Tuesday, February 28, 2012

This Negotiation Is Not About You And Me

Helping my Buyer Clients to find the right property, and then researching and discovering the hidden secrets relative to that property are certainly important elements of what I do as an Exclusive Buyer Agent. What happens after my Buyer Client has identified the property they want to buy and are ready to make an Offer is what really matters. This is when the negotiation begins.

After we have found ‘the property’ that turns their light green, I discuss with my Clients how to proceed. First we look at all the comparable properties, such that they are. We dissect the subject property as best we can so as to get some idea of its possible market value. That does not mean looking at the Assessed Value and using that as our benchmark. Matter-of-fact, there is really nothing we can use to get a spot-on number. The Assessed Value and even an Appraised Value are merely guess-estimates used for specific purposes and guided by subjective opinions and data. Probably Comparable Sales, if there are any, are what will establish the closest value number, but no two properties are identical.

After we are done thoroughly reviewing the market data and discussing the various ways to approach negotiating an Offer, my final advice to my Client is to think about it and knowing what they know now, ‘offer what it is worth to them’. Don’t misunderstand, I am not talking about making a 'lowball offer'. What exactly is a lowball offer? I was reading an interesting interview the other day with Jeffrey Stanton who is a Negotiation trainer. For clarification sake, I will use the Martha’s Vineyard real estate market as my reference going forward. In a ‘balanced market’ the average margin price difference between the asking price and the selling price is usually around 3-5 percent. In today’s ‘buyer’s market’ the average selling price is usually 6-12 percent below the asking price. However, there are incidences where a property may sell for between 13-20 percent below the asking price, or even less. Usually properties are passed by when Buyers think they won’t stand a chance if they offer what they believe the property is worth when that number happens to be way below the asking price. Just to confuse matters even more, in any market the exceptional properties (i.e. those that stand out above the rest for one reason or another) will sell above the asking price, and where multiple buyers are engaged those properties will sell well above the asking price. I always tell my Clients if they are hesitant to make an Offer, “If you really want it what’s the worst that can happen? The Seller can say no”.

There have been occasions when I have presented a thoughtful and respectful Offer that was considerably lower than the asking price. Even before the Seller Agent presented the Offer to the Seller they would tell me that ‘they’ were personally insulted by the Offer. Oh really! This is not about You and Me! This is about my Buyer and your Seller. But of course if that is the tone the Seller Agent is going to accompany my Buyer’s Offer with there will probably not be much of a chance of success for anyone. But that is okay because I can deal with that. Stanton suggests in cases like this that the Buyer’s Agent request to present the offer to the Seller in person. That does not happen on Martha’s Vineyard mostly because the Sellers rarely live on the Island year round and are usually not here during negotiations. This is why I am always ready to present my case to the seller agent supporting my offer with the facts – as my Client and I see them.

The other mistake that Seller Agents and their Sellers make is that they do not respond when they perceive an Offer as being too low. The biggest hurtle to jump is from looking at a property to making an Offer on a property. By not responding to an Offer, that means there can be no conversation. It should not matter what the Offer is; beginning the conversation is all important. Stanton said, “A lot of times, a lowball may be all the buyers can afford.” He went on to say. "It could be an investor or a buyer looking to steal the property, or a buyer who really likes your property and is just taking a shot at it, never knowing if you're going to say, Yes or No. Just don't take it as them disrespecting you." Sellers should not be offended by a low Offer and they should realize that when they make a Counter Offer, no matter how small that Counter Offer may be, it is saying, I am willing to engage …. (Note: By law, real estate agents are required to present all offers to a seller.)

Once the conversation has begun between the Buyer and the Seller that is when the true motivations of both parties will start to appear. It is really important for both the Buyer Agent and the Seller Agent to manage expectations on both sides and control emotions --- including controlling their own emotions. And remember, this negotiation is not about you and me.

