Category Archives: Home Buying

Bad Advice

by James Stefanile, ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties.

Just when I’d thought I’d seen every wrinkle of human foolishness, life in real estate proved me wrong.

I just lost a deal yesterday, which, in this market, is not all that unusual but the way it went away is what astounds me.  We had a tortuously negotiated agreement.  I represented the buyer.  I submitted the revised offer to purchase for the seller’s signature after the meeting of the minds had taken place.  The other REALTOR is an experienced, very competent practitioner so this is no reflection on her.

That REALTOR called me yesterday, saying that they had received the revisions and, now, her seller was refusing to sign, was refusing the deal and was insisting on a bottom line price which both I and the other REALTOR were sure no one would pay.  I asked the obvious “why?” and she reported the seller had been getting all kinds of advice from family and friends telling her what a bad deal we were proposing.  The agreed price, was, indeed, well under the asking price.  The property had gone unsold for 6 months on the market prior to my buyer coming along.  I think my buyer was doing this seller a favor, not taking advantage of her, but obviously the real estate experts in the seller’s family disagreed and the seller didn’t have the courage of her convictions to stick to her own agreement.

When I hear about family and friends advising parties to a real estate transaction, I get a terrible, sinking feeling.  In real estate we deal in agreements worth, potentially, hundreds of thousands of dollars.  I wish there was an addendum to every agreement where both parties promised to be ADULTS, capable of making and being responsible for important decisions without relying on the advice of family or friends who don’t know the first thing about what they’re talking about.  In my recent “Buyer Beware” post I touched on this subject.  It’s why we don’t allow 12 year olds to buy real estate on their own – they don’t have the decision-making ability.  Presumably, anyone over 18 does.  Not in my experience.  Even in this market when everyone should be rushing to close the deal as a bargain or before the market goes down even further, I am finding that both buyers and sellers, in large measure, are exhibiting 12-year-old decision-making ability which relies on Mommy and Daddy (and Auntie and Uncle and Cousin Zeke and Grandma and Grandpa).

If you come from a family of REALTORS or successful real estate investors, I have no problem with your family’s advice.  It would be informed and based on real experience.  Alas, that family exists in the minority.  Most extended families are populated with members who either have never been involved in a real estate transaction or, maybe, bought and sold 1 or 2 houses in their entire life maybe 20 years ago.  I have even, on one occasion, had to gently shush a set of adolescent twins who were invited to be part of a negotiation discussion by their parents. 

I said in my “Buyer Beware” post that my advice is careful and aimed at your best interests.  The difference with parents, etc. is that most of the “expert” opinion they offer is, often, for the sake of saying something.  I understand that parents feel a certain amount of pressure to help their children with advice but can you imagine a parent or family member, when their child is in a real estate deal, saying “Gee, I don’t know that much about real estate, let alone your specific situation”? or “I’m sure you’ll come to the right decision and I’ll be very interested to hear what it is.”

I remember a seminar I attended at my daughter’s college in her freshman year.  It was run by two wonderful therapists who had a great effect on me then and afterward, to the benefit of my relationship with my daughter.  At this seminar, their main message had to do with “distance parenting”.  We won’t be there to hold their hands and that’s as it should be.  We should support them, not run them.  We shouldn’t come riding over the hill every time there’s a crisis.  Our college-age children need to INDIVIDUATE, they need to figure stuff out on their own.  If they want our advice they’ll ask for it and that advice should be supportive given with an assumption that our offspring will overcome anything positively and effectively, on their own.  This prepares our kids for a successful adulthood and will cement our relationship in reality, not co-dependence.  Short of life and death decisions, we should, essentially, butt out.

If only I could run that seminar for every buyer and seller family I encounter!  Unfortunately I see many families who are so far from those standards that the children involved in the transaction are incapable of large adult decisions and are at the mercy of uninformed and often foolish advice.  When, heaven forbid, the family contributes funds for the transaction, the kids buying the home are almost shut out of the decision making process.  And as far as family friends are concerned, they should be seen and not heard, in my opinion.  If one of my friends was considering a large investment in artwork I would have nothing to say to him or her because I know nothing about it.  Knowing nothing does not seem to stop many friends of my customers from offering all kinds of screwy advice.

