David Rathgeber's

AGENT'S GUIDE
to
REAL ESTATE

Power your career
to financial success and
personal happiness.

COPYRIGHT NOTICE
Copyright © 2008 David Rathgeber - All Rights Reserved

You are hereby authorized to read this book on your computer screen. You are NOT authorized to make any copy of any nature: paper, electronic storage media, or otherwise without the express written permission of David Rathgeber. Violators will be vigorously prosecuted to the fullest extent of Federal law.

To request written permission to print one copy of this book for personal use, email davidr@davidr.net and such permission will be granted liberally upon suitable identification.

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CONTENTS

INITIAL CONSIDERATIONS [Go to this Section]

EASY MONEY!

WHY DO WE DO THIS?

DEDICATION

WHERE WE’RE HEADED

MARKETING YOU [Go to this Section]

DO YOU HAVE A PLACE?

WHAT ARE WE SELLING?

GUIDANCE/EFFICIENCY/ADVOCACY/NEGOTIATION

THE MLS MONOPOLY MYTH

THE SAME BALONEY OR SOMETHING DIFFERENT

MEASURE YOUR PERFORMANCE

SELL YOUR VALUE0

BROCHURES/LOGOS/WEB SITES

ARE YOU RIGHT FOR EVERYONE?

MARKETING THAT WORKS

MARKETING THAT’S FUN

NOW AND THE FUTURE [Go to this Section]

VERTICAL INTEGRATION

COMPUTERIZATION AD INFINITUM

REAL ESTATE THROUGH THE PUBLIC’S EYE

ENHANCING OUR IMAGE

IS THE AGENT THE AGENT OF THE AGENT?

IS SOMEONE EATING YOUR LUNCH?

MOTIVATION

STAGES IN YOUR CAREER

THE TRUE SECRET OF SUCCESS

SOME COMMON GROUND [Go to this Section]

MANAGING YOUR RESOURCES

LAWS/ETHICS/FAIRNESS/POLICIES/PROCEDURES/BALANCE

A TRULY UNIQUE MARKET

WHAT DRIVES YOUR MARKET?

KNOWING YOUR MARKET

THE MARKET VALUE ANALYSIS

REAL ESTATE TAX ASSESSMENTS

WORKING WITH SELLERS [Go to this Section]

WORKING WITH SELLERS

THE LISTING PRESENTATION

NUTTIN BUT THE TRUTH

YOUR COMPUTER LITERACY

SETTING THE ASKING PRICE

TIME ON THE MARKET

CHOOSING A MARKETING STRATEGY

PREPARING THE HOME FOR THE MARKET

AN INFORMATIVE HANDOUT

PREPARING YOUR SELLER FOR THE MARKET

EXPOSURE

OPEN HOUSE

TO SELL OR NOT TO SELL

KEEP YOUR LISTINGS

WORKING WITH BUYERS [Go to this Section]

WORKING WITH BUYERS

BUYER-BROKERAGE

A PRESENTATION TO THE BUYER

SOME BASIC CONSIDERATIONS

INVESTMENT ASPECTS OF A HOME

CLASSIFY YOUR BUYERS

CONTINGENT OFFERS

THE FINANCING JUNGLE

YOUR BUYER’S SPECIFICATIONS

ON THE ROAD

MAKING THE CHOICE

PREPARING THE OFFER

NEGOTIATING [Go to this Section]

THE PROCESS

YOUR ROLE/YOUR OBJECTIVE

STRATEGY

TACTICS IN GENERAL

TACTICS FOR LISTING AGENTS

TACTICS FOR BUYER-BROKERS

PRESENTATION OF THE OFFER

MULTIPLE OFFERS

NEGOTIATING NEW HOMES

LET’S PRETEND

ADDENDUM FOR NEW AGENTS [Go to this Section]

WHAT’S IT REALLY LIKE?

WHAT IT TAKES TO BE AN AGENT

SURVIVAL

CHOOSING A BROKER

APPENDICES [Go to this Section]

(Most Appendices are omitted in this Web Edition.)
A A MARKET INDEX

B MARKET VALUE ANALYSIS

C SELLING PRICE / ASKING PRICE

D TYPICAL PERSONAL LETTERS

E RENT OR BUY ANALYSIS

F HOME SELECTION CHECK LIST

G HOMES ON THE MARKET

H HOMES SOLD

J RATIONALE EXAMPLES

K GAIN A STATISTICAL ADVANTAGE

L AVOIDING DEADLOCKED NEGOTIATIONS

FOREWARD

Merge the ideas from this book into the context of your past experience and your local market. Read critically, evaluating and questioning each idea that might work for you. There is a deluge of mis-information in our real estate world and your ability to separate the wheat from the chaff can make the difference between total success and all other outcomes. Note that success is defined herein not only in financial terms but includes an ample measure of personal happiness.

A conscious effort has been made to avoid real estate jargon, which can vary significantly from area to area. Recognize that the singular can include the plural and that the masculine can encompass the feminine. This saves ink, paper, and your precious time. Neither social nor environmental statements should be inferred. Although portions of the text are clearly critical of some widespread practices, it should be apparent that the intent is purely constructive. One word of caution: The author has at random, shattered the barriers of seriousity, often without notice. This is your only warning. So read on at your own risk. And happy reading!

Please submit your comments and suggestions to davidr@davidr.net

[Return to Top]

INITIAL CONSIDERATIONS

EASY MONEY !

Got some spare time? Need some extra cash? Why not become a real estate agent? Hmmmm, let’s see... the median home price must be about $200,000. An average commission has got to be 6%. Wow! That’s $12,000 per sale, and 10 or 12 sales a year should be a piece of cake. Holy mackerel, that’s $144,000 a year. What are you waiting for?

And how hard is it? Grab an unsuspecting prospect; show a few homes; attend to some administrative details; go to closing; and collect the check. Set your own schedule; avoid rush hour; have time to taxi the kids; and take off when you please, even in the middle of the week. It cannot take much time and effort to sell one home a month. Why did it take you so long to realize this? But one word of caution: Before you rush to tell two friends, consider that if they tell two friends, et cetera, et cetera, it won’t be long before everyone is an agent. That surely would spoil the fun. Think about it: How many of your real estate agent friends shared their secret with you? DON’T TELL.

WHY DO WE DO THIS ?

It is indeed a wonder why everyone has not run off to become an agent. Hopefully you did a re-calculation before you ran off to get your real estate license. Often that fat commission must be split between the listing agent who markets the home and the selling agent who brings the buyer. Also, most agents are associated with a real estate broker, and both the listing portion of the commission as well as the selling portion are split once again between the agents and their broker. That $144,000 a year just shrank to $36,000, out of which comes your business expenses: Advertising; automobile; license, Association, and MLS (Multiple Listing Service) fees; supplies; computer equipment; telephone costs; et cetera.

Business expenses can easily amount to $2,000 monthly. That brings net earnings down to around $12,000 per year. And that is assuming one sale a month, which is not guaranteed. Further, the average real estate agent bags less than one sale every two months. Some agents work all year and have nothing left except the glamour and the whopping monthly payment on their big car. Maybe flipping hamburgers at MacDonald’s is not that silly after all. No business expenses and a steady hourly wage, assuming most of the flipped burgers land on the grill and not on the floor. Work your way up to French fry chef, cashier, and maybe even assistant manager. Then you’d be in line to command your own ship. Think about it, you only go around once. Better take your best grab at the brass ring.

Nevertheless, many of us become real estate agents each month. While most new agents never earn a living, some do succeed, and a few become rich if not famous. What separates the successful from the rest is no secret and is not limited to the world of real estate: The ability to recognize what needs to be done, the commitment to get it done, and the stubbornness not to quit until the goal is achieved. You can be a more successful real estate agent, and have fun doing it. But it will not be easy. The devil is in the details. Read on!

DEDICATION

This book is dedicated to residential real estate agents who need to excel and are actively working with buyers and sellers in one of the many major real estate markets. There is a recurring focus on how we each can do a better job for our clients and how that benefits us collectively as well as individually. The book does not discuss how to build an organization to attain $30 million or more in annual sales. But the ideas presented should be of value to all agents, including the following:

Experienced (but not quite successful) agents who have been in business one year or more but have been unable to sustain an annual sales volume exceeding $5 million will benefit most from the ideas in this book. Those of you in this category have demonstrated a degree of tenacity, and your experiences so far will give you the perspective required to evaluate and appreciate the ideas presented. The technical sections will provide you with important information you need, to reevaluate and redirect your technical efforts, which are so important in satisfying current clients and thus ensuring future clients. But you will find the “Marketing You” section to be the most valuable section of the book, by enabling you to understand the important aspects of marketing yourself in such a way that clients of the highest quality will seek you out. Utilizing the marketing ideas herein will not only ensure you a steady stream of clients producing a steady stream of income, but most importantly will enable you minimize your exposure to unhappy clients and associated legal problems, and to actually have fun in our business every day.

Successful agents who are selling $5 million worth of real estate each year or more will enjoy the book as a refresher on important principles and will find some exciting new ideas to take you to the next level.

Newer agents who have been in the business less than one year should be sure to re-read the book in its entirety after one or two years, because in an initial reading you will lack the perspective to fully appreciate much of the information presented. However, you will find exposure to these ideas to be an asset during your early years in real estate.

WHERE WE’RE HEADED

The book is organized into seven major sections. Chapters within each section are generally kept short to promote easy reading. The following will provide a helpful perspective on sections of the book and its organization:

Marketing You is the first section, in recognition of the critical importance of self-marketing to all agents. Of all the real estate agents licensed today, few will still be active five years from now. Some newer agents will find that real estate is just not what they expected, or not to their liking, and will go on to bigger and better things. But many agents will fail simply because they have failed to generate enough business to produce the income they need to live, possibly because they were busy marketing homes, when their primary product should have been marketing themselves, which is a much more daunting task. The concepts presented will help experienced agents fine-tune their approach, will provide direction to newer agents, and are vital to the survival of all.

Now and the Future follows with special consideration of continuing trends in our industry, the accelerating rate of change, and the de-bunking of some popular myths. The future demands that we take a critical look at ourselves in order to remain pertinent in the real estate world. After you digest this section, you will feel confident about your future.

Common Ground will provide the foundation for a solid career in real estate by helping you understand the industry as well as the general concepts involved in doing your day-to-day job. The ideas in this section are prerequisite to the following sections, and even experienced agents will find some refreshing thoughts.

Working with Sellers and Working with Buyers are detailed discussions of the most important aspects of dealing with clients. Mastery of these concepts is central to obtaining the referrals needed to make your system work effortlessly. These sections define not only a new focus on serving our clients, but also important new ideas to serve them better.

The Negotiating section deals with the least understood and most neglected part of our job, and represents the mere tip of an iceberg. It is intended to bring the vital nature of your negotiating ability into sharp focus. Your understanding and utilization of these important ideas are required to lift you above the ubiquitous questions of our value.

Addenda for New Agents will be most valuable for those in our business only a short time. It should also be of interest to experienced agents who want to re-live their early years in real estate and evaluate whether changes in their current situation are advisable.

Finally, the Appendices bear no relationship to an unnecessary, non-functional body part. They are filled with information that you will use every day. Don’t miss them!

[Return to Top]

MARKETING YOU

DO YOU HAVE A PLACE ?

Periodically in the course of our career, we need to take a break from the rat race of daily business and ask ourselves whether we are serving a function that is of use to society. Of course the answer to this strategic question is “Yes.” But explore the idea further: What is that function? It will help you to define the essential elements of your function, recognizing that they will be ever-changing in our ever-changing world. Failure to periodically examine the answer anew will lead to our obsolescence, individually or collectively.

We spend lots of time on self-promotion, playing courier, sitting around open houses, following leads of buyers and sellers, developing information for buyers and sellers, or getting ourselves run down blind alleys by buyers and sellers. This is real work and it takes time, and time is real money. It is part of the reason why we cost so much. Do buyers and sellers know that they are paying for this footwork that produces nothing? Of course not. Do they even care about the waste? Of course not. There are less productive parts to any job, but as the boss it is your responsibility to minimize or eliminate these parts. At the same time, recognize that buyers and sellers will appreciate, and pay handsomely for efficient service, useful information, and advice that leads to a successful purchase or sale at an attractive price.

Identify the successful, meaningful patterns (i.e., what works) and develop ways to maximize your client’s appreciation of your usefulness. Recognize and eliminate or minimize less useful activities. This seems to be a very general discussion, but it should be kept in mind. As you develop your career, strive to exercise greater and greater control over your business, your chosen market, and your own fate. Develop and work with those who will buy or sell. Leave the tire kickers to newer agents who need to build a foundation of experience by going through the motions, whether they are productive or not.

WHAT ARE WE SELLING ?

What are we selling? For so long we have been telling all the sellers that we would find a buyer for their home. No doubt you wowed and zowed the last sellers who interviewed you with your dynamite marketing plan. Indeed we believe it and of course they believe it too. At the same time we have been telling the buyers we would find them the perfect home to buy... and they believe it too. Consider that the most inept agent among us eventually will find a buyer for that seller, or find a home for that buyer.

Stop. Get into the 21st century; this is the age of information. Have you heard tell of the Internet, let alone www.realtor.com? Buyers and sellers can now find each other without you! It is time to get out of the 19th century before you are out of business. You have much more to offer, but if you do not recognize it, develop it, and promote it, your public will pass you by. Their choices are driven by their needs. You must sell your experience and your expertise. Sell your market knowledge and sell your ability to achieve your client’s goals efficiently. Above all, sell your ability to negotiate an agreement favorable to your client.

GUIDANCE / EFFICIENCY / ADVOCACY / NEGOTIATION

In general, we have a lot to offer our clients. Sometimes we forget how infrequently they buy and sell homes. It is easy for an experienced agent to take many important parts of the job for granted. Of course we provide sellers with an easy, efficient, and effective means to reach buyers, and if your MLS has not claimed its rightful place as King of the Hill, there is something very wrong. But the best MLS is no good at all without experienced operators (that’s you) to enter information accurately and maintain the database. So sell your computer literacy, your ability to use the most effective tool there is, to connect the seller with the buyer and vice versa.

The efficiency we provide buyers is the ability to research the available homes, sort them out, arrange them in geographical order, and show them, utilizing a lockbox or keysafe system in order to tour the homes at will. If your area does not have an effective, well utilized lockbox or keysafe system, it really cannot be a major market area by definition.

In addition, the experienced agent provides invaluable guidance regarding the home buying and selling process including market values, information on the state of the market as well as on the direct competition, local customs, market preferences, and governmental requirements. We offer alternatives and advice, and provide a sounding board for our clients when they are considering various courses of action. As part of our basic responsibility we are their advocates, especially in view of the increasing popularity of buyer-brokerage. This is particularly true during contract negotiation when we offer critical information in the planning stage, support and advice on substantive issues, a feel for timing (when to play and when to hold), and most importantly a buffer between the principals. This gives them time to consider details and to forge an agreement that will end up at closing. The agent-buffer also provides a firewall, which in most cases keeps a minor inflammation from becoming a conflagration. Note that in industry and government you rarely see the decision maker taking a direct role in the negotiation.

THE MLS MONOPOLY MYTH

As real estate agents, we siphon big bucks off most home sales. But, you argue: If this job is so easy, why isn’t everyone doing it? Guess what, everyone wants to be doing it, at least when they are buying or selling their own home. Many believe it is easy. A real estate commission represents a lot of money to most people and many believe they could save this money easily if they had direct access to the MLS. What’s in their way? It is a conspiracy by the real estate agents, who have a monopolizing stranglehold on the MLS that is blocking the wave of the future. Get the agents out of the way, then buyers and sellers could find each other directly. This idea is rooted in the belief that the essence of the agent’s function is merely to put buyers in touch with sellers. It is amazing and sad that this belief is shared and indeed nourished by many of us. We should know better.

