What harm, one would think, could come out of reading one too many "How To Buy Your First Home" books. Well. Let me tell you about a woman who faxed the following message to me as she slipped ever so slowly into the grey Sea of Algebra:
3% of C plus (if C is less than B) 25% of D
This rather creative lady was proposing a formula to super-compensate me in order to insure that I would have her interest at heart in negotiating as low a purchase price as possible. What she also had in mind was a purchase at about 70% of asking.
A = List Price
B = 90% of List
C = Sales price, if less than 90% of List
D = Difference between B and C
In the early '90s, during the recession, a lady was looking at homes priced at $400,000. In those days $400,000 was real money, and it was possible to purchase below list.
Still, if I could locate such a home and if I could negotiate a purchase price at 70% of asking ($280,000), I would get 3% of the sales price ("standard" compensation), PLUS 25% of the difference between $360,000 and $280,000: $20,000! I would earn over twice as much as if she had purchased the home for $400,000. And her net savings would be $100,000! What real estate gurus, from time immemorial, call "Win, Win."
First, real estate licensees traditionally have had a fiduciary relationship with clients which requires them to do everything in their client's best interest - even if it is not in the licensee's best interest. This includes getting the lowest price possible - without losing the home, unless the client does not care about losing the home. Should I accept a bonus from the Lady of the Sea for doing what I was required to do by law.
Second, at the risk of being excommunicated, I believe that the conflict that licensees have with buyers may be more apparent than real. Yes, licensees normally receive a percentage of the purchase price. Therefore it follows that the higher the purchase the greater the real estate commission. What I do to "remove" this "apparent" conflict is (1) to talk about it, and (2) to run a list of ALL homes listed under the maximum price parameter set by my client.
How would folks respond if they were looking for a home up to $1,200,000 and the initial list I ran had homes in the $800,000 range. I suspect that they would decline the offer to look at the least expensive homes that matched their search parameters. Indeed most folks eventually "look beyond" the ceiling that they originally set, so as not to miss that higher priced home that may sell below list, within their financial capacity.
Eventually they select a beautiful home listed at or near the maximum of their capacity. The Listing Agent says it's beautiful. They think it's beautiful. Their family and friends think it's beautiful. Unfortunately, other buyers also think it's beautiful - to the point that some of them are also considering making an offer.
So what do they want to do. Offer 70% of asking? Get involved in a bidding war? Walk?
It would surely relieve a great deal of anxiety if we focused on what it is that WE are doing. "WE" as homeowners: not "WE" as investors. Certainly we are not buying basic shelter. If that was our base motivation a very strong case could be made for continuing to rent. No, we are buying pride of ownership, neighborhood, perhaps school district, etc. Then what? Is it our goal to buy whichever million dollar home offers the greatest discount off of list price? Or the most/best home that one million dollars will buy?
In the early Nineties I represented a family who wanted to make an offer on a lovely home. The Listing Agent wore blue suede shoes and a silk shirt and was very smoooooth. The Listing Agent said other folk were interested in the home and it would not last. I told my clients that I had a hard time believing a guy who would wear those shoes - but I did. The husband thought the guy was bluffing, and instructed me to offer about 85% of asking. We came in third out of three offers and lost the home. His wife was not happy.
About a month later we found another home, different County. This home backed up onto public lands where the deer were free to roam. The family loved this home more than the first. I asked my clients what their pleasure was. The husband looked at his wife, and they both smiled ...................
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