Needs and Wants, My Love...

Okay. This is a mouthful but I'm going to try and spit it out. It's a concept my Managing Broker Joe Pinto, refers to on occasion and in recent weeks, has played out more and more in my own daily routine of showing property in Chicago. The crux of the idea has to do with 'needs' vs. 'wants' in the present Real Estate market. The 'My Love' part, while fairly irrelevant from a Brokerage perspective, is the rational 'icing on the cupcake' from the Buyer's point of view. It's not all spreadsheets and basis points, you know. It's about balance in the marketplace.

Eventually, an overwhelming need to purchase a home just takes over, regardless of the market climate. Example: If I come home tonight and my wife informs me we are having triplets then guess what---I'm going to kick the bejezus out of the father. Ha ha. But really....we'd seriously be looking for a bigger place. Regardless of interest rates, regardless of 'bubbles,' irrespective of whether it's a Buyer's market, Seller's market, rain, sleet, snow, yadda-yadda, onomatopoeia...or whatever...we are sooo moving. And when we find the perfect place, even if I'm not being stabbed to death in a brutal negotiation by the Seller and the Listing Agent, we're paying the price. It's a need thing. Oh yeah, we're going to love it too. All five of us-- Then on holidays there are her parents and my parents; plus her son and his girlfriend; and my daughter and ...Wait!... I think I may have to move anyway.

By the same token, if the Witness Protection Program sends a Western Union saying I have to move to Fargo, North Dakota (also a Ha ha) by Tuesday then guess what again? When the Government calls...we run. Condo For Sale On Wolcott. Priced For Quick Sale. Dog and Cat Included. Best Offer Over Maximum Pain Level Accepted. Jimmy H is buried at...("I'm spilling my guts here to make this deal work....Would you care for a cool beverage? May I take back a second mortgage for you? ...There's a trap door in the basement and plenty of cash in the freezer...")

And again, again. It's a need thing. Want isn't part of this particular picture either. Want is a lesser force of Nature in Real Estate. It's an after dinner drink, that unnecessary 'must have' handbag in the Prada window. It's the Harley I never get. Need is the triplets I don't want but have to deal with.

Where I have seen a lot of want in the past year or so has been with Sellers with no sense of urgency or need to move in the first place. A lot of overpriced Listings on the market. A lot of 'testing' the price points to "see what happens." A lot of inventory. A lot of want. Not a lot of Buyers. But as my Broker is quick to add, "The demand for housing doesn't go away. It just gets pent up." And of course, I concur.

The way I see it, one may be able to squeeze an extra year out of a beat up Bimmer or 'pass' on a new pair of Ferragamos for one more season but eventually 'need,' ('want's' bigger brother and a greater force of Nature), is going to step in and take over the situation. Then, in due time, a funny turn of events begins to occur.

Some of the inventory, the best of the best, gets scooped up quickly. Another portion falls off the market permanently as people stay put. ('Test' results are in. No 'social promotion' this year for the house with the bad kitchen and beat to hell bathrooms.) Buyers jockey for the next 'best in show' Condo, and Multiple Offers become more commonplace. Property starts selling with quicker Market Time and people start surfing the Real Estate websites at work and attending Open Houses on Sundays and Saturdays. The inventory 'back-up' calves like a glacier so life can move forward as the housing cycle regains its momentum until the next global housing cooling scare. The circle will not be unbroken and when it does, there's an Inspection credit at Closing for the Buyer.

Need and Want I submit to you dear readers, form this elliptical cycle of Housing. It will most always be this way in a free enterprise system, I believe. Need is the dinner, the meat and 'taters. Want is the dessert, the creme de la creme brulee. And Love....love is never having to say "I lost you... in a multiple offer."

Geno Petro

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

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

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 or...to 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

"No Deal, Howie..."

True Story:...I was having a discussion with another Realtor this week when he mentioned to me that he had just been 'fired' by his client. The scenario followed along these lines: The young agent had identified and scheduled Saturday showings for a series of condominiums in Chicago. At the end of the showing itinerary his clients (a young couple) expressed serious interest in one particular property but needed to board a plane and fly out of town the next day. The agent promised to get 'more information' and would 'touch base' again when they returned to town the following week. As luck would have it, the condo went under contract with another buyer and another agent that very evening and was subsequently agreed upon, signed off on, and faxed to the attorneys of both parties by the end of the night--unbeknownst to the young storyteller.

When my agent friend called for a 'second showing' at the request of his clients the following week he received the bad news from the listing agent. His clients were not only dissappointed but more than a little upset and immediately fired him over the phone. He was slated to take their listing (current home) as well and this opportunity too, was lost. They felt he should have kept them 'in the running' and were also upset he didn't 'know' what the condo eventually sold for. After that story even I was unhappy just hearing it.

So here are my thoughts on the whole thing. First, as a Realtor, I never want to be overbearing but I've lost enough deals in my own career to know that I'm just not doing my clients any favors by letting them wait on a property they love. Period. It only makes sense that when one place stands out from the rest at a particular price point then it will be the most desirable to everyone who sees it and thus, be the most likely to first go under contract. I call this the 'Prettiest Girl In School Theory' for all the obvious reasons. Its my job as a Realtor to let my clients know the perfect place might very well be gone in short order and to pose the following two-part question:..."So how would you feel if you found out in a day or so that someone else got the property? And later on found out that is was purchased at a price you would have paid?"

Now in support of my colleague, its been a long, cold, slow winter season and even the best of the best listings have lingered on the market for longer than usual. And I guess if you dress a pretty girl in a snowsuit with scarves, a hat and boots then shove her out in a winter blizzard with sub-zero windchills, then one might just miss the otherwise obvious 'beauty' as they pass her on the street in January. (And then there's the whole 'inner beauty' thing as well, but that's another theory for another day.)

The other thing, and this is probably my most important point, is that as Realtors we need to let our clients know the series of events from beginning to end. I always forward a copy of the following Purchase Steps piece fairly early on in the relationship. I borrowed it from someone a few years back and rewrote to fit my own real estate marketing needs. It touches all important bases in the buying process with the possible exception of 'The Multiple Offer.' (The MO is a whole different walk in the park---and again, is fodder for another day. Now that's something to get fired over. Perfect strategy is in order to be sure, with the big MO.)

As far as 'knowing' what a subject property sold for prior to Closing (of escrow)---well, this is highly guarded knowledge. It is unethical for a listing agent to reveal or even hint at this information until it is recorded. Can you imagine the mess if a Multiple Offer was in play? I've even heard of a 'losing buyer' going around all agents involved and submitting a high bid to the seller after the negotiations were concluded, trying to get back in the deal through the back door.

Also, there is no 'in the running' in real estate--not without a submitted written contract. 'Verbal Interest' is just that...verbal and interest. The above mentioned Purchase Steps clearly shows that the initial 'written offer' is a long way from the 'final walk through.' You might as well be the first to put it in writing on your own terms and let the negotiations begin rather than wait too long and be boxed out of the deal completely. Just remember, all you agents and buyers...anything that isn't submitted on paper in a timely fashion is simply, "No deal, Howie..."

picture by tv.msn

Geno Petro