Robert Darrow, @properties

Archive for the ‘Negotiation’ Category

It just came to me today, when I received the fifth email from the Head Honcho’s at @properties announcing another development that has slashed prices quite dramatically to inspire some fast sales.

This is after remembering that my Video Walking Tour of Roscoe Village contained one vignette of my comments on some of my buyers getting some REAL GOOD DEALS so far this year.

The buyers that I mention in the video above made an offer of $475,000 on a River North townhouse listed for $565,000.  The owners countered us at $550,000.  My advice was to try to settle for around $525,000.  My buyers made a counteroffer at $500,000, and when the received a counteroffer of $540,000 said “No Thanks.”

Those sellers came back to us a day later and said they would take the $500,000.

Your guide had the pleasure of selling one of the massively discounted one bedrooms at 2930 North Sheridan on the very first day of their blow-out sale.  $40,000 off a $260,000 one bedroom is a very sweet deal.

Here’s another one from a few weeks ago.  Since this flyer is getting on three weeks old, we have the results of the incentive:  Over 100 more contracts since this program was released to @properties in-house transactions, and then to the Public a week later.

More? You ask?  Savings at Superior 110 are also in the 20% off range.

A couple examples of incentives that probably won’t work in the flyers below.  No mention of the amount of discount offered for these “Builder Close Out Price Reductions.”  But looking in the MLS, they appear to be around 5% off.  That’s probably not going to cut it.

And at Silver Tower (below) the $5,000 off units that start at $250,000, but easily scoot above $500,000, the discounts amount to 2% on a less-expensive one bedroom to under 1% on the upper end large units in the building.

The syndrome whereby buyers show up at your property during the week regurgitating something they read in Mary Umberger’s column in the Chicago Tribune on Sunday.  Frequently this syndrome manifests itself with the clutching of the oversized Sunday Tribune tucked innocently under an arm, or with ink-smudged fingers leaving prints all over your appliances.

Confirmation of this syndrome can be achieved by simply reading Mary’s column and comparing it to what you hear in these situations.

Buyers show up at your development open house asking for tons of upgrades (or even a CAR!) because they read that:

An unscientific sampling of marketing materials finds a number of arresting, exclamation-point laden promotions. Many continue to offer tens of thousands of dollars in goodies or price reductions. And if you have your heart set on a big-screen TV — or even a car — such opportunities still exist.

Buyers turn in a low offer on your listing because over the weekend they read that:

A trio of economists told the nation’s beleaguered home builders Wednesday that housing probably will continue its slide through much of 2008, until a painful but necessary drop in new- and existing-home prices — 15 percent or more in some parts of the country — helps find a turning point.

Thanks to Greg Braun from the law firm of McCormick Braun Friman, LLC, for the idea for this post and continuing series.

Today’s front page Real Estate section in the Chicago Tribune featured an article titled “Buyer Vs. Seller” about the eternal struggle between buyers and sellers during negotiation to buy or sell property.

One small paragraph – easily glossed over – mentioned the universally distasteful strategy of buyers negotiating on several homes at once – pitting sellers against each other. This strategy is particularly hardcore and almost always considered the worst in down and dirty negotiating tactics.

Mind you, negotiating on multiple properties is completely legal and is quite effective. But at the end of the process, there will almost certainly be hard feelings and a trail of brutalized sellers across town.

The point of negotiating on multiple properties at the same time is to extract the best price possible from a seller, and then use that best price to hammer on another seller on a different property to reveal his best price. Or perhaps even more. Frequently, it’s possible to get a seller to reveal what he believed was his or her bottom line in short order, and then extract just a little more.

If you’re on the receiving end of such tactics, there are a few techniques you can use to minimize your exposure to the tactic, but still have a shot in the negotiations. This post is all about protecting yourself when involved in negotiating with a buyer using this technique.

In our market, it’s customary for a buyer to submit an offer on a property either himself or through his Realtor in writing on a standard contract form provided by the local Association of Realtors. But then, as negotiations go back and forth with different prices and terms, frequently the parties convey their counteroffers verbally. Either through their Realtor, or directly, depending on whether the house is listed with a Realtor or For Saly By Owner.

If you discover that a buyer interested in your property is bidding on multiple properties, you should employ a couple of distinct strategies.

First, as long as the potential buyer is still negotiating on other houses at the same time as yours, you cannot reveal what your bottom line price is. It’s even better to not reveal a figure even close to your bottom line figure. In this instance, you will only negotiate a token amount off your asking price – even if it’s something ridiculous like $500 off. The reasons are two fold: You don’t want to provide the ammunition that this buyer is going to use to hammer away at another seller. Although at this point, this doesn’t have anything to do with you, it will protect you in the next round of negotiations. When your buyer feels that he has extracted what he feels is the best price possible from the other seller, he’ll come back to you to see if you’ll beat it. At this time, you’ll be able to decide if you care to make a better counteroffer, or if the amount is already too low, tell the buyer “No Thanks.” Either way, you or your potential rival won’t have given as much away.

