Most home buyers, for any number of reasons, frequently ask, “Why are they selling?” The buyers may just be curious or they may be looking for a reason to offer a lower price to test the seller’s motivation to sell their house and move on.  Divorce, illness, job relocation and many other reasons may be an inducement for the Seller to take just about any price offered.  That’s why it’s not a good reason for Sellers to disclose the “why”.

More to the point, market value is determined by general home prices in the neighborhood.  Each seller is different and each seller has a different reason for selling.  The reason doesn’t determine market value and it really has no relevance on the price a buyer should offer.  Ditto whatever the original price of the home might have been.

Why Sellers Don’t Care About A Buyer’s Reason

As much as buyers want to know “why” a seller is selling, it is rare for a seller to even consider asking “why” a buyer wants to buy their particular home.  The seller just wants the money.  Hopefully, they want what the market says their house is worth.  Not a penny more.

Another reason sellers rarely ask is that their Realtor will have had the little Fair Housing talk with them.  In a nutshell, if someone can demonstrate that they have the financial ability to buy a house, the seller should sell.  Not must…should.

Wouldn’t it be interesting, though, if seller did ask “Why are they buying?” more frequently. If the buyers liked the school system or the two car garage or the fact it was so close to the Metro maybe they would pay a little bit more than they’re offering.

Maybe the buyers are in the midst of a divorce or a job relocation and they really need a place to live.  Some folks have been known to want homes without many stairs.  Great!  No stairs comes with a higher price.  Get the picture.

So, when it comes right down to it, “why” doesn’t really matter from either the buyer side or the seller side.

Price, condition, location.  They matter.

This is a question almost every potential home buyer asks. Why?

Of course, there are many possible answers.  The home sellers may be:

• downsizing into retirement
• upsizing into a larger home
• relocating for a job opportunity
• getting a divorce
• dealing with an illness
• wanting to move to another area
• in mortgage distress or close to it
• or, having passed away, the estate may be selling the house

There are dozens of reasons why people sell their homes.  Not one of them have any bearing on the market value of the home or what a potential home buyer should offer.

Motiviation

The answer to the question, “Why are they selling?” really only helps the potential home buyer assess the motivation of the home seller.  Are they willing to accept a “low ball” offer?  How quickly do they want to settle? Will they be willing to offer financial incentives to sell the house?  Will the seller make repairs?

The real challenge with seller motivation is that it changes with time.  It always amazes me when a seller digs in at a certain price at the beginning and then slowly and inexorably lowers that price as time goes on. Alternately, many sellers will never move on the price leaving the house to sit on the market, unsold, for months and, possibly, years.

Fair Value

The point is this: you never know what will motivate a seller to accept a buyer’s offer.  You certainly won’t get that answer by asking, “Why are they selling?”  The best thing a potential buyer can do is determine whether or not they:

• want to buy the home and
• what a fair offer for the home would be.

Many times it’s a crap shoot.  Many times a seller will be unreasonable. That’s the time for the potential home buyer to move on.

However, if an offer is fair or even a little low and the seller is motivated to sell their home, negotiations will begin and a happy ending is in store for one and all.

A professional Realtor can help with determining the fair market value of a home regardless of why the Seller want to sell.  After all, why a Seller is moving doesn’t affect the value of the home.

There’s no doubt about it.  We live in a fast paced world with lightning fast Internet connections, non-stop hookups via our smartphones, ubiquitous wi-fi and the ever present Mickey D’s, Wendy’s and BK combined with pizza delivery and sub shops in every gas station.

What does this have to do with negotiating a great real estate transaction?  Almost everything.

It seems that we are so tuned into the “I want it now!” culture that we don’t take the time to negotiate a perfectly goood real estate deal.

I Want Your Final and Best

This is the type of response many listing agents will toss over to buyer’s agents after the first offer. It indicates that the Seller or, more likely, the listing agent doesn’t want to spend a lot of time dickering around about price or closing help or the settlement date or any of the other terms in the contract.  They want to get to the bottom line just as quickly as possible so everyone can move on to the next phase of the process.