My job is to help my clients be successful.  I am not their parent or even their friend.  My dispassion in the face of the emotional component of a real estate transaction is one of the most valuable services I can offer.  A family’s most valuable service to a buyer or seller is, ideally, loving emotional support with the understanding that the buyer or seller is capable of making the right choices.  I want my clients to trust me and I want their families and friends to trust them.

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Buyer Beware

by James Stefanile, ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

Click to enlarge the image

Does anyone remember the science fiction classic “Forbidden Planet” ?  By all accounts, this 1956 movie, shot in the ground-breaking CinemaScope was the grand-daddy of the “Star Trek” and “Star Wars” franchises.  It also introduced the concept of “monsters from the id” (the subconscious), whereby destructive entities could be manufactured from a person’s mind.  The mad scientist in the movie was doing just that using alien technology from an extra-terrestrial civilization called “The Krell”  (click the underlined text for a clip from the movie).

Below are a few “monsters from the id” – the buyer’s subconscious – which all purchasers of real estate should beware of:

Wishy-washy commitment:  How often have I heard buyers say “I want to make an offer but the garage is too small and there aren’t enough closets.”  If you have reservations about a property DON’T MAKE THE OFFER!  Your committment to the property should be absolute.  If this home isn’t a good fit why would you want to spend hundreds of thousands of dollars to buy it?

Negotiating excuses:  The same reservations in the above monster are often used as negotiating levers. “I’d offer more if the kitchen was bigger”, etc.  I rarely believe these kinds of statements.  The comps are the guide and if you don’t like the kitchen then find another house whose kitchen you will like.  Don’t couch your unwillingness to spend more money by knocking the house you’re trying to buy.

Disregarding the Comps:  The sold prices of comparable properties are the best guide to the workings of the market.  You, Mr. and Mrs. and Ms. buyer are not exempt from these market forces, therefore, you cannot hope to succeed by ignoring or disregarding the comps.

Busting the Budget:  How often I’ve heard “this house is stretching our budget” or “this is more than I wanted to spend on a house.”  Well then, we need to look in a lower price range, period.  If, in fact, you want this house then quit whining, and negotiate in good faith.

Your Loving Family:  I’m sure any buyer’s mother, father, brother, sister or children are more savvy negotiators than I am.  After all, I’ve only been involved with 200 or so real estate transactions.  When I hear perfectly reasonable buyers come up with negotiating strategies that make no sense, I always suspect there’s a family member lurking somewhere.  This is especially worrisome when the family member is the buyer’s parent.  Don’t forget, you are still their CHILD.  It’s taken me years to learn not to offer advice to my daughter just for the sake of saying something.  I understand the parental motivation and it’s only offered with the best of intentions.  That doesn’t make it right or effective or guaranteeing your success unless the parent is a practicing expert for whatever advice is being offered.  The flip side of this is the buyer’s acceptance of this advice as a child accepts the guidance of a parent, without question.  This is further complicated if the parent is contributing funds toward the purchase.  I want buyers to respect their family’s advice.  I also want buyers to choose the right advice that will guarantee success.  I’m not saying a buyer should accept my advice only.  I am very careful with my advice to a buyer during negotiations because I won’t have to live in the house, you will, and it ain’t my money, it’s yours.  I also don’t want anyone to wake up one morning with the thought that I forced them to buy anything.  You can be sure my advice is based on what is best for you.  Your family should adhere to the same standard.

Scorched Earth Negotiating:  It’s always been my opinion that a successful deal will either satisfy everyone or make both sides grumble a little.  It is never my intention to negotiate in order to slay the other party.  My objective is not to have the other party beaten and bloody at the end of the day.  I see some buyers who obviously feel differently.  When I hear “take it or leave it” I know there will be no deal.  When the buyer digs their heels into an aggressive posture I know they will not be successful.  Our objective is to buy a house, not to assassinate anyone.

Home Inspection Discounts:  Believe it or not, it’s true.  Some buyers use the home inspection negotiations as another way to bring the price of the home down.  Don’t forget, the contract can still be voided “for cause” at that point in the transaction.  If either a buyer or seller stakes out an unreasonable position, we can still fail.  The big distinction in asking for credit on a home inspection issue is “defect” vs. “maintenance”.  A maintenance issue is an ongoing task which needs be performed to keep a system in good order.  A defect is where something is broken, busted or otherwise inoperative and is in need of repair or replacement.  The buyer has no right to a better house than the seller is selling.  If the kitchen doesn’t have granite countertops, the buyer has no right to ask the seller to provide a credit because of that.