Second, always require that your potential buyer submit his counteroffers in writing. This way, your adversary can’t take your best number and tell you he’s “thinking about it” – which means he’s using this new low counteroffer to negotiate against another seller. If, by chance, this buyer submits a counteroffer to you that you find acceptable – in writing – all you have to do is sign it. The worst situation would be to reveal to this adversary that you would agree to his latest price or terms, but not have them in writing. At this point, you can pretty much say goodbye to this buyer as he’ll be trying to extract a few hundred bucks more from the other seller in your neighborhood.

Keep in mind that these tactics are extremely advanced. The downside could be severe to the buyer. Most Realtors advise their buyers not to submit multiple bids as the slight possibility exists that they would wind up under contract on multiple properties. Though the likelihood that this might happen diminishes the more ridiculously low the offer price, this simply means that the buyer’s Realtor will be wasting his time chasing multiple contracts all over town. You’re not likely to encounter these tactics from a buyer working with a Realtor. But you’d be well advised to get the assistance of your Realtor or your lawyer if you’re the seller in this situation.

Sure!

Wouldn’t it be great if the answer was that easy?

In the past week, there have been a number of questions on the discussion boards along these lines. Another one was worded this way: “Is an offer of $420,000 on a property listed for $460,000 reasonable?”

Of course, it’s difficult to say what a reasonable offer on a piece of property would be if I didn’t know the property myself. This question is one of the more difficult ones to pin down in and internet-discussion-board type of environment.

Probably the most important place to start in any negotiations on a piece of property will be with a professionally prepared CMA (Comparative Market Analysis.) Properly armed with your CMA you will know whether or not the property you are interested in is priced appropriately for the market, priced too high or even priced too low.

In my neighborhood, there is one house listed for $2.6-million that I think is only worth $1.6-million. How outrageous would it be to bid “One… Million… Dollars…” (Mwaaa Haaa Haaa) lower than the asking price on a house? I would.

On the other hand, there are a few developers out there that are completely in tune with the realitites of the current market conditions and have their properties priced aggressively for the neighborhood. These developers are writing contracts rather than complaining about how few buyers there are.

It’s like they’re negotiating up front. “Hey – we’re already 10% off! Come check out our inventory!” In this situation, you might not be able to negotiate as much. Especially if the developer is down to his last unit. You wouldn’t want to miss out on a great price on a property because you couldn’t get just a little more off the price.

If a property is priced just right, usually there is a little bit of negotiating room in order to preserve the tradition of making an offer and haggling a bit. Probably not 10%. Maybe not even 5%. But at least a few hundred dollars to several thousand dollars can be negotiated if presented well.

Prepare a good reason. Great negotiators will have a logical reason why they are asking for a few more dollars. Even if you don’t. Do your research. Perhaps the property you are bidding on is the exact same price as the same model that sold just a few weeks ago. But perhaps that unit had newer carpeting. Or some desirable built-in cabinetry. Or a fireplace. Pointing out a feature that is important to you that is missing is a great negotiating strategy.

Another good strategy is to ask for credits. Perhaps you’ve saved up just enough money to cover the down-payment on your new property, but the closing costs (perhaps including Chicago’s notorious buyer transfer tax) are higher than you expected. Ask the seller to cover some of these expenses. Having a logical reason to ask, and presenting your case as politely as possible goes a long way. Way better than hammering away at that last thousand dollars. Just Because.

We received an offer on one of our listings on Sunday. The condominium was listed for $400,000 plus $35,000 for each of two parking places – a total of $470,000.

The offer came in from a couple that had not seen the unit for themselves, but their agent had pre-viewed for them a week earlier. The offer came in at $100,000 under list price. Mind you, we had just reduced the price aggressively and were right in line with other comparable unit prices in the building.

During negotiations, we did learn that the buyer was only interested in one of the parking spots, but this still left the offer some $65,000 off the asking price. We do have the ability to sell the leftover parking space to someone else in the building later.

After delivering counteroffers back and forth once, the buyer’s agent slipped and said “Which unit is this for?” WHOA?

We immediately ask: “Are you bidding on multiple units at the same time?” and the answer from the broker was “Yes.”

This extremely aggressive form of negotiating is not considered illegal here in Chicago; there is not much of a danger that a buyer will wind up owning two or more pieces of property. We usually write our first offer and deliver it, but negotiate verbally. Therefore it’s possible that you could agree to price and terms on a property, but not follow up with a written version. We also have very generous attorney review clauses in our contracts, so a buyer’s attorney could cancel a contract during the first few days of attorney review.

Though both of these tactics are completely legal, they will not garner any favor with a seller’s agent that discovers that these underhanded tricks are being used on him. We now know that these buyers are pitting us against several other sellers in the same building, and hammering us against each other to beat out the lowest possible price. Then, after the bottom line is discovered for each, signing the contract with the most desired terms leaving everyone else holding nothing in return.

Our advice to our clients is to negotiate in earnest with someone negotiating in good faith with us, but in this case, since every negotiation we make will be used against us, our best defense against this strategy is not to reveal our lowest price.

Normally, it’s considered to be acting in bad faith to be negotiating multiple offers at the same time without all parties in the negitiations being aware of the tactic. Buyers should beware that extreme negotiating tactics can backfire if the other party learns that they’re being played against other competitors. In our case, since we know that our bargaining position will be used against us, we won’t reveal anything close to our true lowest price.