The real challenge with this approach is that it really doesn’t give the buyer or the seller the time they may need to really think about the pros and cons of the offer.  A couple of nights to sleep on an offer may bring the realization to the Sellers that there is not a line around the block of people wanting to buy their house.  A buyer may realize that when a Seller comes back with financial terms that aren’t exactly perfect (in the buyer’s eyes) are really not that bad and, shucks, might even be a fair deal.

It’s when everyone feels pushed that bad decisions are made and both Sellers and Buyers start to dig their heels in because they don’t want to be the one to “lose”.

Take Your Time

So, it is important to take a breath or two before jumping back into the fray.  It’s important in the same way that it’s important to look at the offer and counter offer with a cool head.  Do the financial terms reflect fair market value? Can the settlement date be accommodated?

But a Good Deal is a Good Deal.

If the price and condition of the house shout “buy me!” it’s foolhardy to play around too long because someone else may very well be waiting just around the corner to swoop in and grab it.  Ditto for a Seller who gets a perfectly sweet offer from a buyer.  It may not be perfect but it’s close enough.  It may be more costly, in the long run, to stand firm than it is to give in a little.

I would say this is a good time to consult with your professional Realtor® but, then, you knew I’d say that.

The nice thing about blogging and being somewhat successful at it is that every now and then someone asks you to help them out.  Such is the case with author Jim Randel and his series of books called “The Skinny On™”.  These short, easy to read books cover a variety of subjects from real estate investing and the credit crisis to time management and credit cards.  The concept is to present a topic in a format that, according to Jim Randel, is the preferred reading method for young-ish adults.  These are the folks that grew up reading short blog posts, played a lot of video games and tweet.

This book — The Skinny On™ Real Estate Investing: An Introduction to the Subject — starts out with a scenario near and dear to my heart. A couple watching a late night infomercial that promises unimaginable wealth through the magic of real estate investing. They can learn all the secrets by attending the huckster’s free seminar.  Of course, when you get to the seminar, the secrets are really in the DVD set and workbook you can buy for only [fill in the blank] or the bootcamp for even more money.

This scenario is all too common.

Jim Randel to the Rescue

In pops Jim into the lives of our hapless couple to help sort them out about the real risks and possible rewards of real estate investing.  During a series of fanciful visits, Jim goes through some of the formulas people should know when considering real estate as an investment.  Jim even goes so far as to suggest that people’s personal homes should be considered as an investment first, then as a place to live and raise a family.  I’m not sure I would go this far but his point is well taken.

Most people get into the real estate investment game thinking that they’ll make a ton of money only to lose a ton and wonder what went wrong.

Worth a Read

This book, as entertaining and easy-to-read as it is, only touches the surface of real estate investing and it doesn’t pretend to be anything else.  The basic concepts and formulas laid out in the book are sound and you can breeze through the thing in about an hour.

The benefit, in my view, is that it may save someone who may have been taken in by some very flashy and convincing late night video from parting with their life savings.  It’s also a quick reference that you can go back to time and time again to remind yourself that there is more to buying and selling real estate than looking at a couple of foreclosures.

My wife, Jan, tells me sometimes that I have selective memory.  Usually, it’s when we’re discussing something that involves me saying, “Don’t you remember when I said…”  Of course, she doesn’t remember. Or, more likely, she doesn’t remember it exactly the way I do.

This happens all the time with events like when we met the love of our life and what was going on at the time or when we bought our first home and what that was like.  We like to remember the good parts and block out the not-so-good parts.  This happens when we go to sell a home, too.

My Neighbor Sold Their Home For A Gazillion Dollars and It’s Not As Nice

OK.  Even if your neighbor’s home isn’t as nice as your home.  Even if you’ve heard the rumor that he sold it for a ton of loot awhile back.  That has nothing to do with what’s going on in today’s market with today’s home prices.  If only it did.

The challenge Realtors have with a lot of Sellers is that they not only want to keep up with the Joneses by buying what the Joneses have (only a little better) they also want to make sure when it’s time to sell their home that the Joneses didn’t get out at the “right time” while they’re stuck “giving it away.”

People also tend to romanticize the past.  They think of it in fonder terms than it actually happened…or worse.  They may remember that homes were selling for a lot of money in their neighborhood.  They just don’t remember, quite, that it was about five and a half years ago.

That’s right.  Five and a half years ago. That was the top of the market.

