First time buyer – What should I expect of my agent in the negotiations on a deal?

Answer- Your agent will be trying hard to protect your best interests and present a strong case for you as a potential buyer. Many buyers have expectations of their agent in the negotiation process that border on the unethical or illegal. The buyer who asks his agent to lie to the other side or expects that as a negotiating tactic is way off base and probably will lend up being fired by his agent. Yes, agents do fire clients some time and it’s usually over boorish behavior.

Your agent has a fiduciary responsibility to you, which includes carrying out your wishes to the extent that they are legal and ethical. He/she does not owe you a level of obedience to your wishes that extend across those borders of proper business conduct; so don’t even ask. 

Most agents will try to find a path during negotiations that allows both sides to feel a win. Win-win negotiations do not involve beating down the other side with threats or harsh criticism of the property. Your agent will likely present your case for a lower price or for seller concessions or for seller paid repairs in a logical way; hopefully armed with sufficient market data or cost estimates to justify the requests. Helping your agent by having a strong pre-approval will give him/her more to work with; so get that for them before they start.

You should expect that you agent will need to talk with you often during the process. You should not expect that your agent will go off on their own to negotiate everything and just bring back a done deal. Remember that this is your deal not theirs. You need to stay engaged in the process.  Agents act as facilitators and messengers and may strengthen your points a bit or provide proof of needed things, but at the end of the day it is always your decision. That is why you shouldn't play games with your own agent. They need to know exactly where you stand and how far you are willing to go on the issues. Don’t’ tell them to say no to something or to demand something and then get mad at them if the seller rejects that position. The agent doesn't want to hear from you later “Well I would have given in on that point; I was just testing to see what the seller would do.” That’s playing games.

So this isn't like a sports agent who might go off with just the instructions, “show me the money”;  there aregood article from MSN on price negotiation blunders – a good “don’t do this” guide.

lots of decisions that might need to be made in negotiating a home sale and only you can make the final decision. Things like possession after closing need an answer from you. Things like the appliances that the seller will leave need to be worked out and you need to decide what you can and cannot live with on that. There are potentially tests that you want done and the issue of who pays for them need to be negotiated. You agent will need to know where you stand on those issues. Finally there’s the price and that is usually the biggest sticking point. Your agent will know how to negotiate without ticking off the other side so much that they walk away; but, he/she needs to know where your bottom line is drawn. Here’s a

The negotiation process in real estate can be a somewhat drawn out affair, since there are four parties involved – the buyer, the buyer’s agent the seller’s agent and the seller and e very point must travel up and down that chain of people. That’s a big reason why clarity of intent is so important. It’s very easy for things to get muddled when things are repeated three times before they get to the other party. Many agents will use verbal negotiations, which does speed things up but also introduces an element of potential confusion over what was said by whom and to whom. Ask your agent to document every phone call with an email to both the other side and to you explaining what he/she believes was said during the verbal sessions. If you don’t have it documented it doesn't exist in a court of law.

Finally, when everything is agreed upon, there will likely be changes required to the original Purchase Offer documents – either cross outs with new words or maybe words added to Addendum's or completely new Addendum's. Make sure that you carefully read over everything again to see if it reflects what you think was just negotiated and make sure that the seller also initials and dates all of the changes and signs any new documents. Taking unsigned or documents that aren't initialed into court doesn't work either.

Negotiating with the seller doesn't have to be scary or acrimonious, but it does need to be serious; approach it as you would other serious things in life – do your homework, establish your own limits and must-have items, try to find a way to make it a win-win, stand your ground and be prepared with (and committed to) an alternate plan if the negotiations fail. Finally, let your agent do their job in the process.

First time buyers – Why not just call the name on the yard sign?

Question - I see the listing agent’s name and phone number on the sign in front of a house that I like. Wouldn’t I get a better deal by going through him/her?