Let us hope that we have much more to offer, that we can recognize it, and that we can communicate it effectively to those whom we wish to serve and on whom we depend. Pubic access to basic MLS information is growing dramatically. Anyone with a computer and a modem can now perform at least basic searches of our coveted databases in many parts of the country. Doomsday? Wait a minute; let’s recognize that this is, in effect, a new source of low cost advertising. This added exposure surely benefits home sellers and should benefit us as well. If the trend becomes widespread it will become slightly more important to be a listing agent and slightly less valuable to be a selling agent because a small proportion of buyers will find their home, and its listing agent, on their own.

Selling agents will live on to earn, eat, and pay the mortgage another day only to the extent that they provide something more than merely finding a home for a buyer. Think about it, as a selling agent you do a lot more than finding homes. Recognize it today and start to communicate it to anyone who will listen. One important benefit for a buyer is that a selling agent provides the ability to see many homes in a short time. This is made possible by a lockbox or keysafe system. This is not expected to change. In areas where buyer-brokerage has become popular, this new facet of agency has provided an invaluable supplement to the services selling agents provide. Also be sure to cite and recite how your personal experience will benefit your buyer.

Contrary to the relatively free access to our data enjoyed by buyers, it seems unlikely that sellers will gain the ability to enter their own MLS data. The possibilities for error, inaccuracy, or outright misuse are too great. But in many markets “renegade brokers” provide MLS access for a nominal flat fee, which by the way is frequently paid up-front on a non-refundable basis. So get ready listing agents, to tell everyone what is so valuable that you do for your sellers. If you quickly answer, “I’ll find them a buyer,” you have failed the test. But how many of our listing presentations carry this message as a central theme? Do we honestly believe this baloney or do we only believe it is what they want to hear?

THE SAME BALONEY OR SOMETHING DIFFERENT

It is easy to cruise through your career never giving serious consideration to what you are selling nor to whom. But it is important for you to have a focus. Consider what it is you do best, what you enjoy, and what has brought success and satisfaction. Is there a pattern? Once you identify your own unique talents or preferred areas, promote them not only to your target audience but also to your general public. It is too easy to ignore this essential element of marketing you by telling yourself you are no different from the rest. Chances are, this is far from the truth. If you really are just like all the other agents, you had better get busy being different. If you can distinguish yourself by your successes, more successes will follow. Always try to publicize your success: No one wants to hire a loser. But tread gently; most of us will never be effective self-marketers. It is better to recognize and accommodate this fact than to fight it forever. More later.

In apparent contrast to the value of a focused outlook, it will be valuable to keep your business activity broad based to provide yourself with a diverse experience reservoir and to protect you from sudden changes in the various segments of the market. For example, those who have all their eggs in one basket will be left high and dry when their upper-bracket market dries up or when lenders stop lending on “their” particular condominium complex because the owner occupancy ratio got too low. And indeed, the diversity of your experience is another factor that you can sell.

MEASURE YOUR PERFORMANCE

While you are running around busily being different, take time to measure your performance. This is done best in the context of what is important to your clients. We live in a world of numbers, use them to your advantage. Home sellers might like to know:

What was your sales volume in the past year?

What percentage of your listings has sold in the past month?

What was the average time on the market?

For what percentage of your listings were you also the selling agent?

What is your accuracy record in determining the market value for homes?

What is the selling-price-to-asking-price ratio for your listings? In other words, when an offer arrives, how close to full price are you able to negotiate for your sellers? How does this compare with the industry average? Or, in still other words, how good a negotiator are you?

Buyers will be interested in the following:

How many homes do you expect to show me before we find the right one?

How many homes can we expect to see in a day?

What was your sales volume in the past year?

In a buyers’ market, what is the selling-price-to-asking-price ratio for homes you have sold as a buyer-broker? In other words, how much off the asking price are you able to negotiate for your buyers? How does this compare with the industry average?

In a sellers’ market, what is your average number of offers per buyer? In other words, how effective are you are at winning your buyer’s home of choice in multiple-offer situations?

The most effective way to measure your performance is to keep track of your own experience and to compare it with local industry averages. Can you think of additional measures of performance?

Utilize the information you generate by telling your prospective clients your record, how you achieved each success, and how it is likely to benefit them. This can be a powerful addition to your marketing arsenal. The negotiating effectiveness questions above have a direct bearing on your client’s pocketbook and are especially important. If you find your personal statistics do not compare well with industry averages, you will want to take corrective action. No matter how you stack up in the performance statistics league, just by keeping a record, you will be showing that you understand what is important to your clients and that you care. Meanwhile, banish the thought that real estate agents soon will be extinct.

SELL YOUR VALUE

In addition to the quantitative measures noted above, there are many subjective but equally important ways that you can add value to a real estate transaction. Remember that your annual income will seek the level of your value to your clients. Be prepared to answer the critical questions, and be prepared to sell your value if your clients are too shy to ask. The following are questions that all clients might have:

How can you be contacted immediately? Agent-to-agent and client-to-agent communications can be critical. A pager should alert you immediately to any waiting messages.

What days do you consider your weekend? The best answer is “None.” Everyone needs a day off, but any rigid schedule is incompatible with the nature of our business.

Do you specialize in a particular area? You need to be experienced working with both buyers and sellers over a wide area. With modern technology and a little ambition, it is very easy to cover the entire residential market.

Can you supply names of references? References can help strangers feel more at ease. A written set of testimonials can also be valuable.

Answer these questions for your sellers:

How will you determine the expected contract price for a home? Appraisal by comparables is generally accepted as the very best method to predict the market value of a home. Learn how to do this in your sleep.

Where should the initial asking price be set for a home? Your answer to this question will demonstrate your basic understanding of the market. The answer depends on the average selling-price-to-asking-price ratio and the rate of increase or decrease in area home prices. Be sure that you have up-to-date information on these statistics.

What usually sells your listings? The MLS? Signs? Advertisements? The industry average is overwhelmingly clear: Over nine out of ten home buyers come from the computerized MLS through another agent, not from your direct sales efforts. You are in touch with the market: No, you will not actually find a buyer directly. Therefore, the information entered into the MLS computer is critical to your success! You are your seller’s connection to the buyer. Your computer literacy is one of the most important things you have to sell.

What kind of computer equipment do you have at home? Talk a little computer-eze to show that you have an acceptable comfort level. Offer several of your recent listings from the MLS for your seller’s review. Describe the critical decisions involved in filling certain fields, so that other agents searching the MLS will find your seller’s home for sale in their searches.

How many showings should a seller expect each week, and how many showings will a home need to find a buyer? Provide valuable information so that your seller knows what to expect. Traffic is the key to success. Know these numbers.

Be sure to answer these questions for your buyer clients:

Do you offer buyer-broker (or buyer-agent) services? The concept has become very popular in some areas. If buyer-brokerage is popular in your area, you will be able to provide valuable services.

What are some of the critical decisions involved in searching the MLS to find a home? You have to think like a computer in order to find your buyer a home in an efficient manner. Be sure you know how to work the MLS like a champion, and then sell your expertise.

What is the upper limit of what I can afford? You should be able to estimate this for your buyer in just a few minutes. Demonstrate your familiarity with real estate financing.

How will we determine a fair price to pay for a home? Describe the information available in the MLS database on comparable sold properties, including the asking and contract prices, and summarize how the information will be utilized. Do you provide your buyers with a market value analysis?

How should the price be set for the initial offer? This question should lead to a general discussion about how the initial offer relates to the final offer and how your buyer can avoid ending up there. Since the discussion will be highly hypothetical at this point, focus on your negotiating experience.

What is your strategy for a hot sellers’ market? Be prepared describe how you will beat the other buyers to win your buyer’s home of choice.

Use the questions and answers above to define your value to your clients. Your ability to have them understand your critical role in a real estate transaction will help ensure their satisfaction and their appreciation, which is critical to your long-term success. Many of the ideas above will be explained in greater detail later.

BROCHURES / LOGOS / WEB SITES

You will need a personal brochure to give to prospects and send to friends. The style variations are many, but use full color. The general appearance of your brochure says something about you, just as does the car you drive. Of course, the brochure will show your name, your photograph, your company name, and your main phone number. Try to use only one phone number. You are in a better position to choose a number rather than hoping your prospective clients will guess which one of four or five numbers to use. They are sure to find four or five numbers more confusing than impressive.

You might also detail your accomplishments. Those with too voluminous a list of accomplishments must limit their brochure to truly major triumphs or risk excessive verbosity. Those without accomplishments can philosophize on their personal style of real estate, their caring ways, or offer some other subjective dialogue. Include a brief personal statement or letter to your clients-to-be describing your method of operation and how it benefits them. Remember that they do not care what you have done or what you will do unless it relates directly to their agenda. Maximize the “personal-ness” of your brochure: No one is hiring real estate agents; they are hiring people who can handle real estate.

Do not forget the old adage “less is more” meaning in this instance that the fewer words you use to convey your idea, the more effective a brochure you will produce. You might include testimonials. They can be powerful, especially if you can attribute them to your past clients. And it is twenty times more effective to have someone else brag about you. Again, pay special attention to the overall appearance of the brochure but do not agonize over the words: You really need a brochure, but no one will ever read your words.

You might wonder whether you should develop a logo, an image, a design, or a trademark that people would immediately associate with your “brand” of real estate. In a very few cases, when a name itself suggests an unmistakable picture, such as a first name of Rose or a last name of North, a logo might be appropriate. (But pass on the personal logo idea if your name is John.) Otherwise, skip the entire idea: It merely adds clutter to your marketing effort and dilutes the focus of your program. Do not delude yourself into thinking you are General Motors or IBM. Save your time and money: Dealing with the Patent and Trademark Office can be excruciating. The most appropriate logo for most of us is our photo. Get a good one in full color with direct eye contact.

It is time that we each have a presence on the World Wide Web (www). Simple web pages are readily available from many sources, including many brokers and realtor.com at a reasonable cost. More elaborate sites with multiple pages can be an important addition to your marketing arsenal. Conduct some research (surf the web) on what other agents are doing. Visit www.davidr.net and several other sites of agents in your area. Your web site is your on-line brochure. Review the suggestions above concerning your personal brochure when you are designing your web presence. Also include some real estate information that buyers and sellers will find helpful. Your web address should be as short and simple as possible. There are two ways to use your web site. You can hire professionals to improve your ranking on important search engines so that your information appears near the top of the list in random searches. This can cost hundreds of dollars monthly. A more conservative approach is for you to publicize the site to your friends and prospective clients directly. In any event, be sure that your web address appears on all your promotional materials.

In any event, develop a slogan, seven words or less, that captures the essence of your real estate practice, your credo. Use the slogan on your personal brochure, on your web site, on your business card, and on every piece of correspondence that you send.

ARE YOU RIGHT FOR EVERYONE ?

Once upon a time, there was a truly great real estate agent: Licensed as a broker, a CRS (Certified Residential Specialist), a GRI (Graduate of the Realtors Institute), a MVP (Most Valuable Player), with lots of experience, lots of sales awards, and lots of client appreciation. Smart as a whip, Mensa qualified, out in front of the crowd. (Move over ReMax.) This agent wrote real estate books, front page articles for major newspapers, and lectured buyers, sellers, and agents. And this agent appeared on local and national TV programs as a recognized expert. In short, the epitome of the better mouse trap. And what do you think happened? In a very short time, nearly all the buyers and sellers in this agent’s market area were lining up, begging to become this agent’s clients. Unfortunately, there was very little business left for the other 6,999 agents in this particular market area and most of them were forced to find alternative employment. Meanwhile, the perfect agent, unable to handle all the business, was forced to turn many prospective clients away.

Make sense? A true story? Guess what: Save your time and energy if you think being the perfect agent is your key to success. Learning your business and becoming an expert is certainly worth pursuing so that you can serve your client’s best interests, as well as for your personal satisfaction. But if you think that achieving a high measure of success, expertise, or recognition will, in itself, cause clients to line up at your door, you will be sorely disappointed. Effective ways to have clients line up at your door are discussed later, but there is no magic in technical expertise or any other specific virtue. Attempting to bring your stellar accomplishments to the attention of your public-in-waiting via newspaper, radio, or TV advertising will meet with a hearty “Ho-hum.” Being great and advertising it does not work.

Why is this, you ask? The answer lies in the fact that we are seen by most people as a commodity: Each as indistinguishable as grains of sand. Most of our public does not even look for differences. Many see us as a necessary evil: The monopolizers of the MLS. Further, if you believe your expertise will obviate the occasional abuse inflicted by someone you thought was a satisfied client or a friend, think again. The simple truth is that people are all different, and no agent is right for absolutely everyone, despite his accomplishments, level of expertise, winning personality, or any other factor. The corollary of this axiom is that almost any agent, even the most inept among us, is right for someone. So smile, that next listing is lurking right around the corner.

MARKETING THAT WORKS

Eventually you will realize that some methods of marketing yourself are more effective; in other words, they work. Better to realize sooner, so give it a lot of thought early on. As you look around, focus on what is working for the successful agents as well as for yourself. But before you charge off in any particular direction, try to see if there is any hard data to indicate what works in your market. In a typical major market, we find that office duty... waiting for call-ins or walk-ins is a very ineffective use of time. Also, we’ll classify the activity as passive. In general, you are sitting on your chair waiting for the action to come to you. Another example is waiting and hoping that your share of your broker’s referrals will be unusually rewarding. Where does the business come from in your market?

If you are looking for a passive approach that works, you can sell your soul to the RELO (relocation) devil and work as a serf in order to be hand-fed your prospects. This option can be a few quantum levels below basic personal satisfaction, both because of the boring, voluminous reports that must be generated to fill the relocation coordinator’s self-justification files, and more importantly because it represents a personal cop-out on one of the most interesting and challenging aspects of your business, self-marketing. But the RELO connection works if you can stomach it, and you are almost guaranteed to have a profit if you eliminate your personal marketing efforts and the associated expense.

Howz about a flashy promotional ad campaign in the local newspaper, radio, or yes, even TV? In most major markets you can save your money. “But the most successful agents do it,” you plead. Ask not whether the successful agents do it, but rather, whether doing it made them successful. Mindlessly emulating ineffectiveness will not make you effective. Check it out, self-promotion is hopelessly ineffective. It falls on deaf ears. Some do not need you, others will not notice you, and the rest do not care.

Another proven way that will work, if you have the motivation, is by sweating and hogging through a daily regimen of cold calls. It is a numbers game that has to work, and if you see it as a challenge and thrive on rejection, you have found your niche, especially if you are into telephone worship. Write out your spiel (whoops, script) and practice it a bit. Use a recorder to polish your inflections as well as your implications, not to mention your imperflections. If you wish, warm the cold calls a week or so before calling by mailing a target letter: Include local market statistics (some homeowners save these letters forever), or use a catchy little letter that begins, “Please help me find the perfect home for a nice family moving into your neighborhood.” Better still, call your friends: Warm calls that are fun. Whoever you call, make notes in your database about important elements of the conversation. You will use these notes the next time you call. Many will be impressed that you remembered their words. Also note an appropriate follow-up date and a rating for each prospect on your own scale of cold to warm.