Tuesday, February 21, 2012

I’m Not Gonna Pay A Lot For This Muffler

Remember that 1980’s Meineke Muffler commercial, ‘I’m not gonna pay a lot for this muffler’. That’s how every real estate buyer enters the market. Okay, I get that; we all want the most for the least, me included. So, when I meet with a new Buyer Client prospect and we are discussing a working relationship, one of the first things I want to know is how much do they want to spend? I already know the answer is as little as possible, but please be more specific.

After I know how much my Buyer Client prospect wants to spend, I need to know if they have it to spend. Are they pre-approved? We can’t go shopping if my new Client won’t be able to pay the bill. Once all that is out of the way and we have decided to work together we start the search process. We look at all types of properties that could fit the profile my Client has outlined for me. I never try to ‘Up Sell’, so that is why it is important for my Client to be truthful with me, as well as with themselves. This is really important.

Unilateral full disclosure and transparency is very important and I believe it is an integral part of my fiduciary commitment to my Client, even though there have been times I did not get that disclosure and transparency back in return up front. I do understand why some Buyers remain guarded at the beginning of our relationship. It is not unusual for Buyers to come to me after having a bad experience with another real estate Licensee somewhere along the line. Therefore, they are gun shy and very guarded. I know if given a chance I will quickly earn my Client’s trust. Besides, the more time we waste getting synchronized and the more time it takes for me to really understand what I need to know in order to help my Client, the longer it will take to make that dream home in their mind become a reality.

There is an old real estate expression that sometimes rings true, although I don’t like it: “Buyers are Liars and Sellers are Worse”. I know, now you are thinking not only is he insulting me, he is insulting the seller too. What the heck does this mean? Let me explain. It is a common fact that sometimes Buyers may think they know what they want, but they really don’t know. Believe me, I have seen it many times. As I go through the education and research process with a Client their awareness increases and they start to flesh out what they really want and what it is really worth to them to have it. On the other side, that Meineke guy has been saying he is not going to ‘give away’ this muffler – so to speak. The Seller may already have emphatically insisted to his Seller Agent, ‘I don’t have to sell’. Buying and selling not only requires awareness, it requires a cool head, an open mind, identifying motivations and the willingness to bend. Not everything is as it seems and as I always say, nothing is ever eaten as hot as it is cooked.

So if you’ve made a decision that it is time to go shopping, put on some comfortable shoes, get ready to enjoy the journey -- no matter how long it takes, and lets’ go for a ride. You know what they say about journeys, they begin with the first step.

Wednesday, February 15, 2012

Tora! Tora! Tora!

The real estate market bubble burst was somewhat like the attack on Pearl Harbor, only a few knew it was coming, but nobody paid any attention to it until it was too late.

As values began to sink, real estate practitioners and prognosticators tried to figure out how not to let the firestorm spread throughout the fleet. They came up with the all too familiar slogan, “All real estate is local”. I suppose that gave some people comfort as markets in Florida, Nevada, Arizona and Southern California were sinking with no bottom in sight.

Although all real estate is local just like we as people are all the same but different, the overall effect of the economy impacted real estate in practically every corner of America as well as overseas in Europe.

Today the economy is starting to show some glimmer of hope that we are in the beginning stages of a recovery and that recovery will be lead by the real estate market along with the job market.

One of the markets I take a personal interest in is Florida. I was reading an article about the Southwest coast of Florida housing market and a broker who was being quoted said something that I believe is beginning to ring true here on Martha’s Vineyard. She said, “Smart buyers have stopped looking for bargains”. I know, that sounds ridiculous because it is human nature to always look for a bargain. The key to being a savvy shopper is to know when the price has reached the point where it is as good as it is going to get. That is when you stop shopping and start negotiating. In other words, as it pertains to real estate, when the trend has flattened out and is on the verge of reversing itself.

The broker went on to say, speaking about her clients, “They don't even bother asking about list prices anymore; they just drive around and when they see something they like, they offer the owner what they think the property is worth.” What have I been saying for years? Offer what it is worth to you. I am not talking about throwing irresponsible uninformed numbers around. My clients know the market and what values are or should be because I concentrate on educating them about the Martha’s Vineyard market.