Answer – The short answer is no, you probably won’t get a better deal. You may make that agent very happy, since he/she would get what is called a double dip (both sides of the commission) but that doesn't necessarily mean that they work out a better deal for you on the sale.

Remember who that real estate agent works for. He/she has signed a listing agreement with the seller. Because of that they owe their fiduciary responsibility to the seller. They don’t have any obligations to you at all; however, they are obligated to tell the seller anything that they learn about you or from you in your discussions with them. Don’t you think that may put you at a disadvantage later when you are trying to negotiate the price or terms?

Speaking of negotiating; the seller’s agent is contractually bound to negotiate on behalf of the seller, to try to get the best deal possible for the seller. Who, in this call-on-the-sign scenario, is negotiating for you? That’s right; you are out there by yourself when negotiating with the listing agent. Negotiation is a process in which any little piece of information about the opposite side is potentially valuable and can impact things greatly. So, do you want to just hand the keys to the process to the other side?

How bad could that be? Well if you started out by calling on the sign and visiting the home with the seller’s agent, you probably wouldn't stop there. After all, they are probably really nice and

may seem to be really interested in you, so maybe you talk with them the whole time.  You may drop a hint to him/her about the maximum that you are willing to go to get the house or how much you have saved up for the down payment and closing costs; or, maybe you just casually mention that you have to find a place quickly because your lease is up in two months. Don’t you think those little tidbits might help the seller in his negotiations with you? Do you really believe that the seller’s agent, the agent that owes his fiduciary loyalty to the seller, is not going to tell the seller those things? What color is the sky in your world?

If you do call on the sign and happen to get an honest and ethical listing agent, he/she will tell you that they represent the seller and perhaps recommend someone else in their agency to help you. They will at least explain the concept of agency to you and what that means in terms of where their loyalties must be for this house. Depending upon the state that you are in they may explain any options that are available to them and you for them to act as dual-agents, representing both parties in the deal. Michigan is a Designated Agency state, so this is a big deal for us here.

In Michigan an agent must have a signed Agency Agreement with either the Seller or the Buyer. That Agency Agreement spells out in great detail the duties that are owed to the seller or buyer by that agent. There are also provisions that allow dual-agency to happen; but, it is a bit cumbersome and requires that the seller first agree to release the listing agent from his fiduciary responsibilities for the deal with this buyer. The agent then really just become a paperwork facilitator and is not able to negotiate on behalf of either side. Dual agency is rarely used because it is cumbersome and because most sellers don’t want to give up the fiduciary loyalty of their agent. Besides that, the listing agent was probably already privy to confidential information from the Seller and how does he/she now handle that? It’s a slippery slope that most Realtors® do not want to step out upon.

But let’s assume for the moment that you are not in a Designated Agency state. Even in that case there are reasonable expectations that any client should have and probably Real Estate Laws in every state that define what the parties in the deal can expect from their licensed real estate agents. These should include keeping the secrets of the party that they represent and negotiating on behalf of that party. They also include putting the interests of the client that they represent above their own interests. Nowhere in there will you likely find anything about getting you, the buyer, a good deal if they represent the seller.

So, you may ask, why is their name and phone number on that sign to begin with? The main reason is that it’s advertising for them. They hope that other would-be sellers see their name and call that number to list their house, too. It might also help a buyer’s agent by giving them someone to call directly to ask questions about the house. It does serve a purpose to have their name and phone number there on the sign, but that purpose for it being there is not about you, the buyer.

So, when the listing agent’s phone rings and someone on the other end says, “Hey, I was driving by this house and saw your name and number; can you show it to me?”; the answer

should be, “Well, I’m the listing agent for that house, so I represent the seller; but, I can find someone else in our office to show it to you if you’d like.” If instead you (the buyer) hear the sound in the listing agents voice of “ Yes- cha-ching!”; that is the listing agent counting his commission from a double dip opportunity that you just tossed him.  Just hang up and go get a Realtor® to represent you. You will be better off in the long run.

