It doesn’t seem that long ago. Homes were listed and before night fell for the first time on the sign in the yard, offers were submitted. Agents faced with the requirement that offers be shared with the seller in a timely fashion found that if an early offer was ratified (even at full price) subsequent offers would be higher and possibly more attractive to their sellers. The art of “E-Bay” styled bidding was born. Agents would counsel their sellers to set a date and time when offers would be reviewed. This gave the appearence of narrowing the window and certainly increased the possibility of multiple offers.
Buyer’s agents, faced with the dilema of having their clients knocked out of the bidding war, began using the non-sensical “escalation clause” with their offers. Their clients were impressed with this manuver and selling agents began to receive all sorts of clever algorhythms breaking down escalation points and dollar amounts.
The selling agents had to love this. Buyers were now letting you know their maximum offer amount. Buyers were doing this under the mistaken impression that if their top dollar offer was taken, they would have to see that there was a trigger offer just below theirs that brought the escalation into play.
Sorry Charlie. The terms of an offer are just that – the terms of an offer. The sellers agent was completely within their rights if they advised their client to counter the offer at the maximum price. They did not have to reveal any offer received to make a counter offer. Smart selling agents understood that the buyers had removed all negotiating power by revealing their bottom line with their first offer.
Conversations often went something like this.
Buyers agent – “My client reserved the right to see the offer that triggered the escalation clause, will you be sending that over with your counter offer?”
Selling agent – “No. We are sending you a counter offer at your maximum dollar figure. If your client wants the house, have them sign the counter offer. Note that the counter is only valid until 9pm tonight. We have other offers but we wanted your client to have the first opportunity.”
Buyer agent – “But….but…..but…our offer said we could see it.”
Selling agent – “Yes it did. Our counter is in your hands. You explain it to your clients, if they want the house, they can accept the counter. Let me make sure you understand. The bold print at the top of the counter that states “the offer is valid until 9pm on todays date”. I look forward to working with you.”
In that market, the buyer always blinked. There was no negotiation. Their agent exposed their position and in every transaction I was involved in…..the buyer blinked and my seller got top price.
The market has changed 180 degrees. Now those same buyers agents are advising their clients to write offers that belong in a comedy club routine rather than a real estate transaction. The same geniuses that brought us the escalation clause are bringing us the bottom feeding offer. A home is listed at $475,000 in a market that reasonably could be expected to bring $465,000 to $500,000. The first two offers come in and they are for $350,000 (cash deal and they can settle in a week!) and $410,000.
The $410,000 offer is countered at $470,000. The agent calls to say his client knows prices are falling and they will wait until the price drops to $425,000. The calender starts ticking (clocks take much too long in this market). There are no more offers. The seller decides that they don’t want to sell and the house comes off the market. The agent that represented the $410,000 offer calls and says “hey, my people would have gone to $450,000.”
I realize, many agents became agents during the “gold rush”. They have never learned how to negotiate. They have never learned how to work with a client and begin a back and forth discussion that will result in a sale. They make an offer and move on. They do not seem to be capable of explaining the difference between “fire sale” and “buyers market”.
Listings last much longer and in many cases it is he who lists second or third is the one that gets the deal.
I understand that the lending crisis has impacted the market. I understand that some homes have been priced out of the range of the average consumer. I understand that there is a lot of inventory and if you are working with a buyer, you actually have to preview homes and show them the best of the lot. I understand that some things have changed.
One thing remains the same. You have to make a reasonable offer for negotiation to begin.
It is very cold on the dark side of the moon.