You might find success in the numbers game with mass mailings twice a month. A portion of the population concludes that you are twice the agent of anyone else since they see you twice as often as they see the other agents. So you will get the listing call. This approach is most successful after you have already earned a degree of success that you can brag about and build upon. This can work, but after you have achieved a measure of success by conventional means, it is unlikely that you will want to convert to this method of marketing. It tends to be very impersonal and numbers oriented rather that service oriented: Send 1,000,000 pieces of bulk mail, get 50 responses, do 25 interviews, get 20 listings, sell 10, lose 10, do it all over again. Some will conclude merely that you are twice as obnoxious.

Some of these techniques can be combined and utilized as part of a concerted effort focused on commanding more than your share of the available real estate business in your own neighborhood. Remember you will have to become well known, and it will help to be offering something unique that is of value to your prospective clients.

MARKETING THAT’S FUN

For most of us, there is a better way to market ourselves and it is so beautifully simple. First, an amazing study conducted over several years found that most buyers and sellers were doing business with agents whom they knew or with an agent recommended by their friends. Another survey of top agents across the country found that all but a very few, listed their sphere of influence, meaning their friends and acquaintances, as the number one generator of business with many citing it as their sole source of clients. It is very likely the same in your market. So to get more real estate business you simply need to know more people. How to accomplish this? It’s simple, go out and join something, something that you like and where you will be visible and will meet people, not as an agent, but as a person: Person first, agent second. So there you have it, while you are having fun doing something you like, you will be meeting your clients of the future. The first new client might take a while but success will grow exponentially.

Meanwhile, discreetly add all of your friends and associates to your mailing list and remind them with periodic targeted mailings, that you are in the real estate business. Make sure your computerized mail-merge program addresses each piece individually including first names if appropriate. Mailing “Dear Neighbors” notes to strangers is not generally effective by itself. Mailing “Dear Neighbors” notes to those that you know is worse than mailing nothing. Like anything else, do it right or do not do it. Your photo should be on everything: Instant recognition, even if you hit the trash can in three nanoseconds. But if they need you, they will call you. Always include a postpaid business reply card with some sort of giveaway, offer of information, or poll for opinions.

Ask for referrals in your mailings whenever appropriate. The use of a “P.S.” on correspondence can be an effective way to separate as well as highlight this important message. And when it works, immediately send a gift to the person doing the referring. It is not the size of the gift, just the fact that you cared. Yes, immediately, do not wait to see whether the referral becomes a commission-generating client or not. Gift ideas: Fresh fruit, special jams, a food basket, flowers, plants, a gift certificate from amazon.com for your electronic friends, et cetera ad infinitum.

Resolve never to take on a client just to earn a commission: If you cannot end up friends, you have wasted your time. When you are active with your clients be sure to do an exceptional job. Make them feel as if they are your only clients. And when you have built a base of happy clients, do not forget them. Make them into active responders. Periodically send them a magazine subscription or a novelty item of nominal value like a calendar. Things that will be retained are best. If you can, send an item of distinctive personal significance accompanied by a note. This is effective in the long run and lots of fun in the meantime. This entire discussion assumes that you have achieved a basic level of competence and likeability.

A very powerful promotional tool and fun to boot, is to schedule a party, a dinner, a bus trip, a picnic, a cruise, a movie (rent the entire theatre), a concert, horse races, or any event you enjoy, for your past clients. You might even ask them to bring a friend. Invite at least twice as many people as you expect to have. Many will not be able to attend, but your invitation will have warmed their hearts. This type of function clearly reinforces the central message that you are a friend first.

Try different ideas, giveaways, events, polls, anything to make your past clients into responders. Keep a box of “Thank you” notes on your desk and use them liberally, always handwritten. Always approach your clients as friends; they will not forget that you are an agent. Soon your business will be simply to have fun helping your friends buy and sell homes.

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NOW AND THE FUTURE

VERTICAL INTEGRATION

Real estate agents enjoy the distinction of being the first step in the home buying and selling process. In addition, it is the most costly step and the most important step, even in the opinion of others, as well as the final step. We are our clients’ connection to information, their tour guide, their consultant, their chief negotiator, and best of all, their friend. Being the first step provides a degree of control, not absolute of course, over the rest of the process. What if we were to have the ability to provide additional services? We could assist our clients by becoming their loan officer, appraiser, home inspector, insurance agent, and moving company connection. Maybe we could become their closing agent as well. Of course, we would need some additional training and perhaps a few more licenses.

Why should we struggle to win clients and then freely turn them over to a host of others who provide services for a fee? Those other functions are a piece of cake. We have seen the processes so many times we could do them with our eyes closed. And with the computerization advances in many of these functions, the situation seems to provide an open invitation for outsiders such as ourselves to get involved, if indeed it is not begging for our involvement. But if we become the jack-of-all-trades, we risk being the master of none. And this augmented involvement in the transaction could put an unmanageable burden on our errors and omissions insurance. Stop and think, maybe our job looks just as simple to outsiders.

Isn’t our function complicated enough already? Don’t we still have a lot to learn and challenges to meet right in our own back yard? Why should we dilute our focus? Nevertheless, vertical integration possibilities will appeal to some of us, so let us keep our eyes open and move cautiously if at all. Be sure you are operating in the real world. Will you really be able to bill your buyer for a $250 home inspection or your seller for a $350 appraisal when they already know about the big bucks you are getting from their sale? Chances are you will end up giving such services away free. Be sure they are a useful addition to your personal advertising campaign as give-aways. In the final analysis, will our involvement in other areas be of value to our clients? Their answer is our best guide.

COMPUTERIZATION AD INFINITUM

Some of us remember a very serious question: “What in the world would I ever do with a computer in my home?” You might remember the Commodore 64, or VisiCalc. We have come a long way in 20 years or so. And there is no end in sight. In fact, the pace of technological innovation keeps accelerating. Many of us have accumulated a lot of real estate experience. In the process of becoming wiser, we have gotten older. And you can’t teach old dogs new tricks. If you believe this, you should see the handwriting on the wall and you should already be headed for retirement. Otherwise, get out there and buy yourself a new computer, get the software (i.e., programs) and take a few courses to learn the basics. If you use an MLS computer search in your business, personal computing is no more complex and probably is more fun.

If your computer skills are questionable, programs like Top Producer or PREP Prospecting might be for you. This type of program simplifies what you need to learn and frequently provides form letters, reports, and presentations that can be modified to suit your needs. But what you gain in ease of use, you will give up in flexibility and the capability to tailor the system to your specific requirements. For those with reasonable computer skills or willing to accept the learning challenge, an integrated set of programs is for you. There are several suitable choices, but as of this writing Microsoft Office (including word processing, a spreadsheet, a database, presentation software, and more) is the most popular. Rest assured that Bill Gates needs your support to pay his real estate taxes, not to mention his legal bills. Whatever programs you decide to run, they will make you more effective and save you loads of time. Chances are that you will love your computer once you get acquainted. Of course, most of us already have experienced computerization, either personally or through our assistant. But if you have left the entire job up to your assistant, you are missing all the fun. Worse yet, you have a potential problem if your assistant gets sick or becomes terminally disgruntled.

Whether you use a “canned” program such as Top Producer or something more general such as Microsoft Office, you will need the following programs and a degree of coordination between them:

Word processing, spreadsheet (i.e., number processing), database, and presentation software

An organizing and scheduling program for things to do today as well as periodic events

A contact management program to keep all past and current client information at your fingertips

Programs to access your local MLS

An email program or web-based alternative

A web browser such as Internet Explorer or Netscape Communicator

A program to help prepare an appraisal-style market analysis

A program for recording, grouping, and totaling business expenses and automobile mileage

Using the programs above, you will develop your own files:

Standard property brochure and advertisement formats

Your personal brochure and other self-promotional materials

Your standard letterhead and business card

Calculation spreadsheets for loan analysis, and buyer’s and seller’s closing cost estimates

A tabulation of market statistics

A tabulation of homes you have sold, sales volume, and your negotiating results

Your listing presentation format

Your buyer-broker presentation format

Standard letters for farming, thanking clients for their business, thanking those who make referrals, and describing important processes for your buyers and sellers

A list of helpful craftsmen, service providers, and other agents

You will find such files indispensable in enhancing your capability to handle a large volume of business in a professional manner.

Newer MLS databases include photographs and a map to show the location of homes along with the customary description. More information is always better, but the photos will provide the buyer with the capability to judge the book by its cover, a technique that does not necessarily produce optimum results. Be sure to caution your buyers about this and for goodness sake, see that your own listings are presented in their best light. A picture is worth at least 1,000 words. Choose your pictures carefully.

And what about the information superhighway, alias Internet or World Wide Web (www)? This medium is evolving at the speed of light and is changing the way we do business. Many agents already have Internet “home pages” for themselves and for their listings. The Internet address of one popular web site is www.realtor.com, which is sponsored by our own NAR (National Association of Realtors). Visitors to the site can search out properties for sale, see photos, and sometimes take video tours. It could be quite a while before we sell many listings or gain many prospects through the Internet. It seems that most Internet “surfers” are seeking property information as opposed to agent home pages. But explore the idea now: It is here to stay. You will find the cost is minimal, right in line with the returns. Think of your participation in the Internet revolution as being on the edge of evolving technology, not as a “listing tool,” a term we should learn to view with disdain.

Just when we are technologically exhausted, virtual reality (not to be confused with virtual realty) rears its ugly head. Virtual reality proponents suggest that buyers of the future will come to your office and don a special headset through which they can, in effect, tour a home right in the comfort of your office, thus eliminating the need to actually visit more than one or two homes. The next phase of this technology would appear when we all have virtual reality headsets at home and prospective home buyers can eliminate even the trip to the real estate office, touring homes through a next-generation Internet connection. But wait, there is no time saved by not seeing the home; the virtual reality tour will take at least as long. Any time saved is merely of the travel time between homes, which is frequently minimal. The great loss for the buyer is in not actually seeing the home. It is expected that virtual reality is an experience most buyers will elect to pass up. There is no substitute for “real” reality in realty. If there is any future for virtual reality, it will bypass the real estate office. Forward-thinking builders will offer the virtual home: A 10 foot by 10 foot home with all the luxury essentials packed in. It will be enjoyed through the virtual home headset, which will make the 100 square foot “home” seem to be 3,000 or 4,000 square feet. Now that’s technology. Grab your headset and adjust your mindset.

REAL ESTATE THROUGH THE PUBLIC’S EYE

In a somewhat unscientific poll conducted over several years, the public rated real estate agents only slightly higher than the middle of a 1 to 10 scale. The July 1990 issue of Consumer Reports noted significantly lower satisfaction with our performance compared with other service industries. A Gallup survey found that only about 2% of responding consumers rated real estate agents as having “high” standards of honesty and ethics. Perhaps the most interesting survey, conducted by our NAR, found that over half of responding Realtors believe that their fellow practitioners’ standards of honesty and ethics are “low.” No wonder the public has reservations.

Remember that most individuals do not have personal contact with the real estate world for five or ten years at a time, so their perceptions are not always up-to-date. Their ideas of real estate are a combination of their experiences, what they read, what they hear, and often what they fear. Unfortunately, a high percentage of the public suffers from a misconception or two. Some of these misconceptions are sufficiently serious to cause unnecessary problems for our clients, and for us.

An example of unnecessary problems that are created by public misconceptions can be illustrated by a hypothetical case where you win the listing of a stranger. In the process of obtaining the listing, you should have established a firm foundation of trust and faith that will see you through. But sometimes the trust and faith evaporate and you are left with a problem. Assuming you are proficient and have done your best, the root of the problem is often the client’s deep-seated distrust of real estate people, salespeople, and sometimes people in general. This is why it sometimes takes two, three, or even four successive listing agents to sell some homes.

A seemingly prevalent, and very disturbing, public belief is that all real estate agents come out of the same mold: That we are a commodity, as similar to each other as grains of sand. This explains why some sellers interview three agents merely because the newspaper told them to, and then pass over experienced agents to hire the agent next door (or their friend) who sells one home every two years. If the results from using an inexperienced agent turn sour, it reflects directly and unfavorably on all of us.

There are some who understand real estate agents and appreciate what we do and how we help. Let us thank them for their understanding, recognizing that there are still many members of the public who we need to impress more favorably. To some home buyers, an agent is useful merely to find a home, while the majority of sellers hire an agent merely to find a buyer. In short, they see us as self-appointed controllers of the important information, through our MLS, albeit with the blessing of the state. (Remember the MLS monopoly myth.) From time to time, it is popular and self-serving for newspaper writers or consumer watchdogs to pick up the “monopoly” theme and expound on it. But before we malign their professionalism, which is out of our control, let us examine ours more closely. Are we nothing more than a necessary evil? Where did they get such an oversimplified view of our role? Could it have come from us?

We often take our own value for granted. As Terry McDermott, NAR (past) Executive Vice President points out: Realtors “make the market” for real estate. In other words, we provide the infrastructure, procedures, hardware, software, expertise, et cetera to effect an orderly forum on which home buyers and sellers can rely. Imagine trying to sell 100 shares of IBM stock without the New York Stock Exchange. It would be chaotic. How many of us have even stopped to consider what an immense value we bring to the public in this one regard? No wonder the public is not aware.

There is also a segment of the population that holds salespeople in low regard. Others are fearful that salespeople will use their magic powers to command an involuntary buying action. And some see us simply as salespeople, nothing more. A surprise? Is it their fault? How do we see ourselves? How did we get to be regarded as so subhuman by so many? How did we get where we are, and how can we improve our position? There are some who believe that they have been ill served by real estate people. While some of them might be correct, ill-served clients are not in the majority.

It seems at times that we ourselves aid and abet these misconceptions. The current sad situation might be more the result of errors of omission (please note we are not discussing some type of insurance) rather than errors of commission (no, no, not in the monetary sense, you pecuniary animal). But even errors of omission, the things we failed to communicate, are no excuse for those of us who wish to be regarded as professionals.

ENHANCING OUR IMAGE

Let us not be surprised that, on occasion, there will be some public discontent, possibly unfounded, over which we have no control. Nevertheless, it is incumbent on us to deal with the wider question of our image. Presuming that there is a measurable deficiency in the public’s appreciation of our role, we must ask how their appreciation can be increased. Whose responsibility is it? Rather than settle into the easy chair of inaction, let us admit that we have some control over our fate. How can we, individually and as a group, more effectively communicate our role to the public? Let us each resolve to support any campaign aimed at improving the public’s view of Realtors.

An important element of any campaign, national or personal, should be to depict ourselves as people. It is easy for the public to become upset with any group from time to time. To the extent that we can become real live people, it will be easier to make our case convincingly. But we will need the support of our local and national Associations in order to turn the tide.

Along with whatever assistance we can obtain from above, we each need to make a concerted personal effort to do the following:

Improve our own understanding of our ever-changing business

Be especially aware of the public’s perception of how we conduct our day-to-day business

Resist the urge to close a sale before we have done our absolute best for our clients

Communicate to our public our sincere wish to excel

Redouble our efforts to provide top-quality service

Always take time to be a friend first.

We have much to offer our public and we can communicate it effectively. Prepare yourself now: Sit down and list the duties you provide for both sellers and buyers and then rank them in terms of importance, from the viewpoint of your clients. Another frame of reference might be to estimate the need for specialized skill or experience in each of our tasks. How many activities require your level of expertise and how many of them could be handled by a trained monkey? Let us all resolve to better recognize and understand our value, now and in the future, and thus be in a better position to impart our understanding while providing impeccable service to our clients. Identify your value and tell the world!