Toward the end of 2005, home prices stopped rising at the astronomical rate they were rising.  Homes stopped selling within hours. NINJA financing (No Income, No Job/Assets) was starting to dry up. By 2006, it was over.  Home prices started to tumbled.  All but the most traditional, well documented financing disappeared.

In other words, the party was over.

I Want Mine

It’s natural to want a piece of the pie everyone was eating.  It’s a bummer to be the one who got in late and now needs to get out.  You’re not alone.  That’s why it’s such a challenge for Realtors to have a heart-to-heart with home sellers about the true realities of today’s market place.

No matter how you remember the past, it doesn’t have an effect on the present. Mr.Market is tough.  He’s brutal.  And he doesn’t look back wistfully and say, “Sure.  You can sell your house for 2005 prices.  No one will notice.”

Remembering that your neighbor three doors down made a killing and forgetting that the guy right next door just had to do a short sale or go to foreclosure is selective memory and it is a surefire strategy to make sure your house never sells.

Remember —

…when they [home sellers] choose the asking price, they’re not choosing how much they’re going to get. They’re choosing how long they’re going to wait to get what they’re going to get anyway.

While it is true that every real estate transaction is uniquely different, it is also true that there are aspects to them that are surprisingly uniform.

For example, there are many reasons that home sellers want to put their home on the market. Yet there seems to be common themes about setting the list price of their home.  One such theme is:

• “I need to recoup the cost I paid for the house.” coupled with “I need to recoup the costs of what I put into the house.”

Usually this is the reasoning home sellers use if they bought the house within the last 6 to 8 years.

In other words, they haven’t owned it long enough to acquire any equity and, depending on when they bought their home, it might have actually lost value. Alternately, home sellers that have made some improvements such as an updating kitchen, finishing a basement, putting in a new deck…whatever, may want to recoup the costs of the improvements.

Mr. Market Doesn’t Care

The sad fact is that the market is what determines the price of the house.  Not what a home seller may have paid for it.  Not what a home seller may have “put into” the house.  The only thing that will determine the true value of the house is what a buyer is willing to pay for it and what a licensed appraiser is willing to say it is worth for the mortgage company.

Using the “What I paid for it. ” and the “What I put into it.” line of thinking would suggest that people who bought their home 20 or 30 years ago and dutifully paid off the mortgage should sell it for maybe a little more that they paid for it in 1985.

Such a deal.

And as far as sinking money into the house?  Isn’t a mortgage payment something a home seller “puts into” the house.  Using that line of thinking, the list price should increase monthly until someone buys the house. We all know that doesn’t happen.

Hope Springs Eternal

Of course, the home seller is really hoping they can get some made up price based on their own purchase price or the cost of improvements.  Unfortunately, it just ain’t gonna happen.

What is going to happen is that the home will sit on the market for an extended period of time until the home seller realizes that Mr. Market doesn’t care what they paid for either the house or the improvements.

As I mentioned in a previous post about home pricing:

…when they [home sellers] choose the asking price, they’re not choosing how much they’re going to get. They’re choosing how long they’re going to wait to get what they’re going to get anyway.

Lately, I’ve been seeing a bit of chatter in the social media space about the Realtor/Client relationship.

It seems that the Seller/Buyer don’t like what they’re hearing or just plain get cold feet or second thoughts about their decision.

• There is one post called Home Seller Just Isn’t Negotiating by my friend and Realtor colleague, Doug Francis,  about an experience in nearby Vienna, VA.
• Then, there’s a Facebook posting by Kansas City, MO Realtor Michael Maher about being fired by a buyer client after some serious house hunting and the preparation of an offer on behalf of the buyer client.
• Finally, there is my own experience with marketing a particularly challenging home in a glutted market and getting a solidly good offer (not perfect but good) and having the Seller have second thoughts about their counter offer and withdrawing it — essentially rejecting the offer outright.

Why Even Use A Realtor?

I know that Realtors, as a group. don’t have the best reputation around.  I understand that some Gallup polls put us in the same group as Congress and lawyers.  Not your basic high trust group.

The fact is, though, that most Realtors are hard working, honest and committed to the highest standards of service to their clients.  Sure, there are some lazy and incompetent Realtors.  Ditto with doctors and accountants and plumbers.