I know what you’re thinking, you agree that now is a good time to buy but there is one problem. I hear this quite often: “There is nothing out there that I like or think is a good opportunity.” Sure, that can be just an excuse not to buy, but I have to agree to a certain extent because there is a lot of junk on the market – overpriced junk. However, if you look through this update and at the properties that are selling, properties under contract or being negotiated you will see that the better properties are selling. I think most sellers have finally realized, in this market we are no longer the goose that laid the golden egg and more than ever before the market is very price sensitive.

When buying a property on Martha’s Vineyard you have to realize that ‘perfection’ is hard to find; it is up to you to create that perfection. Give me a chance and I will do my best to get you as close as I can to the beginning of Your Perfection.

Wednesday, February 08, 2012

Wake Up And Make That Dream Come True

2011 started off with a whimper, and some say it was due to the weather. Really? Then as the year was ending sales really revved up and we finished with a mild roar, the echo of which carried over into all of January 2012. Sales have slowed down now, which is customary for February, but the activity has not slowed down as there are a good number of buyers looking through the inventory for attractive opportunities.

I know this is going to sound like some kind of sales pitch, but this is a good time to buy. Rates are still low, sellers are unsure of the future economy and wondering if they should hang on or get out now, and there is very little competition in the market. Once activity ramps up, multiple offers will become common and as a result prices will go up.
I’ve always said the Vineyard is not for everyone and I believe being here has to be a passion and a dream, not just an investment opportunity. Although, buying on the Vineyard is most certainly a good investment opportunity in the long run. I’ve heard dozens of would-have should-have stories over the years. The current market is your opportunity to become a winner and not past tense. However, if you are not passionate about the Vineyard there are many other locations that are offering great opportunities right now as markets are at rock bottom and starting to turn around.

On New Years I received a correspondence from a Client I had been working with for several years gleefully announcing he had just purchased a property close to the water in Rhode Island. I knew that for him real estate was all about the price and did not involve emotion, so I was happy for him even though I had worked very hard over the years on his behalf. Then the other day I was reaching out to another Client I had not spoken with since before the new year. He responded proudly telling me that he had reversed his life plan and just purchased a property in Cape Coral, Florida on a canal with a pool. Once again, I was happy for him and I did not blame him one bit for making that decision. He still intends to purchase an Island home, it is just that now it may take him a little longer since he used up about half of his Island home budget. What I am saying here is that even though the prices are very attractive here, relatively speaking, there are many parts of the country where prices are probably even more attractive.

Martha’s Vineyard is a lifestyle decision and only if you love Martha from top to bottom, inside and out will buying a home here make any sense. Martha gave me a better life and brought me together with the love of my life. She provides shelter for one of my sons and my other sons and friends always ask to come for a visit. I love Martha’s Vineyard and if you do too, then I support your dream and want to help you make that dream come true.

Wednesday, February 01, 2012

Whatever Will Be Will Be Que Sera Sera

Back at the beginning of December I was asked by a local news reporter a series of questions about our real estate market. I thought I would review those questions and my answers now that we are gathering speed heading further into 2012.

Question: What do you see ahead for 2012?
Answer: I really don’t know anymore what is ahead of us but my guess would be more of the same. I think it would be foolish for anyone to prognosticate with any certainty on what the future will be. One survey I read suggested that most Americans think prices will go down 1.1% over the next year, but we just don’t know. In what has become a global economic meltdown we are constantly tinkering with possible solutions, but the uncertainty is vast and the landscape seems to change daily.

Question: Have there been any changes locally or nationally that might affect the 2012 market?
Answer: We hear about and read about changes every day as there is always something new that affects people’s thinking and confidence. There is a lack of confidence and an overall mood of uncertainty. The general consensus is that mortgage rates will remain low over the next 12 months. Financial institutions are being very stringent with their lending requirements. Corporations are playing it very close to the vest which means they are not hiring. It’s like listening to a broken record --- jobs, jobs, jobs. Until people go back to work and people start spending on a regular basis we will see little change. Island residents are affected by the poor job market and many of them are being forced to leave because they cannot find work. That means they are either putting their homes on the market, or they are unable to pay their mortgages and in some cases simply walking away. Nationally, a second wave of foreclosures is on the move and we will most likely see more foreclosures on the Island in 2012.