IS THE AGENT THE AGENT OF THE AGENT ?

In the good old days, everything was clear: All of us, listing and selling agents alike, were agents of the seller. Although it might not have always been clear to the buyers, the rest of us were sure. After all, it was the seller who paid the commission. The buyer’s chagrin upon learning that the deck was stacked against him, eventually led to agency disclosure laws. In many markets around the country today, all agents are still agents of the seller.

But several years ago the idea of agents representing buyers (i.e., buyer-brokerage) emerged in the minds of some Crusader-Rabbit-like agents, probably on the West Coast. The idea took root (like a carrot) and grew slowly, mostly in the West. Those individuals who tried to practice buyer-brokerage in traditional markets were either ostracized or treated like two-headed monsters. But at some point many of us began to see some logic in the idea: Why shouldn’t buyers have an advocate? It seemed only fair to at least formalize the process and offer buyer-brokerage to the public.

In general, buyer-brokerage has met with a great deal of public acceptance, especially in areas where we have been able to trick the sellers into paying the same commission as before, in essence paying the selling agent to be the advocate of the adversary! The commission-slight-of-hand is not nearly as crazy as it sounds, and it does preserve the customary flow of commissions intact, with merely our roles and philosophies redefined and of course, full disclosure for all (not to mention liberty and justice). A side benefit of the process is a very much improved buyer loyalty to the selling agent, thus solving a problem that had frustrated selling agents from the beginning of time.

But the major benefit is to the buyer. It is only fair. Further, the buyer-brokerage process provides us with an entire new way to be of value, if not invaluable, to our clients. It increases the focus on negotiating and makes negotiating expertise a critical and hopefully sought after commodity. It is suggested that we embrace this idea whenever and wherever possible. It is great for agents because it is great for our clients: A true win-win proposition that enhances our value to our clients.

From time to time you might hear the idea that we should become facilitators of the real estate transaction and not take a side nor be an advocate. Remember that a home purchase is the largest financial transaction in most people’s lives. Remember there are no ground rules on establishing the price; it must be negotiated. Remember that the average buyer or seller has not been involved in a real estate transaction for five to ten years. What folly for us to think that we, who are intimately involved in dozens of transactions each year, should stand on the sidelines and watch (Ho-hum) the buyers and sellers find their own way through the negotiating maze.

To the extent that facilitators might have an easier job, they add less value to the transaction. But alas, this is the real world. Sooner or later, less value added will mean lower commissions, and even a less satisfied public. Is that what you are voting for? If you wish to carry this to the extreme, just retire: Life will be easy, value added to the world will be nil, and commissions will be zero.

Notwithstanding all of the foregoing, in view of the large sum of money involved in a typical real estate commission, we must be ever vigilant that the agent is the agent of the client, buyer or seller. We must be sure that the advice we provide in the heat of negotiation is really in the client’s best interest, and not just given to “close the deal” so that we can bank a commission and rush on to the next case. Indeed the trusted agent often has the power to speed up closure at the expense of the client. But trust and power come with the responsibility and hopefully with the good judgment, to do what is right.

IS SOMEONE EATING YOUR LUNCH ?

A disturbing trend: The hoard of eclectic entities engaged in a feeding frenzy for a significant portion of our commission. Sellers have long been willing to raise the idea of negotiating our commission. This is not likely to change, nor should it. Now buyers are beginning to believe that they are paying some of the freight and should be entitled to a say in the commission equation. We must accept this as inevitable and respond on a case-by-case basis, firm in the belief that we are providing a valuable service and that must be compensated accordingly, whatever that means to you and your client in the context of your market. We are, for the most part, individual business people and can rise to the occasion.

But some large companies are demanding referral fees that are as much as 50% of the commission. Is this extortion? Just look at the referral advertisements in REALTOR Magazine. The most frequent Realtor-to-Realtor offer of compensation is 25%. Guess what: This is the open market; no extortion involved. Also, note how much Realtors are getting for non-referrals. That’s right: Zero! Nobody is paying for a referral of someone they already know. Welcome to the open market. Although escalation in referral fees demanded by the relocation and affinity sector of our business is disturbing, it is not quite the modern equivalent of piracy as long as we can each decide for ourselves whether or not to play the game. If we accept the relocation leads (they call them referrals), it is under their terms.

But powerful national firms are placing agents, who by law cannot negotiate commissions as a group, at a great disadvantage. The most ominous form of extortion occurs when relocation companies demand “referral fees” when there is no referral or any other valuable or meaningful basis for the fee. Corporate transferees get caught in the crossfire and have their benefits cut or threatened, depending on whether we agree to the relocation company’s demands. Additional problems and legal issues arise when the relocation company is the one directly threatening the employee’s benefits. Because experienced, successful agents are turning down this business, the transferee is often left to deal with a less experienced agent, rather that the agent of his choice. This exposes the unsuspecting transferee to adverse financial outcomes (in one of the most important transactions of his life) and, potentially longer separations from his family if extended time is required to sell the current home or buy the new home. One possible solution: Disclosure laws requiring relocation firms and companies transferring employees to disclose to all parties (especially their transferring employees), up-front, in detail and in writing, their financial interests in the relationship including where funds come from and where they go. Lack of such disclosure only conceals and perpetuates the problem. A concomitant problem is that of non-licensed relocation company employees giving real estate advice and providing brokerage services.

In addition, many large brokers are entering into “affinity relationships” with large, powerful groups that claim to control a certain segment of business, their members. The net result of these arrangements for individual agents can be an inescapable obligation to part with as much as 50% of their commission, even when the clients have a long-time association with the agent, and there is no referral whatsoever on which to base a referral fee! Often these agreements are negotiated between the broker and large national firms, without the broker’s agents having been a party to the negotiations or having knowledge of the details until it is too late. If this happens to you, it is time to have a talk with your broker, or time to find a new one. Hopefully, brokers will recognize what an injustice it is for their agents to have to give up large sums for non-referrals based on an agreement the broker has entered without consultation or consent of the afflicted agents. But don’t be a party to extortion.

NAR could be of great assistance if the voices of member agents were louder than those of the relocation and affinity groups. The only clear conclusion that can be drawn from the (years-old) NAR study on the above problems is that at least half the respondents did not even understand the basic question or the significance. There was serious confusion between affinity relationships that threaten our business, versus vendor alliances that might benefit everyone (possibly because they both begin with “a”). Unfortunately, confusion has led to decisive inaction. Further, if we have not done a reasonable job communicating with our membership, who presumably is listening initially, how can we hope to educate others?

Many states are dealing with the above issues in order to protect the best interests of buyers and sellers and to ensure a level playing field for licensees (that’s us). What is needed is some form of legal reinforcement for the idea that real estate commissions are negotiated between the agent (broker) and the consumer in an open market environment free of third-party influence or disturbance. Meanwhile, we must each analyze critically whether accepting relocation or affinity-group business is in our best business interests in both the short run as well as the long. Consider whether you can offer your client a better deal directly. Alternatively, negotiate a somewhat higher commission on relocation and affinity-group transactions than you would normally accept, in order to offset their fee. And “just say no” to unreasonable demands.

MOTIVATION

On a much more positive note, motivation, like happiness, comes from within. You know it if you’ve got it. If you do not, you will need to develop it quickly or find a real job. Self-motivation is not only the best motivation; it is the only enduring motivation. If you need someone else to constantly recharge your battery, you are not plugged in. Set your goals. Make your plan. Decide what’s the first step, and start today. Design and constantly re-design your business so that it is fun for you. Accent the positives and develop the ability to resolve the problems. Get your problems behind you and then forget them. Yes, actively develop the ability to purge past problems from your mind.

It might take a while to get to the point where you feel you have met the challenge and motivation flows freely. But develop the ability to enjoy the quest along the way, and the feeling of progress and accomplishment. It really helps when you enjoy what you are doing. If you strive for self-motivation and consistently fail, you are in the wrong business.

STAGES IN YOUR CAREER

As new agents, we had much to learn, and as a rule, much time in which to learn. We learned from the classroom, and from emulating others. We learned best by experience: Trial and error. We can all remember one of those slow first days hoping that someone would step up and trust us to find them a rental apartment. With experience came confidence, which we needed to earn for ourselves before others would place their trust in us.

Over time, our business grew and income overtook expenses. A profit! We kept fighting the alligators, no time for personal burn-out. Perhaps one of the exciting things about real estate is that we are an entirely self-contained business unit and that we never stop learning, especially in view of the rapid pace at which our business environment evolves. With success came the ability to screen our clients, passing up those who were not tuned in to the program, those who probably would never be pleased with anyone’s performance, or those who knew it all from birth and had no use for our level of expertise. It is truly a luxury to have so many top-quality clients that our day is filled with helping them.

At some point you will stumble on the secret of success (if you haven’t yet, just keep reading) and find yourself on a pleasant plateau. No time for coasting; do not confuse the plateau with downhill. You swear you will never retire. But look behind and think ahead; this is a powerful and unique machine you have built over the years. If you were to retire some day, could you sell your business? To whom? Under what terms? Give it some thought; it could be closer than you think.

THE TRUE SECRET OF SUCCESS

Enough of that retirement talk! (What is the average Realtor’s age anyway?) Develop an underlying method for accomplishing objectives and resolving problems:

Define the current situation.

Define the desired result.

Construct a complete list of options that might accomplish that result.

Collect available information on the probable effectiveness of each option.

Select the option or combination of options that has the highest chance of success.

Develop a step-by-step plan to get from where you are to where you want to be.

Execute the plan, reevaluating and fine-tuning as necessary at each step.

Always remember that the first step is the hardest. Always take time to enjoy your accomplishments, and share your success with your ever-growing circle of friends.

As you progress through your real estate career, remember that there is something more important than money. It is your health and your happiness. It is your God-given right to enjoy what you are doing. Don’t settle for less. Don’t give failure a second thought: You are not beaten until you quit. Your future is entirely within your control. As you travel along the road toward financial security (never to be confused with social security) and your by-referral-only business mode, be sure to enjoy the daily satisfaction that comes from meeting the competition head-on, and dealing with that exasperating situation or person. View adversity from far above. If this job were easy, everyone would be doing it. When you are in the pits, remember that the only way to go is up. And when you are on top, try to view stoically the approach of that inevitable tumble. Happiness comes from within. Empower yourself today!

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SOME COMMON GROUND

MANAGING YOUR RESOURCES

You owe it to yourself, your clients, and your profession to run your business as a business, even if you have a gainfully employed spouse. It is likely that your major expenses will be for an automobile, promoting you and your listings, and telecommunications. Carefully evaluate each of your many business expenses to make sure you are spending the least and getting the most. Is that expensive glossy ad really needed to find a buyer or to placate your anxious seller? Do the ads really work? If not, you should be leveling with your seller instead of building false hopes and wasting precious cash. Should you be driving your big expensive car to get pieces of paper (contracts, brochures, et cetera) from here to there? Have you heard of couriers and fax machines?

Make a conscious decision every time you reach for that cellular phone. It might be just the thing to buy you extra hours in a busy day by utilizing otherwise wasted driving time. But develop the habit of using the land line unless you are very busy, or have a specific commitment to respond to your clients within a certain time. Every time you incur an expense you should be asking yourself whether it could be reduced. Also ask what this expenditure produces directly, and what would happen if it were eliminated. You will get some surprising and valuable answers.

In addition, be ever mindful of how efficiently and how effectively you are using the most precious of all your commodities, time. You will recall that efficiency is a measure of how well you are accomplishing whatever task is at hand, for example, how many cold calls you can make in an hour. Effectiveness, however, introduces the question of whether whatever you are doing, at whatever efficiency, produces the desired result. Keep your mind on the goal. For example, when cold calling: Obtaining listings that will sell in a reasonable time and earn you commissions as well as happy clients. You cannot take efficiency to the bank, only effectiveness. Set aside some time each evening and plan the next day’s activities. This can be handled best by using either an electronic organizer or a specialized, time scheduling program on your computer, whichever works for you. Resolve to never (well, hardly ever) make another note using pen and paper.

Look at every activity and ask, “Is this the highest and best use of my time?” Sometimes we become the highest paid messengers around. Is there a better way? Hire a courier? Be willing to use your cellular phone (hands-free please) to buy yourself an extra hour or two on those especially busy days. The cost is less than $20 per hour. Are you often busy “running the computer” as you sit mindlessly awaiting reams of paper to emerge, only to read and manually sort what you should have programmed the machine to do? Do you spend time waiting on “hold” on the phone? Do you sit patiently at an open house doing nothing for hours on end? Take a day or two and make careful notes of what you did and for how long. Summarize the results and ask yourself: Was this an effective use of my time? When you are doing nothing, you are wasting your life! Fill your time with productive activities.

LAWS / ETHICS / FAIRNESS / POLICIES / PROCEDURES / BALANCE

While some suggest that laws are made to perpetuate the legal profession, legislators almost unanimously maintain that their main function is to protect the citizenry. The latter is the view that we must embrace at this point. Real estate laws and regulations can be generally categorized as follows:

Licensing regulations designed to impart a minimum competency to real estate practitioners

Definition of the general responsibilities of real estate practitioners and appropriate guidelines

Definition of what is against the law and appropriate penalties for infractions

Federal, state, and local fair housing laws designed to prevent discrimination

Disclosure laws designed to obviate unpleasant surprises for unsuspecting citizens.

The ultimate penalties for a real estate sales person who runs amok are loss of one’s license, fines, and jail time. These are serious consequences for any successful agent.

In addition to government regulations, a lengthy Code of Ethics is set forth by the NAR. While the term Realtor is not quite synonymous with real estate agent, this is almost the case because most agents are members of the Association and therefore are Realtors. While the Code of Ethics certainly provides reinforcement and restatement of many of the principles embodied in law, it goes further in detailing general behavior and expectations of Realtors in the complexities of their day-to-day activities.

Further definition of policy, procedure, and local custom is provided at various levels by state and local Realtors Associations and the brokerage firm. There are enough rules to scare you to death, and be assured that they are actively enforced. You will need to have an excellent command of legal and procedural requirements. But keep in mind, the rules are made for the protection of the public rather than to paralyze you to the point of being afraid to talk to anyone outside your immediate family. You hear unbelievable horror stories. Try to focus on the rules, and on abiding by them. But following all the laws, regulations, and procedures is not enough. Be aware of how your actions appear to those around you, especially the public which normally has very little contact with the real estate community or its laws and customs, and which might have heard horror stories as well. A combination of empathy and communication skills should help keep the appearance of your conduct on the right side of public expectations, all the time fulfilling your responsibility to treat all parties to a transaction with honesty and fairness.

A TRULY UNIQUE MARKET

Of course every market is unique, but we know that the real estate market is even more unique. Recognition and consideration of that uniqueness will help us to accept or reject ideas that periodically come to us from other markets, or from those who do not understand how our market functions. It can also serve to make us more aware of opportunities that exist in our own back yard, and lead us to be more effective, for ourselves and for our clients. This means producing better results while expending less time and money. What other market enjoys a combination of motivators that include both investment potential and fulfillment of a basic need such as shelter? What other market enjoys the tax benefits? What other purchase is so important and can give rise to such emotion? What other market is subject to such scrutiny and control? What other market involves such a multifaceted buying service (that’s us) aimed at the purchase of a high-value, non-standardized product? How many other sales and marketing people need such a diverse combination of skills to survive?

It will be helpful to define the parameters of a major real estate market so that you can determine whether your local market shares these general characteristics of the many major markets in the United States:

It is oriented around a major population center.

