Sunday, March 25, 2007

Allow Me To Retort...

  1. This is really not a 'retort' per se but rather, my personal response to some provocative questions posed by a young couple who frequent this Blog from time to time. (And the above title sounded a little more intriguing to me than simply, Answers To Real Estate Questions blah, blah, blah. ) It is worth mentioning too, that these readers also have a Blog chronicling their own attempt to sell a property that you can find by clicking on the Haloscan section in my sidebar. Their following questions address my two most recent 'Multiple Offer' postings--in short, the Buy Side and Sell Side of the 'Big M.O.'

    Q. From a buyer's standpoint, how do you "really" know that another offer is on the table? I mean, do agents sometimes use this (whether legal or illegal) to get the buyer closer to the seller's asking price (or over)?

    A. This is where your Buyers Agent needs to have a well trained snout. I can usually smell a fake M.O. a Chicago city block away but yes, Agents sometimes do fake an M.O. I just believe that the skill set is so advanced to pull this off successfully that one might just as well use these talents to do the deal correctly. And this includes a 'Correct Pricing' discussiion with the Seller at the initial Listing appointment.

    Q. How does a buyer make sure that there is really another offer or if it is simply a tactic to drive up the price?

    A. I'm not sure how a Buyer can make sure but as a Buyers Agent, I have a small aresenal of multi-tiered questions I ask the Listing Agent in rather rapid fire fashion. (For me to proceed and reveal my 'weapons' an Exclusive Buyers Rep Agreement needs to be signed now!) One good way though, is not to change your offer at all during the second 'go round' of the M.O. If you don't get the property then you'll definitely know.

    Q. From a seller's perspective, I've heard agents say, "Sometimes the first offer is the best offer.."

    A. A Real Estate cliche, to be sure. But if a house is on the market 247 days before the first offer comes then guess what...? It is the best offer, end of story. Any offer under 30 days should be considered a gift and handled with care. I believe that "for every offer there is an equal and opposite re-offer" so the 'Counter-Offer,' a subject for a future post, is almost always in order in cases other than the M.O. Coming back with your Highest and Best in an M.O. is not a counter offer but rather, a repsonse to a 'No Counter' as the Sellers's position hasn't changed at all.

    Q. What should a seller encompass during a M.O. to determine the right decision? Is it price, earnest money, etc? I've heard stories about sellers choosing an offer based on price and then the buyer pulls out within the five day period and thus the seller's start from square one. What are your thoughts on this?

    A. Who's the Boss?....The Situation. The Situation is always the Boss. Having said that, Price, Earnest Money and Close Date rule in a Multiple Offer. Make sure your offer Price is right and the terms are tight. Keep Contingencies to a bare minimum without seriously jeopordizing your Earnest Money. Know your financial limits but just as importantly, know what you're prepared to live with if you lose out on the deal. Multiple Offers often times go 2-3% above List Price. This answer is obviously intended for the Buyer but I think you can gain some insight as well from a Sellers vantage point. As far as the second part of this question; when a deal starts to go sideways during the Attorney Review Period make sure your legal representation has a few teeth in their mouth. The sharper the better.

    polygraph photo by police-test

    Geno Petro

Friday, March 23, 2007

In The Catbird's Seat (...on the Sell Side)

I look at the Multiple Offer as being a home team advantage for the Seller in any Real Estate transaction. And it's because of this 'advantage' that the Listing Agent is not only obligated to lend expert advice to his client but obliged to set forth some negotiation ground rules to the other parties involved--i.e. the multiple Buyers making the offers. It's tricky enough when one or more of the parties do not have Buy Side representation but what happens when one of the offers is from the Listing Agent himself--placing him in a Dual Agency situation and a Multiple Offer? (ironically, most of my 'M.O's' have involved female Agents but allow me to use the masculine he/him/his throughout the rest of this post. I'm having a difficult enough time keeping each paragraph in the correct tense!)

Read on as I lay out for you some basic (written and unwritten/spoken and unspoken) 'rules' of the game. If there is ever a time for a Realtor to stay 'on the beam' and 'inside the box' it is when the 'Big M.O.' comes into play. (see my previous post)

Rule 1. The Listing Agent Represents The Seller and while obligated to lend advice to his client, he must ultimately conduct the negotiation as 'he is instructed to,' within the Realtor Code of Ethics and of course, the Law. (Yes, someone could end up in court if dirty doggery comes into play). And do remember, sometimes the Agent is just the 'messenger.'

Rule 2. The Listing Agent Must Let All Parties Know How He Will Be Conducting The Negotiation. Communicate the rules and most importantly, follow them. If everyone is getting a second 'go round' to re-group and re-submit a Highest and Best offer, then be true to your word as a Listing Agent. If for any reason another round is necessary then be fair and above board to all parties involved.