Question: Where are the best buys to be found on the Island? (geographically, in price segment, etc.)
Answer: Where are the best buys to be found on the Island? That is a good question. The short answer is so-called best buys can be found across the Island and in all towns. Personally, I don’t use the term best buys; I call them good opportunities. Oak Bluffs has seen a drastic decline in property values over the last few years. Tisbury, Edgartown and Chilmark have remained somewhat consistent. West Tisbury prices are softening and I think Aquinnah prices are too. Midrange higher end properties ($1.5mm - $2.5mm) have not been selling and prices have remained steadfast. However, I think we may be approaching a paradigm shift. For the last few years prices at the mid and low end (below $600K) have taken a brutal beating and that is where the majority of sales have been, although there has been a trickle of high-end and uber high-end sales, for the most part the high-end price range has languished. This year I am seeing some stunning price reductions with prices plummeting from where they were 5 and 6 years ago. I think the real opportunities are coming in 2012 with water front and water view properties priced very attractively. I also see a good opportunity to negotiate on properties in the $600K to $800K range.

Question: What's your best advice to sellers in 2012?
Answer: My best advice to sellers is to listen to the seller agent/broker they are choosing to hire, and don’t be attracted to one agent/broker just because they give you the highest price recommendation. Look at the comps and don’t chase the market – price your property sharply. Insipid little price reductions can only hurt a seller’s chances of attracting buyers. Sellers need to clean up their properties. I am not saying sellers have to rent fancy furniture (i.e.: Staging), just make it look presentable. Sellers should have a prelisting Structural Home Inspection to eliminate some of the mystery and concern for the buyer. Then they should either fix or repair what they can or be prepared to negotiate or credit the buyer on what they do not fix. It is unwise to try to hide anything. Some sellers have the attitude, ‘I don’t have to sell’. If that is the case, don’t list the property for sale. Sellers should not clutter the market with unrealistically priced properties; it only confuses the market and confuses real estate agents. Sellers will end up losing more than they gain. For all the sales that have occurred in 2011, the inventory seems to continuously replenish itself with more properties for sale. As long as we have a large inventory we will not have a balanced market.

Question: What's your best advice to buyers in 2012?
Answer: My best advice to buyers in 2012 is the same advice I have been giving my clients for the last few years. 1) If you are thinking of buying as a short term investment, this is not your market. 2) Plan on at least 7 and maybe 10 years before you will have any significant equity in your property. Buyers may also experience a slight negative equity in the short term if prices go down. One analysis I read suggests the home price appreciation rate may not exceed a 2-percent-a-year between now and 2015. That is not a very inspiring number. 3) Buy a property because you love it and it will bring joy to your life and your family. Life is short. 4) If you find a property you like but you think the price is too high, offer what it is worth to you. Nothing ventured, nothing gained.

Question: Is the demand for existing homes, condos, or buildable land similar?
Answer: I don’t think the demand for existing homes, condos, or buildable land is similar. The main attraction with condos is that the prices are lower than residential homes in most cases, and that attracts those buyers who thought they could never afford to live here. But most often when a buyer finds out the condo rules, regs and what the fees are, their interest quickly turns away from condos. Land is still very attractive but even with about 1/3 of the Island still not developed, nice pieces of land at reasonable prices are rare. I also think many buyers are dubious about the building process as a long distance absentee owner. We have many excellent contractors on the Island who are eager to work. However, pre-existing homes are still the most desirable. There are many very nice spec homes available right now, but they are mostly at the mid-higher end of the market and they are not selling. I find the problem with so many existing homes, especially those in the million dollar and below price range, is that many of them have not been properly maintained and they need a lot of work. We should no longer consider our market to be the goose that laid the golden egg and anything will sell just because this is Martha’s Vineyard. Buyers today want value and they are smarter and better informed than ever before.

It’s been almost two months and I don’t think the landscape has changed much. Que Sera Sera.