It has a well defined set of laws, guidelines, customs, and expectations.

It is populated mainly by educated, thoughtful buyers and sellers who rarely act impulsively.

It enjoys an effective means of information exchange, a computerized MLS database.

It utilizes a lockbox or keysafe system that facilitates showing properties that are for sale.

The parameters above are intrinsic to a major real estate market and therefore will endure for a long time. It will help to keep the definition in mind as we enter an unprecedented era of rapid change in real estate. Within this framework you will attempt to do your daily business, and within this framework you will learn and adapt. You will effectively utilize the tools at your disposal to resolve strategic problems and to capitalize on the opportunities presented, always in conformance with the indigenous constraints.

WHAT DRIVES YOUR MARKET ?

How do homes get sold in your market? This is a very important question to which you should give serious thought. Too often we are content to listen to others who might not have the answer. We accept too readily: If it sounds right, it must be right; if it works, use it. Worse yet, we sometimes start to believe what we tell our prospective clients during the listing presentation: “List with me, I’ll find your buyer with my dynamite marketing program.” We believe our own twaddle without the slightest question.

Did you ever stop to think? What really sells homes? In many major markets, the answer is not open houses, signs, newspaper ads, networking, TV exposure, hot lines, glossy magazines ads, talking homes, the Internet, your dynamite marketing plan, or any of the clever little “listing tools,” many of which disappear as fast as they come. Even if you never tell a soul, you have a responsibility as a “professional” to answer the question: How does a typical buyer find a home? The answer lies in the flow of information from sellers to buyers. In many major markets the answer is the MLS. In many major markets, this is very simply, the efficient information interchange afforded by a computerized, searchable MLS database. “But I can’t tell my sellers that the MLS will find their buyer,” you wail. “They’ll realize they really don’t need me. Worse yet, they’ll list with a cut-rate (or Internet) broker and I’ll be out of business.”

If you believe that learning the truth and telling the truth will put you out of business, it is better that you find out sooner rather than later. Maybe you should go get a real job. No, wait, take heart, we have much more to offer than we give ourselves credit for. But in order to survive and to remain pertinent, it is incumbent upon us to take the lead: To know the facts and to utilize them to our clients’ benefit as well as our own. Just think of the implications, if the MLS is king, then entering the information into the system is more than just a boring and painful routine to be completed in the shortest time possible. It is the key to success, worthy of your most careful and thoughtful consideration.

What are the implications? In one major market that has an efficient and well utilized MLS, about 95% of home sales are the result of the MLS connection. Open houses with newspaper ads and “For Sale” signs account for most of the remaining 5% of sales. All other marketing efforts are ineffective. It is estimated that well over 100 open houses must be held to sell a specific home that way. A separate study in the Northeast found that more than 400 newspaper ads must be run to sell a specific home. Wow! Those are not good odds. Those are not efficient uses of resources. But go ahead, do open houses and run ads if your market requires it. But always level with your clients. Ineffective marketing techniques will not hurt the marketing effort even if they are a waste, but to leave your clients with the idea that they will work some magic and somehow sell a home is being much less than candid. This misimpression is especially dangerous if you are marketing a home that is not in tune with the market (i.e., priced too high). Remember the first rule of real estate: Find the truth and tell the truth.

Take the time to seek out a reliable source and find out what drives your market. Demand to see the data. If you cannot find the answer, you will have to develop the information yourself. It is probably hidden in your MLS database. In any event, the rewards will be great.

KNOWING YOUR MARKET

You will want to keep track of conditions in your local market in order to keep your sellers abreast. Our business is seasonal, with supply (the number of homes on the market) and demand (the number of buyers buying) increasing and decreasing in a periodic manner each year. Market information might be available through your local Association or in the news media. But as we shall see, just because information is published does not automatically mean that it is accurate, meaningful, or timely. You might want to collect the information independently at the source. Wherever you get it, be sure to get it. To further your understanding and carve out a niche as a market expert, you might investigate how the information is compiled. Supply, inventory, or number of homes on the market indicates how much competition your seller will face, and how big a selection your buyer will have. You will find that supply is at its maximum in the spring or summer, but do not assume this, check it. Get the facts.

Demand, the number of buyers, can be a bit more elusive. Left to their own devices, many local Associations report closings instead of contracts entered or pending. By the time the tally is assembled and reported, the information easily can be two to four months old. Knowing what happened four months ago is not timely enough for either you or your clients. At least find out what is being reported so you can avoid drawing untimely and misleading conclusions. The best measure of buying activity is buyer commitments, contracts entered. Even when this data is readily available it is sometimes not reported. Be alert that it is widely assumed that buying peaks in the summer. This assumption can be out of whack by up to four months. Even though the “kids are out of school” argument makes sense, it is frequently just plain wrong. So check it out. It is critical for your clients to know whether most buyers are buying in March or in July.

The supply of homes can be combined with the demand for homes into a number that is an important measure of whether there is a “buyers’ market” or a “sellers’ market.” This market index, called the months supply of homes, is calculated by dividing the number of homes on the market at some point during a month, by the number of homes sold in the same month. A number greater than 6.0 indicates that buyers have the upper hand. A number lower than 4.0 favors sellers. A number less than 1.5 is indicative of a “hot” market.

A general discussion and a graphical example of the concept can be found in APPENDIX A. Sellers who have a choice will plan their sale so that they are negotiating with their buyers early in the year when months supply is lowest. Buyers who can schedule their purchase will choose November through January. Another similar measure is the “percent of inventory sold.” This actually is the reciprocal of months supply. For example, a 10 month supply of homes translates to 10% of inventory sold. Either market index depends on an accurate figure for homes sold. Because this is not always available, you might have to generate the data for yourself.

Although you can personally track variations in supply and demand, a variation in average sold prices is much more elusive. If you see published data that constantly fluctuates and seems to make no sense, it is very likely inaccurate. Often the only reliable data on changes in average prices are the regional figures available from our NAR. Do not try to generate this information on your own unless you are a card-carrying statistician.

See the author’s article “GAIN A STATISTICAL ADVANTAGE” which appeared in the April 2000 issue of REALTOR Magazine through the link at www.davidr.net/agents.htm

THE MARKET VALUE ANALYSIS

Determining the market value of a home for a seller or a buyer is a very important part of your function. Although the appraiser gets the final word, you get the first word. It pays to be right. The following discussion will treat market value analysis from the viewpoint of your seller, but remember to use exactly the same process to establish value when you are representing a buyer.

Although some agents might present sellers with a wad of printouts and offer a ration of verbiage about the expected price range, others take a more direct approach and ask the seller what price he would like. Still others check with the local tax assessor’s office, deferring the decision on the home’s value to him.

None of these methods is satisfactory. Prepare an “appraisal style” market value analysis similar to that shown in APPENDIX B. The first step in the process is finding three (or more) similar sold properties. Similar does not mean exactly the same. A proper choice requires judgment and experience but the ideal homes are within a mile or two; have sold within the past year; and are the same style, two-story, rancher, or split-level, for example. The choice of comparables is sometimes obvious, sometimes it is nearly impossible. Properties currently under contract, sold but not yet settled, can be used but you must verify the contract price, seller concessions, and any extraordinary details with the listing agent.

Properties currently for sale cannot be used: They will only predict a price at which a home will not sell because these properties have not yet sold themselves. Do not fall into the trap of spending time and effort predicting a price that is too high and that will only keep the home on the market unsold. It is easy to find a price that is too high without all that complicated analysis stuff. Just ask the seller! By comparing the home with sold properties, you will be setting the stage for the home to be sold.

The contract prices of comparable properties that sold more than a few months ago should be adjusted for time, that is, for appreciation or depreciation. As noted, determining the rate of price change in a timely manner is tricky: Your own analysis is likely to be wrong; NAR figures are likely to be stale. Try calling a few local appraisers to find what rate of appreciation or depreciation they are using. They deal with this question every day. No adjustment will be required for a market in which prices have been changing very slowly.

Next, significant differences between the seller’s property and each comparable property must be identified and dollar adjustments made. Dollars will be added to the contract price of a comparable home for features the seller’s home has but the comparable home does not have. Think of this procedure as “buying a deck for the comparable” to make it equal to the deck the seller’s home already has. Dollars will be subtracted from a comparable’s contract price for features it has but your seller’s property does not have. Think of this procedure as “taking the value away from the comparable” for its two car garage that the seller’s home lacks.

The list of features that make a difference is almost endless, but items with a value less than about $500 usually can be ignored. No adjustment, positive or negative, is required for any feature that both the seller’s home and the comparable property have. Values assigned to features are a matter of judgment. They should measure what today’s buyer will pay for that feature in a similar home. Values are not the original cost of the feature, nor its replacement cost today. The classic example is a $50,000 in-ground swimming pool, which is often found to be worth only $10,000 or $20,000 to a typical buyer. If you are uncertain about the market analysis procedure, your confidence will grow with experience. Yes, you will almost need to become an appraiser. There is no easy way.

When the contract prices of the three comparable properties have been adjusted properly with appropriate positive and negative values, you will have three individual estimates of the home’s market value. These three numbers should be in a reasonably tight range. Using experience and judgment, you can suggest a single expected contract price for the home. This figure need not be an arithmetic average of the three estimates nor the median value.

This market value analysis method, when performed properly, will accurately predict the price you should expect on a final contract. It is not the asking price, determination of which will be discussed later. The method of analysis described above is called the sales comparison approach. For the sake of completeness, there are two additional methods for determining market value:

The replacement cost approach

The income approach.

In most major markets, neither of these methods is used widely as a primary method to value residential resale real estate. Market value analysis is not only a very technical process, is a critically important step in the home selling sequence. It is strongly recommended that you have some formal classroom training in appraising.

Many agents are offering to perform a free market analysis for any prospective seller. If you have time to spare and are willing to make such an offer, you will find a percentage of analysis recipients who will hire you to be their listing agent. This “get your foot in the door” approach can work.

If you are a busy agent or do not have a lot of time to spare, you might defer performing the market analysis until after you have listed the property. Deferring the analysis can set you apart from other agents, can save you from being “used,” and can provide ironclad assurance that you are not guilty of “buying the listing” by giving the seller an inflated market value figure. After all, the analysis is merely informational and the seller ultimately sets the price anyway. Give the analysis later and it will never become a bone of contention, it merely will be additional data to utilize as warranted.

Of course, you do not get the seller’s reaction until you give the analysis. Carefully review the analysis with your seller and answer any questions. There will be that unusual occasion when the seller cannot believe the analysis and is unwilling to adjust the offering price to a reasonable amount. In these rare cases you will either:

Agree on an initial asking price and certain reductions at specific times, or...

Terminate the listing before you have spent too much time and money on an unrealistic seller.

In the latter case you will always explain your decision to bug out with sympathy, some semblance of understanding, and an offer to help at some future time. Many an unrealistic seller finally will become a realistic seller, and might call you to take over the marketing effort. In a case where the seller retains a sequence of agents, you will want to be the last, not the first!

If you have serious questions about the predicted contract price or market value, or if a home is particularly difficult to analyze, consider paying for a professional appraisal to help establish a figure. Some agents cleverly side-step the market analysis issue by telling the seller to hire an appraiser and that they will refund the cost at closing. A partial list of benefits:

The professional price opinion comes from a disinterested third party. When there is bad news about the home’s value, it is not the agent’s “fault.”

An incremental amount of seller loyalty is purchased by the promise to pay at closing.

The appraisal can be used later to beat a bottom-fishing buyer into submission.

he agent scores points for a novel approach in the listing presentation.

ime spent preparing a market analysis is saved.

Marketing costs are saved if average time on the market is decreased as a result of proper pricing.

Keep in mind that neither analysis of market value nor appraising are exact sciences. They are, however, the very best information available.

In addition to all of the above, review the asking prices of similar properties now on the market. Where will the seller’s home have to be priced in order to sell? Again, prices of homes now on the market can be used only to determine an upper limit for an asking price. For example, if the analysis based on sold properties predicts a market value of $200,000 and three neighbors currently are marketing their similar homes for $165,000, your seller’s price will have to be competitive in order for the home to sell. Do not infer anything from other sellers’ asking prices other than a downward adjustment in an estimated contract price.

REAL ESTATE TAX ASSESSMENTS

The following discussion exposes tax assessments as an unacceptable method of determining market value for your seller. Similarly, tax assessments are equally as useless in analyzing a property’s value for your buyer clients.

There are agents who are convinced that market values for homes can be somehow predicted from government tax assessments, not to be confused with professional appraisals. No doubt some of the confusion stems from the fact that assessment and appraisal both begin with the letter “a.” Indeed, the stated goal of most local tax assessors is to assess in relation to market value. Of course, an average relationship between tax assessments and contract prices of recently sold homes can be calculated easily. But the idea that a government employee (with or without a green eyeshade) sitting in an office with some records and a computer can predict the market value of a specific home is ludicrous. If this were true, the entire professional appraisal industry would be out of business. If you must, call your local tax assessment office and ask what contract price should be expected for your seller’s home. Also ask if the assessor would use the tax assessment to set the price for his own home when he sells. Putting stock in tax assessments will be dangerous: You will be either setting too high an initial price or worse yet, you and your seller will be ready to accept too low an offer.

Tax assessments have only a very general relationship to a home’s market value: It is so general that it is valueless. Those who tell you there is a direct relationship are relying on a very few bits of data, or are repeating “what everybody knows.” Statistics prove them wrong, both over a wide area as well as in a limited area. One who attempts to predict a contract price from a tax assessment needs to guess correctly, the percentage factor to multiply by the tax assessment to obtain the predicted contract price, with absolutely no basis for making the guess. Of course, there is some average relationship between tax assessments and market values that can be calculated. But use of this figure to determine the market value of a specific property should be enough to make even the tax assessor giggle. He has probably never seen the home.

Amazingly, there are highly touted calculation systems currently marketed that rely on tax assessments. Although the math is indeed logical, the fact that the basic data, tax assessments, are unreliable, makes the entire method a sad farce. The promoter’s focus on the calculation and on approval of others, obscures the basic defect to all but a very few incisive individuals who ask for statistical verification of the underlying data, the tax assessments themselves.

Although it is deceptively easy to read a home’s tax assessment from government information, it is deceptively inaccurate. There is no substitute for a properly prepared market value analysis or an appraisal. Mortgage lenders do not rely on tax assessments, and neither should you. But just dream for a second... how easy it would be if it were true, for agents as well as for the buyers and sellers who would be freed of the messy negotiation phase. If you are looking for the easy way, find a real job now!

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WORKING WITH SELLERS

WORKING WITH SELLERS

Always important, being a strong listing agent could be even more important in markets where the public has the capability to search a computerized database of homes for sale such as www.realtor.com. Such a scenario allows buyers to access a listing agent directly, bypassing any selling agent. Although this could become widespread or popular, it ultimately will be a cumbersome and inefficient process for most buyers. The Internet might turn out to be nothing more than a new avenue of inexpensive advertising medium for listing agents and sellers.

As you work with sellers, ask yourself what they want and what they need. Very simply, they want you to find a buyer. They often do not express it, but they also expect you to negotiate a contract that maximizes their return and keep them out of real estate trouble, smiling and holding their hands all the while. Although the needs of the seller seem painfully simple and self-evident, we sometimes find ourselves focusing on our own agenda.

