A Failed Strategy

by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/salesperson, Prudential New Jersey Properties, Montclair Office

I am obliged to carry out my clients’ wishes, whatever they are, and I do so willingly.  However, it is worth noting a buyer strategy which is quite common and equally unsuccessful.

The market naturally see-saws from buyer advantage to seller advantage and back again with the ebb and flow of market and economic conditions.  Right now we are in a transitional period, in my view, where sellers are re-claiming the upper hand after the recession when buyers had all the advantage.  Currently, I consider the advantage between buyer and seller in real estate to be about equal.

Whenever the advantage shifts there’s always a lag before everyone sees the trend,  During that lag time buyers and sellers often exhibit behavior out of step with the new reality. I think that’s what’s driving some buyer behavior recently.  Purchasers, in some cases, are holding back money, low-balling the initial offer and are very stingy with their counter offers, even in the face of comps that don’t support their position.  I know, I know – no one wants to throw too much money at a property and pay too much.  On the other hand, the object of the exercise is to successfully purchase a property and I can tell you through bitter experience that being too circumspect has never worked.

Sellers are not immune from bad negotiating strategies.  Miniscule counter offers and other obstacles occur among sellers and those ploys are equally failure-prone.

For buyers, to put it bluntly, if you want to buy the property then buy it.  Acknowledge the reality of the situation you’re in: If there are multiple offers, be aggressive.  Buyers who submit weak offers in the face of competition always fail – let me repeat that – they always fail.  If you are the only offer on the table it’s ok to offer less than the asking price but use common sense.  Expecting a seller to either part with a property for a ridiculously low price or negotiate in good faith in the face of such an offer is unrealistic.  The seller will reflect your strategy back at you.  If you offer a low ball price the seller will probably counter with a tiny reduction, if the seller counters at all.  Once negotiations proceed, tortuously, in baby steps you can be pretty sure the rest of the transaction will be just as difficult, if it proceeds at all.

Most properties with multiple offers sell for at or above the asking price.  Most negotiations, whatever the situation, if they proceed slowly, will guarantee failure as the seller gets a better offer while we’re dithering around or will give up on the overly conservative buyer.  When a buyer is playing it safe and negotiating by doling out money in tiny handfuls the seller knows very well there’s more money under your pillow without anyone having to tell him or her.  That leads to resentment which does not lead to success.

Even when there is no competition, that can change in the blink of an eye.  The object is to nail down this deal before another buyer shows up and dazzles the seller.  The way to do that is to start with a realistic offer and negotiate strongly in terms of money, keep the seller engaged and optimistic and make the seller feel good about you and prompt the seller to respond in kind.  You won’t necessarily spend more than you should with this strategy but you will stand a greater chance of success.  The longer the negotiations linger, the more incentive the seller has to continue to show the property hoping he or she finds someone more likeable than you.  Also, if it has taken forever to get to a meeting of the minds on price, it can still all go away during attorney review if the seller gets another offer from a buyer he thinks is less difficult.

It’s easy and all too common to lose sight of the goal (purchasing the property) while we practice our alpha male or alpha female negotiating skills.  I often see buyers trying to flatten a seller into submission.  Again – never works and it shouldn’t.  The objective is not to see the other party beaten and bloody.  The objective is to arrive at a meeting of the (hopefully mature) minds where everyone is as satisfied as possible and is willingly proceeding with the transaction. Be assured, I am counseling my sellers in the same way to avoid immature behavior and to deal realistically and fairly.

Please ignore what your parents taught you about haggling and bartering.  Their well-meaning advice is rooted in another time.  The stories they tell you are probably only half-true anyway and, as the world matures, we have to mature with it and deal with each other like fair-minded adults.

In June of this year Prudential New Jersey Properties will become Berkshire Hathaway Home Services New Jersey Properties, part of the amalgam of companies owned by Warren Buffet.  The Montclair office where I work will also move to a brand new office space in Montclair at the same time.  I’ll have more to share on this transition as we approach the event.  The one thing that won’t change is me.  Whatever letterhead I’m using, you can expect the same level of service – and the same opinionated rants you enjoy in this blog.