This whole issue won’t come up if you just start out by getting a good buyer agent – a Realtor® - to work for you and to represent you in any offers and negotiations. I posted here about the things that you should do before you start looking in a post in February that is meant for all buyers. Click here to read that post. You may want to read the entire 10-post series for Buyers, since that advice applies whether you are a first time buyer or have bought lots of houses.

The point of this post was not to denigrate listing agents. They are performing a needed and valuable task; but the point is that they work for the seller. You need an agent working for you. Buying a house isn't a fun and games process like buying a car. Most people know how fake that process is and how to play that game, now. Buying a house is the biggest financial decision most people ever make in their lives. It is a game that you are not qualified to play in alone. It is a team effort. Why would you choose to play 1 against 2 in this game? Get your own Realtor partner and then go for it.

Don’t be insulted; it’s just the market…

I get offers these day (and make some, I must admit) that the sellers get insulted at and just reject outright. When the sellers are insulted there is no negotiating with them. In fact many try to say that they won’t even entertain any further offers from the buyer, because the buyer in their minds is obviously trying to steal their house and is not a serious buyer.

I suppose that there are some cases of buyers out there running around lobbing low-ball offers at everything, to see if they can steal a house or two during this recession. For the most part, however, these are just normal buyers who are trying to buy a house, but who have been conditioned by the market to low-ball. After all, all of their friends and family keep telling them that they should do that, because obviously every seller is desperate and on the edge of (if not already in) foreclosure.

In fact there are lots of foreclosed and short sale houses at very attractive prices on the market, some of which might also be in fairly good condition. And, there are a number of sellers who undoubtedly are near the edge and may be getting desperate. However, the majority of the owner-occupied homes on the market are being offered by sellers who want to move and may even need to move, but who do not need to take a loss on a sale, at least not yet.

What has happened is that the buyer pool has read a lot about desperate sellers and heard a lot about great deals being offered by those sellers and maybe even seen a few short-sale deals go through. So, now, they are conditioned to treat every sale as if it is a short sale or foreclosure sale. They always want to start of their bidding at 15-20% off the asking price. They believe that the sellers will meet them half way, or maybe better.

That’s not happening these days. Banks have gotten much better at pricing the homes that they own to the market and they expect to land somewhere between 95 – 97% of asking price – more if the buyer is also asking for seller concessions to cover closing costs. Owners are also expecting bids above 90% of asking price and hoping to get into that same 95% range, especially if they have to give concessions, too.

Certainly it’s still possible that the owner is overpriced for the market, even though he/she has likely been getting advice and even pressure from the listing agent to lower the price to better reflect the market. In those cases maybe offering 10-15% off is the only way to get the negotiations started near where they should have been in the first place.

So, don’t get insulted if you get an offer for 15-20% off asking price. That’s just the nature of the market these days. Instead take the opportunity of having to respond to this offer to have a serious discussion with your agent about your asking price and about the worth of your home in the current market. You may not like what he/she has to tell you and it may be time to re-examine your reasons for selling to see if it is really what you want to do.

The market is unlikely to come to you if you are overpriced. You can stomp and rage and bellow and pout about the market and all you will get is a big yawn.
If you absolutely cannot sell for what your agent tells you is the current market value for your house, then take it off the market and either wait for a market recovery (likely a decade) or start negotiating with your bank for a short sale or deed in lieu foreclosure.

In the meantime, remember that every offer, no matter how ridiculous it may initially look to you, is the starting point for negotiations that may lead to a sale. Nothing limits the negotiations like a flat out rejection. Don’t do that. Calm down, talk it over with your agent and make a sensible counteroffer or counter proposal (using a Seller’s Response to Offer instead of a counteroffer).

You may have to remind the buyer of all of the features of the home and of it’s condition when compared to a typical foreclosure home to help him understand why your home is worth something more than what he would have offered for that lesser, foreclosed home. The main thing is to try to come to an agreement on what that something extra is and both sides will likely have to give on that point.