THE LISTING PRESENTATION

In order to work for sellers, you will need a listing, that is of course, a home to market. Recognize that the listing agent’s job is to market the property. This includes the activity called selling and much more. Be sure to take the broad view: Marketing. The press of competition from other agents will be most apparent when you aspire to a listing. Most sellers dutifully interview three agents. If you are a new agent, you will find that most sellers are looking for precisely the experience you lack. You can offer to assist an experienced agent and thus build your own experience and record of accomplishment. If you are masochistic, you can keep slugging it out on your own, citing your enthusiasm and willingness to spend time, knowing that you will eventually win a listing.

Often a listing will come from a friend who knows and respects your capabilities, or merely wishes to hire a documented human being. Many approaches to obtaining business have worked, just be sure to choose one that fits your personal style. No matter who you are or what your accomplishments are, you will not be right for everyone. It is reassuring to see that even the most inept or obnoxious practitioners occasionally snare a listing.

There are almost as many listing presentation formats as there are agents. There’s the traditional two-step, and the wow ‘em and sign ‘em one-step. Indeed, there are a variety of themes:

The personal resume (can be dull reading for others)

The “Oooo-Ahhhh what a wonderful home you have” routine (OK gag, but it works)

The “I’ll teach you” presentation (great for ex-teachers)

The “Look What I Know” (documentation please)

The “Look What I’ve Done” (for experienced agents only)

The “Look What I’ll Do” (for newcomers)

The unabashed “Here’s Why I’m Great” (if you didn’t have an over-inflated ego you would be able to hold a real job)

The classic “I’m Your Friend” (read on)

Mix and match, but whatever you choose, be sure you are comfortable with it and don’t be afraid to experiment in order to find your best presentation. One successful listing agent reportedly sits down and does not leave until the listing agreement is signed. Nasty!

Seasoned and successful agents will be able to wow the prospective seller with credentials that should carry the day. But there is an important lesson or two to be derived from the example of the seller who hires an inexperienced friend. It happens quite frequently that a seller will forego experience and prefer friendship. This demonstrates two important conceptions. First and somewhat shocking, many home sellers do not recognize the depth of technical knowledge required to effectively conduct real estate business. Of course it is human nature to think we know just about all there is to know about a field on which we have little information. The less we know, the easier it is to believe we’ve got it all.

Think back to when you were just a person; you never believed there could be this much technology to real estate. It is not the sellers’ fault; they are just being human. Nevertheless, it would be in everyone’s best interest if somehow sellers could realize the inherent complexities, which make us valuable. We have an opportunity as well as a responsibility to promote a better understanding in every contact we have with the public. Resolve to incorporate some appropriate educational flavor into your listing presentation. Lesson One: Sellers do not always hire experience or any other quality, even if it seems to make sense and be in their best interest. They often view real estate agents as a commodity, with little or no differences from agent to agent. And if they are not looking for differences, indeed they will find none. Incredible?

Sellers often forego experience to hire a friend. This often is an attempt to improve their comfort level. Does this indicate that there is, at the very least in these instances, a lack of comfort with or lack of confidence in an unknown real estate agent? Is this indicative of a general lack of trust in real estate practitioners? In any event, it will be of great value if you are a friend of your sellers as well as having the experience and technical knowledge to do the job. Lesson Two: Because you cannot be a personal friend of every seller, it will be of great value if you behave as if you are one. Be friendly. Act human. Listen. Understand. Be concerned. Be responsive. And for goodness sake, smile. In almost every case, sellers will not care what you know, so make sure they know that you care.

But back to the theme. Sellers are looking for an agent who will find them a buyer. They believe that someone with knowledge of their neighborhood and a dynamite marketing program will do just fine. A dynamite marketing program, you muse, have you got their number? Before you wax into your spiel, consider your chagrin if the seller were clever enough to ask you about the effectiveness of your program. That is, what percentage of the time is your dynamite program directly responsible for finding the buyer? It is a good idea right now to review the last ten listings you have sold and determine from whence cometh the buyer. If occasionally you find the buyer directly, through a sign, an ad, or an open house, then that is a result of your dynamite marketing plan. But most likely most of your buyers come with another agent as a result of MLS. Don’t worry, sellers do not get this involved.

If you tell sellers that something is great, they will believe you if it sounds reasonable. But don’t we have a little more responsibility? You have heard the term “listing tool.” Sounds innocent enough, but a listing tool is nothing more than something that tends to make the prospective seller list with you irrespective of the negligible effectiveness of that tool. In short, it is something that even sounds good to you but has little or no effect in marketing the home. It does not result in finding a buyer.

Think back over the last few years. No doubt you can remember several listing tools, or fads, that were in vogue for a while. You know, those “great ideas” that somehow never work out in the real world. Is the touting of ineffective or unproven listing tools appropriate in a listing presentation? Our sellers will eventually recognize the ineffectiveness of listing tools. Then we look silly. Can we tolerate this in a business environment in which we constantly are searching for trust and credibility, not to mention some semblance of professionalism?

Why do we do this? The selling public has been conditioned to expect innovative marketing: A dynamite program. Can we be faulted for telling sellers what they want to hear? The answer is yes: If we aspire to be knowledgeable professionals, it is our responsibility to determine what the seller needs to know and to impart that information. In days gone by there were many marketing ideas that were much more effective than they are today. But the information exchange capability of a major market’s MLS is the great equalizer.

If you really had the magic formula, the majority of your listings would have been sold quickly through one single medium or technique. You would not even need a program, just that one bit of magic. Let’s get back to the real world before it is too late. Resolve to analyze your business, focus on what really happens. Tune out the fluff and baloney. In addition, be on time for the appointment!

NUTTIN BUT THE TRUTH

“Amazing,” you say, how all those other agents have been misleading home sellers with listing tools and dynamite marketing programs, thereby winning the listings you always knew you deserved. But you do not have to join losers, you can beat ‘em: Be different; be courageous. Again reflect on your personal experience of sold listings. In how many cases did your dynamite program directly result in landing a buyer? How often did the buyer come with another agent, and how did that other agent learn of your listing?

Chances are great that the MLS has been your biggest asset in finding buyers. Why is this? Serious home buyers do not want to waste time. They know how to find a home: Get an agent to search the MLS. It is a lot quicker than attending open houses or chasing real estate signs. That is why it is likely you will find that more than 90% of all homes are sold through your MLS. You are invited to investigate this idea in somewhat less personal terms and in a more statistically significant manner. Many computerized MLS databases record the selling broker as well as the listing broker, and sometimes even the individual agents participating in a home sale. Review data on 200 or more recently sold properties to see how many times the listing agent personally produced the buyer. This can be accurately measured by how many times the listing agent (or alternatively, the listing office) sold that agent’s listing.

“Amazing,” you muse, those dynamite marketing programs do nothing but impress the seller. Wow, the power of the MLS! But wait, does this mean that a trained monkey could find a buyer? Worse yet, could a seller find a buyer merely with the aid of the MLS? No wonder we guard our information system so jealously! If they all find out, we will have nothing to sell. Quick, back to the bookstore to buy and burn every copy of this book on the shelf before there is a dangerous, unmanageable leak.

Relax, we have much more to provide than information exchange. Let us resolve to eliminate reference to any listing tools and to de-emphasize the entire marketing plan in our listing presentations. The modern presentation concentrates on the following facets:

The importance of market value and its use in determining an asking price

Determining a marketing strategy in view of the specific details at hand

General market conditions, trends, and what to expect when one’s home is on the market

The critical importance of negotiating the offer

our personal credentials that pertain to the factors above and as they relate to this particular listing.

It bears repeating that the above information needs to be imparted in a spirit of friendship. Practice!

YOUR COMPUTER LITERACY

Now we can openly admit that the most valuable exposure is through the computerized MLS database, which is possibly 50 times as important as whatever is in second place. This means that the information entered into the MLS is critical to your success! You are the connection between buyer and seller. Your computer literacy is one of the most important factors. But real estate agents, like the general population, include a diverse mix of personalities and capabilities. Some of us are born computer nerds, and some of us will never know the difference between a bit and a byte, or between baud and bawdy. And sadly, some of us will never even care.

If you still think that your dynamite marketing plan is going to do the trick, you are way off base and you probably look at the MLS data-entry job as something to finish as soon as possible. Is it menial? Yes. But is it critical? Yes, yes, yes!

Review the MLS information for some of your recent listings. In reviewing the listing information:

Look at the obvious items first: Accuracy of information, correct spelling, use of English instead of “Realtor-eze” (assuming that real people read these printouts too).

Look for optional information that is not important. This should be purged because it serves only to dilute the important items.

Look for information that raises negative questions: Is “new sump pump” really a feature? Why did the old one wear out? Overuse? The home has a new water heater. Great, but this raises questions about the furnace. How old is it? And what about the age of the roof? Information that raises negative questions should be eliminated.

If your MLS database requires square footage or map location information, are these items entered accurately and in conformance with local custom? Remember that a gross exaggeration of a home’s size will mean that it will be seen by the wrong set of buyers. Don’t outsmart yourself.

Check the Zip code. Are any local Zip codes changing? The Zip code might determine whether agents will find your home in their searches. In addition, the Zip code might determine whether your home gets world-wide Internet exposure on www.realtor.com.

Are the listings all priced on round numbers (e.g., $200,000 not $199,999)?

Because the home selling market is uniquely driven by your local MLS computer, a little known advantage will be gained by pricing exactly on round numbers. Details later.

How is data entered into the data fields: Automatically by the system, selected from pick lists, through lookup functions, or manually? How does the data entry method impact your listing information? If directions and comments are to be entered, their importance is obvious. You will need to view what you enter for each bit of information as an important decision.

There are many, many ways to go wrong. But you get the picture; you have to think like a computer in order to enter the home in a manner that will maximize the number of times it issues forth in other agents’ searches. And when the information does pop out of the computer, it needs to say, “Come visit me.” Like life, there is no substitute for experience and good judgment.

SETTING THE ASKING PRICE

The selling-price-to-asking-price ratio is probably the most important single statistic available about your real estate market. It is calculated as the contract price divided by the asking price. When an average is calculated for a large number of home sales, the ratio is invaluable in determining what a home’s asking price should be. Once the fair market value of a home is known, the ratio tells how much “fat” is required in the asking price. Sellers and buyers alike usually are surprised to find that the ratio is frequently well above 90%, even in markets that are slow.

For illustrative purposes and ease of calculation we will assume at this point that the ratio for your market is 95%. Therefore the asking price should be about 5% over the fair market value as established by your careful analysis. This is a price that should bring an offer. Alternatively, with the price too high there will be no offers to negotiate. Another way to interpret a 95% selling-price-to-asking-price ratio is that the average home does not obtain a viable offer until it is priced within 5% of its fair market value. This has been an illustration: The numbers have been changed to protect the guilty. Do not assume the selling-price-to-asking-price ratio is 95% in your market. It must be verified independently. See APPENDIX C.

Your seller needs to know that a home must be priced correctly in order to sell: If it is overpriced, it will be seen only by buyers who can obtain more for their money elsewhere. A Chevrolet will not sell in a Cadillac showroom. That is not what the buyers are looking for. To give the Chevrolet a Cadillac price in the hopes of fooling a buyer is even more ludicrous.

In any price range, it is the properly priced properties that jump out as good values and obtain offers. Realize also that you and your seller cannot ask $200,000 for a home and end up with a (95%) contract for $190,000 if the fair market value is only $150,000. “The market” is much too clever for that.

In major markets where a computer database search is employed to sort out homes for a buyer, a little-known advantage will be gained by pricing on round numbers. We are not selling clothing, groceries, or a used car. By pricing on a round number you will get a few more visitors and sell a bit faster. An example will help:

Agent A has buyers who are looking in the $180,000 to $200,000 range.

Agent B has buyers who are looking in the $190,000 to $210,000 range.

Agent C has buyers who are looking in the $200,000 to $220,000 range.

If your home is priced on the round number $200,000, it will be considered for showing by all three agents above when they do a MLS search for available properties. If your home is priced at $199,999, only Agents A and B will find your home in their computer output. Agent C will not even see that your home is for sale.

Of course, not every home can be priced on an even $100,000 interval, but use increments of $10,000 or prices ending in $25,000 or $75,000. This pricing tactic will gain you a competitive edge over most others. “Over how many others?” you ask. Just check the home prices in the Sunday newspaper to see how many agents understand how the real estate market really works.

TIME ON THE MARKET

In a market where home values are rising measurably, homes that are priced a bit too high will take a bit too long to sell. But in a stable market or where prices are falling, knowing the value of a home and knowing how much “fat” is required for negotiating will make a critical difference. Homes with asking prices that are more than a few percent above their fair market value will be on the market for an extended period. Furthermore, in a stable market or where prices are falling, asking prices that are too high will need to be reduced before a viable offer is obtained. In this case, an overpriced home must adjust to “the market.” It is not uncommon to find that more than half the homes on the market suffer from overpricing. Your well-informed seller will avoid making this mistake.

CHOOSING A MARKETING STRATEGY

A marketing strategy is an overall plan, in other words: The big picture. What are you trying to accomplish? By what time? How can this be done? There is nothing wrong with high aspirations or the “Power of Positive Thinking.” But if your goals are not realistic, and you think you can control the market for your seller, sooner or later you will realize the folly. Realizing it now is best.

There are three basic strategies to consider, one of which will suit each seller. They are

The classic approach

The (maybe) top dollar approach

he quick sale approach.

The classic approach to a marketing strategy is the mainstream approach rather than one of the extremes to be discussed later. It is the correct strategy for most home sellers and probably is most familiar to you. In the classic approach, the home enters the market at exactly the right price and sells in whatever is a reasonable time for your current market. If a home languishes on the market, the price has proven to be higher than the market will bear. In many major markets with the best advice available, often more than 50% of home sellers err on this side and cost themselves time and money. You might point out to your seller the number of local properties that have been on the market for too long.

For the classic approach, start with the expected contract price from your home value analysis prepared according to APPENDIX B. Add to that the proper amount for negotiation. This amount is frequently much less than many would guess. But why guess? It might be a good idea to run an updated average selling-price-to-asking-price ratio calculation. This could even be tuned in on your seller’s price range or geographic area. Remember that the data must include at least 200 recent sales to ensure statistical significance, the reliability of the information generated. See APPENDIX C.

Why does this work? The classic approach holds that at any time a home enters the market, there are a certain number of ready buyers, let us assume 25, milling around in search of such a home. They have seen everything currently on the market. Within a few weeks these 25 buyers will notice your new entry on the market, visit it, and form an opinion. If everything is right, including the price, the home will sell to one of these buyers. If not, you will never see them again. They will feel no need to see the home again later, even at a lower price.

After this “initial wave,” only buyers newly entering the market will visit your seller’s home. This number is comparatively low and will produce only a few visits weekly. But if one of the initial wave of visitors did not buy the home, the newly entering buyers probably will not buy it either. Eventually it will become apparent that the home’s asking price needs to be reduced.

The classic approach is usually the best approach, but even with the best plan, occasionally a home will not sell in a reasonable amount of time. Actual results do vary. The numbers above serve to illustrate the theory. In the real world, the drop-off in buyer visits is not precipitous: Do not look for exactly six visits per week for four weeks, followed by an immediate drop to one or two visits per week. Good judgment comes with experience.

The (maybe) top dollar approach to a marketing strategy is acceptable only in strong sellers’ markets. It attempts to maximize price at the expense of time and will be discussed even though it normally should be avoided.