The deal is this:  if you’re going to reach out and ask for (and pay for) the professional advice and guidance  and assistance of a dedicated professional with considerable experience and expertise — allow them to do what they’re trained to do.

If you want to do it on your own, you can.  It’s not as easy as it looks but, heck, give it a shot.

Every so often, a great person or, in this case, a great couple comes along that helps me to remember all the good reasons I work in the real estate profession. This is the case with Jonathan Mawdsley and Cory Carter.  I knew these folks from the church I go to and we always got along.  So I was really pleased and honored when they asked me to help them buy a house.

They had actually been talking about it for a long time and they had done some scouting around and looking at Open Houses and the like.  By the time we started looking together, they had a pretty good idea of what type of house they wanted, where they wanted to live and what they could afford.  I helped put them in touch with a good lender, a good home inspection company a good insurance agent (for home owners insurance) and a good title company.

In the end, everything came together beautifully and my clients are now proud and happy home owners.

There was a time, back in the day, when condos were a “good deal”.  The weren’t too high priced (depending on where, of course) and the maintenance was next to nothing.  You could drive up, park the car and enjoy a relaxing evening of TV or cribbage. You could go away on the weekends without ever having to worry about cutting the grass.  Forget about big ticket items like a roof.  The condo association would take care of it for you.

Today Condos Are The Last Resort

It’s hard to say why, exactly, condos have become so hard to sell.  Of course, for a lot of condos, the monthly fee has risen so high that it’s almost like a second mortgage payment.  It’s also true that in many condo communities (especially in Prince George’s County) the aggregate condo fee delinquency is high and the renter-to-owner ratio is high.  Both these factors make lenders very fidgety.

They’re afraid that if they lend money to people moving into these condo communities that:

• the physical buildings will deteriorate as the result of the condo association being a little short on cash to keep up with the necessary maintenance and upkeep and,
• since renters typically don’t pay the condo fee directly (it’s usually factored into the rent and the actual owner pays it) there is the possibility that the absentee landlord won’t pay the condo fee. Plus, renters just don’t have the same emotional or financial investment in keeping the place up.

Are Condos Un-Sellable?

These two reasons combined with the overall decline in home prices — condos have been hit the hardest with the price declines — leave a lot of owners without the equity they need to sell and potential condo buyers without access to the financing they need to make the purchase.  It turns out to be a vicious cycle.

This is not to say that condos can’t be sold.  It just means that condo owners need to realize that high prices and poor condition will make matters worse.  Some of this is out of the control of individual condo owners.  However, what they can control, they should.

Early in my real estate career, one of the gurus I was learning from preached the gospel of the hyper-local and highly focused.  The idea was that it would be better to focus on a clearly defined and finite geographic area and a clearly defined type of client. 

It was heresy.

Most real estate agents will market to everybody – home buyers, home sellers, real estate investors, foreclosures, short sales, rentals and on and on and on.  Most real estate agents will also agree to go anywhere their license will allow them (in my case, that’s the entire State of Maryland). By casting this wide net, the thinking goes, there is a better chance of attracting business and, in turn, creating an income.

So far, so good.

The real downside to this, of course, is that you can’t be all things to all people and a lot of people will just pass you by anyway.  It also makes you one more real estate agent that potential clients have to filter through a lens of mistrust and skepticism.

What Would Seth Do?

Seth Godin is a marketing guru with a large following. He has a ton of books, highly paid speaking engagements, more highly paid consulting gigs and is widely recognized as the father of Permission Marketingwhich also happens to be the title of his second book. This concept is responsible for the common ” double opt-in” approach:

Me: I’d like to send you all my great marketing stuff.

You: That’s great. Go for it. (1st opt-in)

Me: Are you sure? I want to make sure you really want it.

You: Absolutely, Ken. You’re the best. Send me your stuff. (2nd opt-in)

Seth Godin also writes a marketing blog that’s kind of like the daily “brain dump” for Seth and one piece in particular caught my attention — Trying to Please.  It’s short, like a lot of Seth’s blog posts, and to the point.

It’s useless to try to please everybody. Most of the time we’re trying to please the wrong people.  People who won’t use our services. People who won’t be fun to work with. People who, to put it kindly, are mismatched to our own personality and business model.

It’s time for me to stop trying.