Rule 3. Do Not 'Counter Offer' Anyone. The advantage of being in this M.O. situation (on the List Side) in the first place is you are the only party who knows the details of all the deals. I believe it's best to keep it simple and let everyone come back with their Best. I'll usually advise everyone involved that a third and final round may be necessary and I communicate this as soon as I know for sure that more than one party is making an offer. If negotiation has already begun with one party and in the midst of counter-offering another deal comes in, and if the Seller hasn't accepted and Signed the first contract, then its back to square one. The last counter-offer is generally taken 'off the table' and the 'Highest and Best' rules come into play. If you aren't familiar with what I'm referring to, then read this paragraph again. Everybody hates it when this happens but its the Seller who's in control of the deal at this point.

Rule 4. The Listing Agent Should Be Forthcoming If He Also Represents One Of The Buyers. Dual Agency is an acceptable practice in the state of Illinois but must be followed to the letter of the law. If not, double dirty doggery is sure to follow. Just imagine if one of the deals in the paragraph above belonged to another Buyer of the Listing Agent. Let's just leave that tricky adjunct for another days writing.

Rule 5. Be Timely. None of the parties should be dragging their heels if they are truly serious about getting the deal done. Again, the List side should convey an approximate time when their final decision will be made and the accepted contract 'signed off ' on. Any offer that comes in after a signed contract must be considered a 'Back-Up Offer' only and subsequently dealt with by the Seller's attorney. Oh...and by the way; an offer is in writing. And Signed. And generally with 'Consideration' ($$$ in the form of an initial earnest money check made payable to the Listing Office)

Rule 6. No Contingencies Please. If you are unsure what this means then you definitely aren't 'as smart as a 5th Grader...' And I mean that in the nicest of ways. Pour yourself a glass of wine and go to my Archives.

Rule 7. Don't Grab With Both Hands. Think back to high school English class and the short story, In the Catbird's Seat. The Seller is always in the 'catbird's seat' when a multiple offer comes into play. Be grateful. It's your best chance of getting full price and possibly more. Just don't get greedy and blow the deal up when you are enjoying the 'home team advantage. Remember, in the catbird seat or not...the property still has to appraise.

image by vinylpulse

Geno Petro

Saturday, March 17, 2007

The Big M.O. (...on the Buy Side)

No, I don't mean Modus Operandi although I do sometimes wonder what makes certain people (mostly Realtors) tick. What I am referring to is the other M.O.--the acme of all residential real estate negotiation scenarios; one of a handful of situations in the constantly fluctuating Buy/Sell world of Property where someone will definitely lose if all parties play it out to the end; the number one 'case in point' I'll always make for securing experienced Buy side representation. I'm talking about the...Multiple Offer i.e... Two Buyers + One Property= One Winner + One Loser---perhaps.

And I see this occuring just as much now in a relative Buyers market, (high inventory to Buyer ratio) as it was in a so-called Sellers market, (low inventory to Buyer ratio) a few years back. The best examples in each price point bracket will always be first in line to get Offers. And when more than one party presents an Offer at the same time, the highest level of expertise is required on the Buy side of the deal. My next post will address the List side of the M.O. which can be equally as nerve racking for the Seller.

"Two people are in love with me...what to do?" Seller.

"Marry the one with the most money," Seller's Agent.

Whenever there is a large surplus of inventory like we are experiencing presently--a Market flush with Condominiums, Single Family Houses, Multi-Units or just good old vacant Land--there are many fine Properties from which to choose. And it's always the best of the best Properties that generate the most 'buzz' and end up with more than one contract on the fax machine at the end of the day.

The following pointers are therefore in order:

First, and foremost...have Realtor representation. Even the least experienced Agent in our office negotiated more transactions so far this year than most Buyers have experienced in their lifetime. And a 'top producer' (10-20+ million dollar annual volume) has the ability and savvy to structure an initial offer in ways you might never imagine on your own. And contrary to my short romantic dialogue above, it is not always just about Price--Close dates, Contingencies (of which there are many that can kill a deal instantly), Tax Pro-ration and Stamp 'language,' Closing Cost Credits and Buy-Back Clauses (New Construction), Addendums, PITI clauses, Inclusions, Exclusions.... all come into play.

Next, have a pre-plan. I always let my Clients know about the possibility of an M.O. before we submit an Offer. I explain that the majority of the time, going to 'Full Price' might still only give us a 50/50 chance at getting the property depending on how the Sell side is handling the negotiation of the Offers.

"How much do we love this Condo?" are words I've uttered many times in my career.

Be able to work the Sell side of the Offer. I'm not going into detail about this here but trust me, the real professionals can get enough 'scoop' to obtain a 'house advantage' (pun intended) in most M.O. deals. At the very least, we know which questions to ask about the 'ground rules' set by the other side and how to keep them to their word if things start to go sideways. I always research the Closed history of the Listing Agents to check out their List Price/Closed Price ratios. Then I always ask who the other Agents are involved in the M.O. and research their Closing history as well.