For this approach, you again start with the expected contract price. To establish the first asking price, add significantly more “fat” for negotiation than indicated by the current selling-price-to-asking-price ratio. Next, determine a last asking price at about 10% lower than the expected contract price. Then, divide the difference between the higher and lower prices into steps equal to about 5% of the expected contract price. Finally, schedule these price steps evenly throughout the available home marketing period, or the maximum acceptable time for your seller’s home to be on the market. The following is an example for a home with an expected contract price of $200,000 and six months available for marketing:

March 1, $220,000 (initial asking price)

April 1, reduce the price to $210,000

May 1, reduce the price to $200,000

June 1, reduce the price to $190,000

July 1, reduce the price to $180,000.

In this example, your seller wins if the home sells in March or April.

The top dollar approach seems logical enough and will sell a home for sure if the plan is followed. If your seller considers this approach, keep a few things in mind. The seller’s cost to keep most homes can approach 1% of the market value per month, or $2,000 monthly in the example above. If the home will be vacant, $10,000 could be lost in five months.

In a strong market with rising market prices, this approach has more appeal: If the initial price is a bit high, market appreciation will overtake the excessive price and the home will sell in a few extra months. In a stable market, it is doubtful whether this approach will mean extra dollars. In a market of falling prices, it can be a disaster: If your seller’s price reductions do not overtake the falling market, the home will sell much later at a much lower price as it “follows the market down” never at quite a low enough price to sell until desperation shocks you (or the next listing agent) and your seller into reality. Because it is invariably a waste of time, the top dollar approach should be used only with the most stubborn seller who absolutely refuses to face reality.

The quick sale approach is not suited for many sellers. It minimizes time on the market at the probable cost of several thousand dollars. But if your seller needs to sell quickly, this approach will work. The home will enter the market at an asking price somewhat lower than the expected contract price and should sell relatively soon. Of course, what is “somewhat lower” and “relatively soon” will vary depending on local market conditions.

Be prepared to be very firm at the negotiating table. If a counteroffer is necessary, supply the selling agent with data to support your price: Your market value analysis, an appraisal, or comparable sales, for example. Point out that this information is to be shared with the prospective buyer to support the reasonableness of your counteroffer. Counsel your seller to be calm, reasonable, firm, and not to appear anxious. If the buyer gets the idea you are in trouble, you indeed will be in trouble. If the negotiations are executed properly, the buyer reluctantly will agree, due to the data presented as well as the market knowledge gained from viewing other properties. Your seller’s home will be the best option.

The quick sale approach maximizes the chance for multiple concurrent offers. If negotiations take a couple of days, your chances improve. If you can develop a second offer, your seller could end up with full price or more without having to make any concessions.

You now have three well-defined marketing strategies from which to choose. There are a few additional considerations that will be very helpful. But first it bears repeating that if a home’s price is too high for the current market, there will be few visitors and no offers. Even if the overpriced home is shown occasionally, it will receive no offers. Any buyer who sees 20 homes in a certain price range will be able to reject easily, as a comparatively poor value, any home that is priced way over its fair market value. Because at least some other homes will be priced right, your seller’s home needs to be priced correctly in order to compete. In short, an overpriced home will be shown to the wrong buyers: Those who can afford more. It will not be shown to the right buyers because their price limit is below your seller’s asking price. It is essential that you understand this simple fact and are able to recognize it and communicate it to your seller effectively.

PREPARING THE HOME FOR THE MARKET

Of course, entire books have been written on preparing a home for the market, its importance, and what happened for those sellers who did it right... and to those sellers who did not. The presentation you are striving for can be summarized in the following manner:

ight and bright

Uncluttered and neat

Neutral in color and pattern

Impersonal and inoffensive

Clean and well maintained.

We will not dwell on the above because many agents do an excellent job in this regard. There are books, checklists, and video tapes for you and your seller, so we will not steal their thunder. One of the more enjoyable and informative tapes is Barb Schwarz’s. It is widely available for a nominal cost; her magic wand is additional.

Bear in mind that most home buyers will be unduly impressed with your seller’s home if it is neutral, neat, and clean. But be careful not to spend too much of your seller’s money unnecessarily on market preparation. The following is a checklist for your seller that includes some of the more important, more interesting, and sometimes overlooked items:

Replace the light bulb in each lamp or fixture with the maximum wattage bulb allowable.

Wash the bulbs and lenses of all lamps and fixtures.

Have all windows (and mirrors) washed inside and out.

Wash in between windows and storm windows.

Open blinds and raise shades to maximize natural light.

Consider removing drapes to brighten the home.

Identify items that will not be moved to the next home and sell, donate, give, or throw these things away now.

Remove furniture from hallways and narrow foyers.

< Move anything that impedes entry or clear sight into any room.

Remove everything from kitchen counters, bathroom vanities, and desk tops, then replace only those items that are used daily.

Remove everything from the stairs.

Clean everywhere paying special attention to kitchens and bathrooms.

Clean tile grouting and tub caulking thoroughly.

Clean or replace any soiled carpets and remove any dents left by furniture.

Touch up appliances and the corners of walls where paint has been chipped off.

Clean any heating/cooling vents including cold air returns.

Everything outside should be neat and trimmed... the lawn should be picture perfect and freshly mulched (this surely is not too mulch to ask).

Paint the exterior painting if required.

Clean and paint the front door if needed, and make sure that all knobs, locks, and latches are operating flawlessly.

If the interior is painted, replace electrical switch plates and socket plates with new ones.

Fix all dripping faucets.

Set the dining room table for dinner.

Make your seller aware of the ideal presentation and strive to accomplish it, knowing that you rarely will. Nevertheless, your effort will be rewarded with a higher price in a shorter amount of time.

Carefully look over your seller’s MLS information. This is vitally important because most buyers first visit a home based on what they or their agent read in the MLS. Note all important features, emphasize the highlights, and omit unimportant information, so as not to dilute the overall impact. Your familiarity in working with buyers as well as knowledge of how other agents search the MLS will be invaluable. Any one bit of information in error could be a controlling factor in not finding a buyer. Depending on who your prospective buyers are and the home’s features, you might stress comfort, safety, prestige, or some combination of these factors.

Finally, as a thoughtful agent, provide your seller one of those little machines that dispense sequential numbers on bits of paper like you’ve seen at the deli counter in the supermarket. Those who wish to make offers on the home will queue up, take a number, and be dealt with on a first-come, first-served basis. You will find this technique to be invaluable in keeping prospective buyers from fighting in line.

AN INFORMATIVE HANDOUT

Carefully prepare a high quality information handout or brochure to be available in the property and for you to circulate as appropriate. Do not pinch pennies here: An exceptional brochure impresses buyers and sellers alike as well as future buyers and sellers. Develop a standard format and use premium materials and full color. Include a high quality color photograph and the home’s price! But remember, the price and even other data might change. It will be handy if your standard brochure can be produced in small quantities, as few as 5 or 10. Make friends with a good, full service print shop. Alternatively, purchase a high quality color printer and associated paraphernalia.

The best property brochure is probably four pages long, but do not stray too far from local custom. Can your standard MLS information sheet be incorporated? Do not try to list every insignificant sliver of information because this will detract from the important part of your message. Concentrate on what is important to buyers in your market and do not dilute the brochure with trivia. The object is to have the buyer finish reading the brochure before going to sleep. Besides, travel time to the airport or the grocery usually is not a major issue. When it is, the selling agent or the buyer can easily find the answer. Do not make 999 busy buyers wade through this stuff because of the 1 out of 1,000 who cannot figure it out.

Yes, voluminous brochures might work on buyers and will impress sellers, but remember the goal is to sell the home. Thick brochures for sellers, thin for buyers. Choose your audience carefully. And remember, a four page “property” brochure in which three pages is devoted to hyping your talents and successes is sure to impress only one person. If your ego is this fragile, order a lower cost brochure and start saving for a shrink.

A personal letter from your seller to the prospective buyer is an excellent vehicle to convey some important thoughts. The more personal, the better. It can be handwritten or typed, and it should be signed with your seller’s first name. It should be reproduced and included with the information handout available to visitors in the home. APPENDIX D contains some examples of such letters.

PREPARING YOUR SELLER FOR THE MARKET

No doubt you spend a good deal of time getting your seller’s home ready for the market. Even more important, you will need to prepare your seller for the market. Warn your seller that when agents make an appointment it probably is only an estimate of their arrival time. This is because the agent will be on a tour of several homes and the buyer will control the pace. Yes, it is better if your seller can be out of the home for showings but this is frequently an unreasonable expectation.

Counsel your seller against discussion of compromising information. If a buyer has questions about the home, answers should be direct, accurate, and brief. Questions about the price, closing date, terms, or other details of the transaction must be referred to you. Plan exactly how your seller will handle the inevitable question: Why are you moving? A polite but vague response probably will be innocuous. Mention of a job transfer, divorce, foreclosure, or any other time or money-sensitive factor should be avoided.

Your seller should not discuss irrelevant topics such as sports, religion, politics, or the possible sale of the grandfather’s clock or other furniture. There is no way to know which of these topics might ruin a contract. So your seller will be polite, brief, and focused on the goal. Of course, he will keep any remaining pets, as well as pet remains, out of the way when the home is being shown.

Your seller needs to realize that one should never, ever tag along during a showing. He cannot help: Most agents will readily find the pantry as well as the linen closet. Many of us will even be able to figure out, on our own, which is which.

If your seller happens to be at home and notices that a prospective buyer shows unusual interest, asks several questions, or spends a long time, he should know to give you a call as soon as the visitors depart. When these buying signs are noted, prompt follow-up is required. In addition, if a buyer returns for a second visit, you need to be advised at once: The home is probably on the buyer’s “short-list.” Your seller should know how to contact you immediately.

Be sure to let your seller know how many showings to expect daily or weekly, and about how many showings are required, on average, to sell a home. If there are not enough visitors, you have a problem. Review the MLS printout to find the root of the problem. Often it is the price but do not automatically assume this is so. If activity remains slow, once a month you must:

Determine how to improve the marketing effort, or...

Determine how to improve the property or its presentation, or...

Recognize that an extended period will be required to find a buyer, or...

Adjust the asking price: As a general rule, a price reduction of 5% or more is considered significant to the market. Individual price reductions of greater than 10% should be avoided.

Resist the temptation to take the easy way out by doing nothing except rekindling your seller’s hopes. Your inaction almost certainly will lead to another month of market inaction for the home. Remember, for many home buyers the three most important factors are price, price, and price, in that order.

If there are a reasonable number of visitors, but after 15 or 20 showings there is no buying interest, this indicates that the market exposure is fine but the price is still a bit high to draw an offer. Buyers are coming, but they are finding measurably better value in other homes on the market. Corrective action should be taken in the form of a price reduction so that your seller’s home will stand out as the best among the competition of lower priced homes.

At least once a month, and especially when considering a price change, obtain updates on competitive homes. Important factors are homes new on the market, homes recently sold, and price adjustments made by competitive homes.

If your seller notices an unusual number of drive-aways, agents arriving with buyers but not coming into the home, spend some time at the curb to determine what is lacking in the appeal. If corrective action can be taken, do not hesitate. Also ask the seller to make a note of agent’s names and phone numbers when they call to schedule a showing. This might help encourage agents to come in when they arrive, and will allow you to ask those who drove away without entering, what was so objectionable. If the problem continues and is indefinable or incurable, then a price reduction is needed.

If contract forms are standardized in your area, you should provide your seller samples of the forms for review when you first list the home. If necessary, they should also be reviewed by the seller’s attorney so that any questions can be resolved at an early stage.

During the marketing period, you must periodically remind your seller that all the effort will pay off. But when he is halfway through the marketing period, there will be no milestone, such as 50% of a contract, by which to measure progress. An offer usually will come out of the blue when least expected.

If your seller plans to be away for more than a day, he must let you know where he can be contacted. This can be important. Many buyers, especially job transferees on a house hunting trip, will not wait and hope that you might find your wayward seller tomorrow.

EXPOSURE

During the marketing period, you and your seller might discuss various ideas aimed at increasing exposure for the home. These range from newspaper and magazine advertisements, to TV spots and direct mail. You will have prepared your seller to understand that an endless string of any type of promotion probably will not produce a buyer.

It is important to know which types of exposure are effective in producing showings that lead to offers, and which are not, so that efforts can be directed toward the effective types. It is not unusual in major markets that, on average, more than nine out of ten buyers (more than 90%) come with another agent as a result of the effectiveness of the MLS. Signs and open houses often account for the remaining sales, each producing less than 5%. Newspaper ads, magazine ads, TV spots, direct mail, personal contacts, et cetera, altogether account for a very small portion of all sales.

The reason for this is that most serious buyers recognize the overwhelming efficiency of searching for their home with an agent compared with attending an endless number of open houses, driving down an endless number of streets looking for “For Sale” signs, or reading an endless number of real estate ads. Also, most ready buyers are too impatient to wait for some unknown real estate agent to walk up and announce that their dream house has just been located. “Word of mouth” is not a factor in major market home selling.

So, you ask, why do agents and real estate brokers spend time and money doing what does not work? The reasons vary, but some ideas follow:

They mistakenly think it works.

Everyone else is doing it.

It makes their seller happy.

It promotes the agent personally and enhances the real estate broker’s image.

It brings responses from buyers who probably will buy a home other than the one advertised.

Remember that the likelihood of a buyer buying the exact home advertised is less than 1 in 400. It is interesting to note, however, that an ad for any home even roughly similar to your seller’s has at least a small chance of generating a buyer for your seller.

Verify the above generalizations as they apply to your local market. Can you generate any hard data? It is your job to know what works. Does your MLS database record the name of the selling agent as well as that of the listing agent? Can you conclude that when these names are different, the buyer was most likely obtained through the MLS? When the listing agent is also the selling agent, can you conclude that the buyer came from a sign, an open house, a newspaper ad, et cetera?

During the marketing period, constantly reinforce the message from your listing presentation: There is no magic. Re-focus your seller’s attention on the type of exposure that is most likely to be effective as well as on the critical factors: Price, condition, terms, and availability, all of which are firmly within his control. But if your seller asks for an additional ad, give it willingly, reminding him in advance that it will not work, and reminding him afterward that it did not work.

OPEN HOUSE

Let us examine the open house concept from the standpoint of the seller. First, in most major markets an open house will not be an effective means of locating a buyer. Serious, focused buyers are conducting efficient home searches through an agent who can access the MLS, provide full information on homes that meet the buyer’s needs, and can show homes at times other than 1:00 to 4:00PM on Sunday. Although an open house will not detract from the effort to find a buyer, there is potential exposure to unsavory elements of the population who might seek to pilfer valuables or prescription drugs. Your seller needs to understand this risk, which hopefully is very small. As an agent holding an open house, you will need to be alert to possible theft risks as well as risks to your personal safety. Be especially alert to visitors who engage you in conversation while their accomplice roams thorough the home. If thieves pose as neighbors, it is hard to tell the difference. Keep a special eye on visitors who arrive on foot: These are usually just neighbors who want to have a look, but they might be thieves who do not want their car or its license plate to be seen.

From the agent’s perspective, an open house can be a valuable source of new business. Those exceptional agents who have perfected their open house technique find they need no other source of new business. But this method of operation is not for everyone. It takes a unique personality. Nevertheless, if you find you are spending time holding open house, be sure to take your best shot at selling the home and at selling you. The critical factor will be for you to become a person, as opposed to a real estate agent, when the visitors enter the door. Be sure to take some reading or paperwork for the slow times.