Distrust of the REALTOR:  Thank heavens it doesn’t happen that often to me.  I know there are buyers out there who think REALTORS only want them to spend more to pad our commissions.  The truth is our commissions are only affected in any serious way with the addition of a hundred thousand dollars or more.  Anything less than that and our commissions increase by very little.  Anyway, it’s the seller who’s paying us, not the buyer.  Another phenomenon is when a buyer trusts a REALTOR’s knowledge and experience about finding the home and then that trust evaporates when the negotiations start.  I am here to help you succeed.  If you are committed to buying a home, I can help you achieve that goal.

A monster from the id in "Forbidden Planet"

The mad scientist in “Forbidden Planet” eventually destroys himself by invoking the “monsters from the id” (click the underlined text for a clip from the movie).  His objective was to obliterate someone else and he only succeeded in doing it to himself.  I believe there is nothing more disappointing than failing because of ourselves.  There’s a million reasons why real estate negotiations and transactions don’t succeed.  Many are external, brought about by things we have no control over.  What we do have control of is our own motivations and behavior.  “Forbidden Planet” has also been compared to Shakespeare’s “The Tempest”.  In his tragedies, Shakespeare’s used the concept of “Hamartia” or a hero’s failure or tragic end based on his own “fatal flaw”.  Buyers need to beware their own baser instincts.  Before we unleash our destructive, failure insuring “monsters” we need to step back and examine our behavior in order to succeed.

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Uncertainty

by Jim Stefanile,  ABR, GRI, SRES, QSC, REALTOR/Associate, Prudential NJ Properties

My parents bought their one and only home in 1951 with a 3% mortgage.  My mother was so concerned about defaulting on that loan that she made my father pay it off early.  The reason she was worried was because my father was an independent contractor and his continued employment was always uncertain.

Fast forward to 2011.  My parents no longer have to worry about their mortgage (or anything else, for that matter).  A short term mortgage is about 3.5% and a 30 year fixed is, as of this writing about 4.5%.  These are the lowest rates since my parents became homeowners.  Buyers should be nibbling at my toes, right?  And how about this: there is more inventory and more pressure on price than ever before.  Even the most stubborn sellers are beginning (after 4 years of a down market) to be practical on price and more inclined to make a deal.

Homebuyers should be beating down my door, but, as we are all aware, they are not.  There is some improvement in raw numbers of sales since the depths of the recession but nothing I would call an upward trend.  The reason is the same as what worried my mother – uncertainty.

With recession often comes re-organization and re-trenchment in the private sector which is bad news for the sitting workforce.  The uncertainty of employment is a real damper on spending, especially on big ticket items such as housing.  The pressure on organized labor in the face of shrinking resources also erodes confidence in the future among that membership.  The debt debacle in Washington and the recent downgrading of  the United States’ credit rating is throwing more uncertainty into an already tense environment.  The country is struggling to shake off a recession of epic proportions which shook the country’s confidence in its banks and government.  What recovery there has been has been slow, fitful and, for the most part,  jobless.

The fractious national political environment makes it all but impossible for our leaders to impart strong re-assurance.  Lining up the strength and resources of the government  is much more complicated than when the WPA was launched along with other safety net programs. In the 1930’s the government was the solution to the excesses of the market and the suffering of the citizenry.  Today, we hear echos of Ronald Reagan proclaiming the “government is the problem.”

The loss of confidence in our government, our standard of living, our very place in the world is one of the factors holding the housing market in a vice grip of  inactivity.  The great irony is that there has not been better buying conditions since my parents were house hunters and that’s going to waste while we worry and fret over our jobs, our savings and the direction the country is taking (whatever that means).

I’ve seen a dramatic upturn in the rental market lately.  What that tells me is the so-called “pent up demand” for housing is taking a detour.  Instead of buyers bursting onto the scene to take advantage of the selection and cheap credit they are hedging their bet by renting instead.  People need housing, as always.  How they choose to get it tells the tale.  Many of the prospective tenants I help have 800 credit scores.  They could buy if they wanted to, but, rather, they are sitting on the rental fence in the form of a 1 year lease.