Be able to advise when its time to bow out and 'get back in the car.' I don't win every Multiple Office because there are occasions when it's best to just stop and let the other party pay too much. Other times the Seller just 'likes' the other deal better, all things equal, and you lose out anyway. People are funny. 'Funny how?' Don't get me started. But as we approach the 'tipping point' of any deal in which more than two parties are involved, I'll always pose the following question to my Buyers...

"How would you feel if you left this deal then found out later that the other party got the Property at a price you would have paid?" The answer to this question has a lot to do with how we proceed in the negotiation.

There are several strategies when it comes to negotiating a Multiple Offer and your Buy side representative needs to be well versed in all of them. Quick response time and the ability to 'appraise' the value of any given Property are but two of the qualities you must require of your Realtor. And equally as vital is his (my) ability to know when its right to just 'go for it' and get the deal done simply walk away and let the other guy 'win' that one. It is a Buyers arena, after all these days. So if you're going to jump into the Chicago Real Estate game, you have to be prepared for the big M.O. when it comes into play.

photo by velocitypress

Geno Petro

Thursday, March 08, 2007

I'm The Guy In The Blue Shirt

There was a time in the not so distant past when almost everyone I knew on a personal level was either already a Realtor, studying to be a Realtor, or thinking of becoming a Realtor--either that or a Mortgage Broker, our Siamese twin back in those white hot Housing days of Post-Y2K. (Remember that whole angst ridden countdown of months, weeks, days, hours, minutes, seconds...) Then poof! Either nothing happened or I'm just like that Bruce Willis character in The Sixth Sense who doesn't know he's a dead man yet.

The country was 'abuzz on both Coasts, the Midwest and most places in between, with land speculation opportunities, negative amortization mortgages, and 'buy to flip' property deals. Many of us, Realtors and MBs alike, entered the industry in droves from other diminishing career paths. And if selling real estate was hot back in the day, originating real estate 'paper' was smoking.

LIBOR, (the volatile index for much of today's rapidly deteriorating ARM paper), was actually a vanity license plate on one Mortgage Broker's Bentley. The black and platinum handmade beast seemed to be perennially parked in front of the same fashionable Chicago Gold Coast neighborhood bistro six evenings a week and twice on Sundays. The lending business was apparently so brisk and forthcoming that it required toasting and celebration every day including the Sabbath. Again, this was not too long ago. Rumor had it the MB was a guy in a former life who grabbed as many handfuls of zeros as he could before jumping the internet ship and swimming to shore where the word on the street was... landlubber Realtors were 'flipping condos like hotcakes' in Chitown. The news this week of New Century Bank's dilemma has made us all (in real estate related fields) take note and do a moral or at the very least, ethical inventory of sorts.

For half of the 1980's and the better part of the 1990's I tried to do my own thing in Corporate America but the number of zeros in the YTD box of my direct deposit statement could be counted on one hand (if you didn't count the thumb). I'll always remember my first big corporate function when a Regional Sales Vice President took me aside, tugged on the lapel of my double-breasted suit and whispered in my ear, "Nice suit...but you have 3 too many buttons." Strike One...'not conservative enough for an upper management career in financial services.'

Time would inevitably reveal the fact that, while my 'leadership' skills were commendable on a sales management level, my 'followship' skills were weak at best on any level. Case in point was the 1995 Middle Management Regional Group Photo Session where Brooks Brothers gray suits, pinpoint white buttondowns, and red/navy rep neckwear were, by orders of a 3-part memo from the RSVP, the suggested (required) uniforms for the shoot. I wore a periwinkle blue two-tone shirt with a Jerry Garcia Collection tie and had just shaved my head on a whim. Strike Two...'may have a learning disability.'

A couple of 'brush back' pitches later I was still at bat as it were, but looking for a new Region to play out my contract. Strike Three came so hard and fast that all I can say about it is... it sounded low and away. And come to find out, arguing called strikes can only get you ejected. At age 40 my career options were quickly reduced to mortgage banking, real estate sales or a lateral move in the financial services industry. I think I went with real estate for two reasons---first, I had already bought and sold property myself (and always knew I could succeed in this profession) and secondly, the other two fields from what I could tell, generally required some sort of mandated neckwear enhanced dress code with a big fat RSVP hiding somewhere in the corporate bushes.

Truth be known, my non-written mental math skill comfort level falls somewhere between multiplying by tens and simple division so I've always been careful to surround myself with very good counters...i.e. money people. I can't really explain what a LIBOR is but I know one when I see one. And even when it was the loan du jour, I don't think I ever recommended it off the menu. Same thing with property'FLIPS'--just not my area of expertise in the world of Chicago Real Estate. Besides, that would make for a really stupid license plate on my Mini-Cooper.

Geno Petro