’t employ the most aggressive negotiators. In fact, the agents against whom I negotiated ended up costing the sellers on their bottom line.
Two Clients, Two Totally Different Strategies
The first one was a condo in Frederick. I had been working with this buyer, for a few months when she finally found a home that she wanted to purchase. This condo was listed with a very large local “Team.”
The issue that I have found with this team approach is that although the head agent/team leader has their picture on the sign and their name on the listing contract, they are not the one who is dealing with the client and dealing with the other agent. The agent on the sign might have a long history of sales and success, but if he/she is not the one whom you actually get working for you and negotiating on your behalf, then what are you really getting?
Once my client zeroed-in on the property, I called the “Team” to find out who the agent was who would be handling this property so that I could start negotiating on my client’s behalf. My client wanted to make a “low” offer in hopes that the seller would come down a little and then they would meet somewhere in the middle. Although this strategy works sometimes, after having talked with the other agent, she let it slip that the seller was motivated and was already planning a move to Florida, so I suggested a change to the strategy.
The property was listed for $164,900 and my buyer was willing to pay $158k-$159k, but wanted to start at $150k with the hopes that the negotiating would end around $158k. I thought that a better strategy would be to up the initial offer slightly so that the sellers might actually take the offer without a counter if we could entice them just enough. On some negotiations, there is a fine line between starting at a point to which you think the seller will counter and starting at a point from which they might accept the initial offer without a counter.
From the intel gained by speaking with the other agent, I thought it best to use the second strategy here. (Note: my clients and I always talk through how we are going to negotiate the offer, and it is their call on the final price/terms, but we collaborate on strategies). My buyer ended up making an initial offer of $154,000. And when talking to the other agent about the offer, I emphasized the strong aspects of the offer—financing, settlement date, local lender, etc.—and then introduced the price. Although the price was low, the other terms were strong and I made sure the other agent knew this and knew to present it to their sellers in that manner. And guess what? The seller accepted immediately.
So on this purchase, by coming up with the correct negotiating tactic, my client was able to purchase the home for $4,000 less than she would have gladly paid.
A Million-Dollar Steal…
The next Story was frankly one that I thought would never happen. This transaction was with one another high producing Agent/Team. But like the other example, the person on the sign, the one with the fancy marketing, is no more than the face of the “Team.” I never once spoke to him during this transaction. I don’t think that he ever actually set foot in this home. I dealt with one of his agents during the whole process, from the initial negotiations to settlement.
Why would you just hire a name? Selling and buying is so intricate you should hire the person that is actually the one doing and is skilled in the most important aspect—negotiating.
This home was in the top two of houses that I’ve seen in 13 years in the business. You walk in and you feel as though you have just entered a museum. Everything is ornate and pristine. The ceilings are 12 feet high, the rooms expansive, the finishings immaculate. Homes like this just don’t come on the market very often, so the opportunity to ultimately sell a home like this is a once-in-a-career opportunity.
I knew from our initial meeting with the agent and the seller at the property that this home required a special buyer, and that the market for someone with the wherewithal to purchase such a property was limited. As it was currently constructed, this home would not fit the needs for many families. I had this going for me in the negotiations, but on the flip side, there were three owners of this house, so getting the group to agree on terms of a contract was going to be tough.
Okay, back to the negotiations.
This property was listed for $1.25M and because it is so unique and has such amazing features, it might have been worth every penny. But my buyer had a number that it was “worth” for her, and she, being a seasoned investor in real estate, the process by which typical negotiations occur.
She decided she wanted to make an offer on the property, and here was my suggestion: We knew that getting multiple sellers to agree on a contract would be difficult, but it would have been even harder for them to agree on the terms of a counter offer. I suggested that my buyer make an offer at $995k, but in the contract, we wrote that this was her “best and final” offer and that if the seller did not accept it in writing by “Wednesday at 5:00pm,” the offer would be rescinded. What this did was twofold: First, it let them know that my buyer was serious. I had presented her as an investor, not a purchaser with an emotional attachment and let them know that the property only made sense for her at $995k. Second, it gave the sellers a definite time frame in which to accept the offer, as to not let them overthink the proposed offer.
My client and I had frank conversations about this purchase, and we both thought that how we’d presented the offer was a “long-shot”—maybe 5-10% odds of getting the house. So we were FLOORED when I received a call from the other agent (not the one on the sign), telling me that the sellers were accepting the terms presented.
This tactic of negotiating is one that I rarely employ, but I felt it was the only way that we would get this offer accepted…and it worked fabulously.Getting this property for over $250,000 less than it was listed was a WIN in my book!
When negotiating the most important investment in your portfolio, make sure you hire a strong, seasoned, dynamic negotiator.