As a REALTOR I feel the need to encourage people to jump off the fence and get on with their lives.  At the same time I understand the uncertainty that makes them hold on to that fence with a white knuckled grip.  I’d hate to see credit get more expensive and the opportunities disappear for so many qualified potential homeowners.  The over all housing market changes over time.  Six months after I bought my home the interest rates peaked at 18% and lenders weren’t even lending after a certain point in each month.  We are now in a perfect confluence of credit prices and selection.  The only thing missing is demand.  This is enough to make real estate practitioners shake their fists at the sky and scream “very funny!” at whatever fates you believe in.

I refer to the early 2000’s boom as “the good old days”.  Wouldn’t it be weird if, in 2 years, when interest rates are 8% again and the foreclosures are flushed out of the market and the housing selection is limited, we look back on 2011 as “the good old days”.

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The Serious Buyer

by James Stefanile, ABR, GRI, SRES, QSC, Realtor/Associate, Prudential NJ Properties

Buyers are controlling the current market, right?  It seems to be a prevalent attitude among buyers recently, here in early 2011.  Prices are under pressure, there’s lots of inventory and sellers have been brought to heel.  There’s never been a better time to buy.  No argument.

Why am I bothering to write this?  All of the above are pretty obvious.  Then, why are transactions not happening in negotiation because of seller objections?  Sellers are supposed to be humbled and compliant.  I guess sellers didn’t get that memo.

Who’s to blame when a negotiation falls apart?  Everyone.  Sellers have to be practical in the current market but buyers have to be forthright in their efforts as well.   Submitting a real low-ball offer when you know full well that you will pay a lot more is not a smart strategy.  Lots can go wrong:  The seller can get mad and cut you off – we are dealing with people, after all.  Another, more serious, buyer can appear and knock you out of the picture (it does still happen in some towns).  At best, you will look insincere and not serious so that, even if the negotiations are ultimately successful, the atmosphere could be poisoned.

Buyers will often submit low offers based on what they think they need to do to the house in order to live in it in their preferred manner.  If the kitchen is too small and there aren’t enough bedrooms, you may want to choose another house.  Telling the seller you need to bump out the back and put another floor on the house in order for it to suit you is not going to get the seller to reduce the price dramatically.  Homes are worth what the market says they’re worth AS IS.  It doesn’t matter how much you need to remodel as a buyer, just as it doesn’t matter to the market how much money a seller has put in to the house.

My default advice to buyers is – if you really are serious about buying this house – be a serious buyer.  Offer a price the market will respect (the market is on your side, after all) and, even if negotiations ensue, the seller will be more motivated if he or she sees that you are serious and not just fishing.  No seller is going to give away a property (I’m talking about homes that are not in financial distress – short sales and foreclosures are another matter – if that’s your thing, read  December 2010’s post).  You are not going to score some incredible deal based on a low ball strategy.  This is not just my opinion.  I see it play out time and again.  Some buyers are overly impressed with their negotiating ability and strategic thinking and are shocked when it doesn’t work out.  Buyers new to the process may have a learning curve to climb.  That’s normal and not a problem, but, by all means, LEARN!   When your strategy fails once or twice it may be time to adopt a new strategy.  Most Realtors want to see you succeed and will give you advice to that end.  They have been involved in more real estate transactions than even your mother, father, brother, uncle or whomever is giving you “expert” advice.  Your attorney is also a source of good advice.  Most lawyers who specialize in real estate can warn you when they see behavior that will mitigate against success.  It’s important to trust the professionals you have hired and to keep a sharp eye on your own motivation.

Both buyer and seller need to stay focused on the fact that we’re all here to buy and sell a property.  My idea of a good negotiation is not when my opponent is beaten and bloodied.  A successful negotiation is when everyone gets at least some of what they want.  I have not seen any buyer or any seller ever completely “cave” to the other side.   Most often, in a successful transaction, everyone walks away from the negotiating table (and, ultimately, the closing table) with the feeling that they were respected and treated fairly.  The horror-story transactions occur, most often, when one or both parties feels slighted, ill-used or lied to.

Buying a home is an emotional process.  All the professionals you will deal with are very aware of this.  The greatest service I can extend to a buyer or seller is my dispassion.  It’s all business to me and my objective is for you to succeed.  You will be living in your new dream house when that is your objective as well.

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