What Sellers Need: What Buyers Should Want to Supply

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(The companion article is What Buyers Need: What Sellers Should Want to Supply)

Quite often, I hear people talking about the real estate market as if it's all some amorphous blob, and buyers and sellers are no more different than they are in the stock or bond market, or for that matter, people using the bank to make deposits or withdrawals.

I cannot agree with this concept. Real Estate is not liquid, and real estate is not commoditized, and in the absence of some future world government building precisely one identical housing unit with precisely the same environment for everybody, I daresay it never will be. Since the chance of the rulers of that government limiting themselves and their cronies to the same housing everyone else has are nil, you can take it from there.

Let's ask: What do sellers need? Cash, the universal problem solver. As much of it as possible. Why? Because there is something about this property that no longer fits their needs, and it would be more trouble, and more cash than it's worth, to change the property. If it was cost effective to convert the property to the configuration desired, nobody in their right mind would want to go through the process of a real estate transaction twice in order to sell this one and buy something else. The only thing they can really transfer from this property to that next one is the equity. More equity means they owe less on the next property, they can afford a better property, or they have more money left over after buying the next property. Most sellers want more money than is possible or likely, going to far as to shoot themselves in critical locations in pursuit of it. If they are not ready to be rational about it, there is nothing you can do to force them. You can decide you want the property bad enough to pay the extra or you can move on to other properties. Of course, in the former case, the property wasn't really overpriced, was it?

There is nothing sellers want so much as as much cash as possible. If the transaction doesn't get completed, they don't get their cash at all - so if the transaction doesn't complete, they don't get any of what they really want: cash. In fact, they spend cash for every day that property is on the market, or in the process of the transaction. If you don't understand this, whether you're a buyer, a seller, or an agent, you had better act as if you do. Even if they're in a short sale or other distress situation, time is important to sellers. I would rather have no offer than an offer a buyer cannot or will not make good on. Every day that property sits unsold costs that seller money - and this time does not end with entry into escrow and a pending sign. It ends only with a successful sale.

When sellers enter into a purchase contract, they are essentially closing down the prospects of any other buyer. A real estate purchase contract gives one particular buyer the sole and exclusive right to purchase that property until it is properly terminated. It not only gives that buyer the right to buy that property, it requires the owner to sell it to them on specified terms. If someone else comes along and offers a better deal, the current owner is not free to take that deal - they are contractually bound to the existing one.

Buyers therefore need to convince property owners of two very important things: First, that theirs is the best offer that they are likely to receive. Second: That they are capable of consummating this transaction, as proposed, in a timely fashion with as few uncertainties as possible. Many listing agents want to take this way too far, into the illegal territory of steering, but their client, the seller, does have a legitimate need to know that prospective buyers can consummate this transaction in a timely fashion. That seller is making a decision whether to grant a buyer credit, just the same as the lender. They are entitled to ask for information that paints a coherent picture of the prospective buyer in fact being able to carry through on their end of the transaction. Sellers are not entitled to steer the transaction, and unless they're agreeing to a carryback loan, they are not entitled to information of a level sufficient to enable identity theft, but they are entitled to ask for and receive information as regards actual FICO score, verified income, current debts, source of down payment. In other words, an attestation where the person making it can be held accountable for any misstatements. The standard pre-qualification and pre-approval letters are a joke - not worth the paper they are printed on. I do them because lazy and irresponsible listing agents ask for them, and it's easier (and more profitable for my clients) to comply than argue them out of it. But the seller's issues become the buyer's issues, because if the prospective buyer cannot convince the seller that this is the best offer they're likely to get, the seller won't agree to sell to them.

One more thing sellers want. Actually, both sides want this: a nice smooth transaction, that moves from accepted offer to consummated transaction without any problems, hangups, or deal killers. If there's anybody who's willing to stand up and say they want all of these obstacles, I've certainly never met them. Here's the issue: Even the biggest problem personality in the known universe wants a smooth transaction. It's just that their definition is where they proceed to chip and chisel away further concessions the entire time. When a good agent submits an offer, they want it to move as quickly as possible and without the need for any further negotiations to a consummated transaction. Ditto a good listing agent on the counteroffer. Every time there are further negotiations, there is the possibility that intransigence on someone's part send the whole transaction south, and the reason you agreed to that contract in the first place was that you thought it was a good bargain to be making, and therefore, you should want it to close. There are good reasons why there are further negotiations after the contract on most transactions, but there shouldn't be multiple sessions, let alone one every couple of days when the other side thinks of something else they want.

Unfortunately, there is no method known to man that can guarantee to detect such twits before entering escrow. A good agent can know what the signs are, and at least as important, what they are not, but sometimes the warning signs aren't there, and sometimes they are there for someone who really is going to play it straight. The only real way to deal with these twits is upon confirmation of their nature. You don't want to refuse any transaction that very well might lead to a consummated sale, but you do need to be prepared to exit the transaction when such twits reveal their true nature, and if you don't understand when and how to do it, a good agent will really save your bacon - from a suit for specific performance, and paying their legal fees as well as your own.

Needless to say, you don't want to be one of these problem personalities either. So when you agree to a contract, it should be with full intent of carrying through on exactly the terms agreed - no chiseling allowed, only specific solutions for concrete issues that happen despite anyone's best efforts. The best way of preventing problems later is to come to an agreement in the first place which the other side should be pleased to honor.

Caveat Emptor

Article UPDATED here

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About this Entry

This page contains a single entry by Dan Melson published on August 11, 2008 7:00 AM.

Links and Minifeatures 2008 08 08 Friday was the previous entry in this blog.

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