Brokers’ open houses generally have only one value, to provide an opportunity for telephone duty agents who will be getting calls, to have a firsthand look at the property and be equipped to describe it in glowing terms. Asking agents visiting a brokers’ open house to give a price opinion is not fair when they have not had the opportunity to do a market analysis. Do you think that 25 uninformed opinions are better than your market analysis? Are you not the authority? Are you a bit less than confident in your ability? Do you need to spread the blame? Be careful about the message you are sending.

TO SELL OR NOT TO SELL

If time drags on with the home unsold, anxiety and even despair are likely, not only for you but for your seller as well. Consider for a moment the particular case of a home seller who has significant equity in his home and is financially able to sell and wishes to move to another home. But this particular seller is reluctant to bring the price into line with the market and becomes frustrated when the home does not sell. “But I cannot take a loss,” he moans. A loss? “Five years ago my home was worth $40,000 more than it is today.” Assuming this figure is correct, the best real estate agent in the world cannot empower this seller to sell five years ago! If this is a loss, the seller has already taken it because, like it or not, today is here and with it came today’s market. “But what I really mean is that I cannot realize the loss.” Realize in this context might well be used in the customary sense of the word (comprehend), but actually it needs to be construed in the accounting sense: “I cannot convert my loss to a cash basis.” Now remember, this seller has made a gain compared to when the home was purchased. The loss is measured only from some hypothetical time when the seller wishes the home had sold.

“I’ll rent until the market improves,” your seller says. To be sure, the market will improve someday and homes will appreciate. But how long will this take? And how much appreciation will there be? Will the market lose ground in the meantime? To postpone the problem does not resolve it. Does this seller want to postpone a feeling of freedom as well as enjoyment of his life?

Did this seller always have a latent desire to become a landlord, a property manager, or an investor? Yes? Thank goodness he finally is realizing it now. There are other real estate bargains out there! Why not rent out this current home until it appreciates handsomely and buy another similar property now, as an investment to rent out and hold for the anticipated appreciation? This will double the eventual gain. “Where do I sign?” the home seller asks.

In the real world, confronted with real choices, the seller recognizes that the purchase of an additional home is not quite so attractive. In the logical process, the seller’s own home is also seen as a dubious investment. It takes time to be a landlord, a property manager, and an investor. It can take thousands of dollars to put a home back into salable condition after being occupied by destructive tenants. Some tenants are very conscientious, but the simple fact is that tenants have no real interest in helping a landlord sell.

We have no chance to change the past, only the opportunity to affect the future. So let us start from today’s market and today’s values and prices. Perhaps it does make sense for your seller to get in tune with the market and to sell now.

KEEP YOUR LISTINGS

You will work hard to obtain a listing, and most will result in a sale. But it is inevitable that there will be a lost listing on occasion. If this occurs infrequently, forget it and move on. If, however, you wish to take action to minimize such disappointments, consider the following: Use the listing presentation to sort out problems before they occur. The process is most critical when the prospective clients are strangers. Do they have a clear need to sell? Do their questions and answers make sense? Do you have a feeling that understanding and friendship are increasing as you proceed in the listing interview? Remember that for you to take a listing just to earn a commission could be a waste of your time: Your main objective is to create a happy seller and a friend forever. And remember that you are not perfect for everyone and some sellers are not right for anyone.

You have no doubt developed a distinct set of beliefs and a certain style of conducting your business. Be sure to make this known in your presentation. If you do not do open houses or do not work with buyers, make it known. Give sellers the information to decide whether your brand of real estate is what they want to buy. Unpleasant surprises a month down the road can be extremely disconcerting. At the same time sellers are deciding whether you are right for them, you need to be deciding whether they are right for you. Follow up the presentation with a mailed “Thank you” note in which you might reinforce a few important points.

During the time you are on the market, the three most important things are contact, contact, and contact. Weekly contact should be the minimum: Reports of showings, feedback results, micro as well as macro market activity, views and perspectives on newspaper articles, et cetera. There is no excuse too small to call your sellers. Important facets about how you work should be stressed not only during the listing presentation, but also at every subsequent opportunity. When you agree to do an open house or place an extra ad, always remind sellers of the expected effectiveness, or lack thereof. Tell them again what is important, what will work, and why. Cite statistics. Also be careful to convey that you approach all facets of exposure with a positive outlook and that even ineffective activities will not have a negative effect.

Be alert to questions and comments from your seller that might indicate that a reasonable degree of understanding or friendliness is lacking. Has he been getting real estate advice elsewhere? Remember that his friends have very definite opinions and are always willing to “help.” If you are running into trouble with an anxious seller, you need to take remedial action without delay. In extreme cases, write your seller a nice note advising that he will need a new agent in two weeks. Offer to suggest another agent and extract a referral fee. Part as friends if at all possible.

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WORKING WITH BUYERS

WORKING WITH BUYERS

How well you are able to serve buyers is even more important because your potential clients are able to search a computerized database of homes for sale such as www.realtor.com. This allows buyers, to access a listing agent directly, bypassing any selling agent. Therefore, as a selling agent you will need something of value to offer. As you work with buyers, ask yourself what they want and what they need. Very simply, they want you to find a home for them. They often do not express it, but they also expect you to negotiate a contract at a minimum price and keep them out of real estate trouble, smiling and holding their hand all the while.

Discussion will focus on our role as buyer-brokers, acting as the agent of the buyer. This method of operation is often popular with buyers, assuming the choice is formalized and generally accepted in your local market. One can build a logical argument that in this age of rapidly accelerating change in information technology (e.g., the Internet), selling agents who are agents of the seller and those who are facilitators could take a few giant steps toward the obsolete end of the service spectrum. Buyer-brokers are in a unique position not only to find a home for their buyers, but also to plan and execute an effective negotiating strategy, utilizing the facts of the situation at hand as well as their expertise to the benefit of their buyers. In short, buyer-brokers add value to the transaction.

BUYER - BROKERAGE

Buyer-brokerage has already come to many major real estate markets and if you have not seen it yet, you are likely to see it soon. Much of the real estate world has accepted the idea that buyers need an advocate, someone on their side. Imagine yourself as a buyer and try to think of one good reason you should not have professional assistance. Remember that if we wish to remain pertinent in our ever-changing business environment, we must continually put ourselves in the shoes of buyers and sellers and furnish what is in their best interests. This is a very general concept that goes far beyond fiduciary duties and real estate. It is a concept you will need to understand, embrace, and practice for many reasons including your own survival. In the service business, what is good for the servee will be good for the server.

Details of buyer-brokerage arrangements can be structured in a variety of ways, depending on the formalities established by local Associations, laws, and customs. One proven way is for sellers to continue to pay the entire commission. We have even crossed a conceptual bridge: Just because sellers pay the entire commission, they do not have a God-given right to a fiduciary relationship with the selling agent. The overwhelming majority of sellers also agree that there is no problem with a portion of their commission dollars going to pay for the counsel and support of their adversary, the buyer. The essential ingredient is understanding.

For those with a clear vision of the past and the future, buyer-brokerage is certainly the wave of the present. Let’s surf it. Regardless of the undeniable logic and the acceptance by our clients, the concept is good for you. It allows you to offer an additional service to the home buying public and, by virtue of the typical (written) buyer-brokerage agreement, it provides a buyer’s expression of loyalty to you, the chosen agent. No more involuntary conversions from agent to taxi driver when your buyer prospect (customer) of many months calls to announce he has just bought a home through another agent! In areas where buyer-brokerage has been introduced in a favorable climate, buyers have embraced it whole-heartedly. No doubt it was an easy choice: To accept a valuable service that frequently comes at no cost.

Does buyer-brokerage destroy the customary, comfortable (conspiratorial?) feeling of having the seller and all agents on one side? Definitely. Does it make the negotiation process more adversarial than before? Of course. Does it give birth to the chance of confrontations between agents? Yes, but these need not and should not be heated or emotional. As in any professional situation, differences of opinion must expressed, sorted out, and negotiated in a calm, businesslike manner. That is the challenge. If you find you are not up to it, you can always go get a real job.

A PRESENTATION TO THE BUYER?

From the dawn of time, home sellers have been interviewing potential listing agents in order to select the right one to market their homes. They realize that not all agents emerge from the same mold (the term is used here in the forming/casting sense rather than in the biological/fungal connotation). They realize each might have a unique bag of tricks and method of operation. With the recognition that selling one’s home is a major undertaking with which they have limited familiarity, they make a conscious decision on whom to employ. Buyer-brokerage exposes potential buyers to a similar mindset.

It will eventually occur to home buyers that they too should be making a conscious choice of their representative in this important quest. As the buyer-brokerage concept matures, home buyers will be interviewing (three?) agents to determine which one will best serve them in the home buying process. If you have not seen this yet, get ready. Prepare a presentation similar to but certainly not the same as what you have been doing for sellers all along. That’s right, a buyer-brokerage presentation. Try to address all the things that you can do for a buyer as his agent and then figure out why you are the best agent around to handle the job. Those of us who are still featuring our “dynamite marketing plan” in our listing presentations should redouble our efforts to be modern, thinking agents: Try not to overstress the fact that you will find a home for the buyer to buy. You have a lot more to offer.

Does all this mean increased agent versus agent competition for buyers? You bet it does. In the event buyers are not yet falling all over themselves to interview you, take a proactive approach and offer them the idea, followed closely by your presentation.

Note: The concept that buyers should make a conscious decision regarding their choice of an agent is entirely valid if not intuitively obvious. Nevertheless, as you know, many sellers are interviewing agents merely because the newspaper told them to do it. Worse yet, the balance of the sellers already made their decision before the interviews and are just foraging for free ideas.

SOME BASIC CONSIDERATIONS

Let us next examine how best to approach a home purchase, which is for most buyers their biggest financial decision. We all hope that a home purchase will be as good an investment as homes have been historically in the long term. We all imagine the home we select should be a palace made for entertaining with a pleasing flow. Meanwhile, in addition to a concern with our financial future and due consideration for our guests, we should remember that the main purpose of a home is to provide shelter.

The property must be a place to which your buyer will be happy coming home and it must provide the space he needs in the rooms that are important to him. We do not even need to mention the importance of a location that suits your buyer’s needs and a home that fits his pocketbook. Although ample consideration will be given later to how to pay for a home, it will be most valuable for your buyer to have a brief telephone conversation with a few mortgage loan officers you suggest. In little more than five minutes he can get an initial idea of his upper price limit. While this figure might need some refinement, it will save a lot of time to have an estimate early in the game. Be sure to suggest loan officers who are experienced and have demonstrated a continuing commitment to serve those you refer.

In addition, you should provide a quick mortgage qualification estimate for your buyers. Do this as soon as possible. It separates the real estate agents from the “taxi drivers.” Remember that it is your buyer’s decision whether to buy a home that stretches the upper limit of his qualification, or to opt for a more modest abode and a more comfortable monthly payment. The choice must be considered very carefully: The cost of making a serious mistake and having to sell the home after a short time, and then buy another, is frequently 10% to 15% of the home’s value.

INVESTMENT ASPECTS OF A HOME

Home ownership was once considered by some to be the best way to get rich quick, but it is likely that current thinking in most real estate markets focuses more on the shelter value of a home. Nevertheless, it is not immoral to hope for appreciation in the value of one’s home. And concern that a home’s value should not decrease must also receive due consideration. Compared with any other investment, a home provides a basic necessity of life, shelter. Because of this, as well as other factors, a home is a non-liquid asset. While millions can decide to call their stockbroker on some day in October (your choice of day and year) and have sell orders executed promptly, a widespread real estate sell-off would take time to accomplish. These factors, shelter and non-liquidity, ensure more reasonableness, less emotion, less indulgence in “herd instinct” behavior, and hence less volatility than almost any other form of investment other than United States Savings Bonds (which have not been totally without question).

In addition to the shelter and non-liquid aspects that lend stability to the real estate market, there are unique income tax benefits which also provide a foundation for stability: The deductibility of mortgage interest and real estate taxes, and the exclusion of gains from income taxation for almost all sellers. While these valuable advantages are very real, encourage your buyer to investigate fully the ifs, ands, and buts by either reviewing the appropriate tax publications or consulting a tax accountant.

CLASSIFY YOUR BUYERS

Consider the following types of home buyers and the important and unique considerations that pertain to each:

The incoming transferee

The move-up buyer

The move-down buyer

The first-time buyer.

For an incoming transferee, moving to your area as a result of a new job, a home search probably will be intensive. Most transferees find that a home purchase can be accomplished during a one week house hunting trip. It happens like this:

Sunday - Arrive in the area.

Monday - Begin house hunting, experience depression, and consider not accepting the new position.

Tuesday - Make required adjustments to expectations and home search criteria, and resume the search. Hope glimmers.

Wednesday - A few acceptable homes have been located and your buyer has gained confidence in knowing the local market.

Thursday - A “short-list” of the best possibilities is assembled, final visits are made, any questions are resolved, and a choice is made.

Friday - An offer is prepared, negotiated, and finalized, and your buyer is homeward bound.

The scenario detailed above is based on some important assumptions:

Your buyer has sold his present home in preparation for moving, or his employer is providing a third-party buyout or some other assistance in disposing of the current residence.

Your buyer has an accurate idea of how much he can spend on a new home.

You have translated your buyer’s home specifications into an efficient tour of homes for sale.

Your buyer is prepared to see, if necessary, 20 or 30 homes each day and concurrently evaluate schools, areas, commuting times, et cetera.

Accomplishing the goal of selecting a home in a week is possible in major metropolitan real estate markets thanks to the systems and procedures developed and maintained by Realtors. The important factors are the following: First, computerized MLS search capabilities that facilitate selection of those properties, out of the thousands available, that are most likely to meet your buyer’s needs. Second, a lockbox or keysafe system that obviates your having to collect and return keys to the listing broker’s office, a wait for the listing agent to appear with a key, or a wait for the homeowner to be at home.

A move-up buyer is selling his current home and looking for something bigger, better, and more expensive. He will benefit most in a buyers’ market. The price concessions to be negotiated on a more expensive home should more than offset the concessions to be made on the sale of the current home. Another factor often to one’s advantage in a buyers’ market is a wider selection of available homes.

A move-down buyer is selling his current home and looking for a smaller, less expensive home. A hot sellers’ market would be to his financial advantage. The reasons for this are, of course, just the opposite of those cited for the move-up buyer. But in a hot market, the number of available homes is comparatively small. When the selection is limited, it is more difficult to find a suitable next home. This fact, as well as the ease of selling in a hot market, might suggest that your buyer should consider a contract to buy a home that is contingent upon the sale of his existing home. Contingent offers will be treated more completely later.

A first-time buyer, or anyone renting for that matter, is in an excellent position, especially if their lease is month-to-month. Under no great pressure to move, the first-time buyer can make a home selection and negotiate a contract under the most favorable terms. In addition, owning can be less expensive than renting in many cases. Nevertheless, first-time buyers sometimes approach a home purchase with a good deal of unadulterated fear. Help your buyers with information. As knowledge replaces the dreaded unknown, fear will subside and an intelligent decision will emerge.

APPENDIX E shows sample calculations of home ownership costs and benefits that can be compared with monthly rent. A critical assumption is the mortgage interest rate. Re-calculate the analysis shown, using your buyer’s set of assumptions, to determine the anticipated economic impact of a decision to become a homeowner. Keep in mind that any significant appreciation in home values can be an overwhelming long-term factor. But as we know, one is not guaranteed that home values will appreciate.

It is most important for your first-time buyer to realize that the tax benefits of home ownership can be obtained in each paycheck merely by filing a new IRS Form W-4 with his employer. There is no need for to wait for a large tax refund in the spring. Your buyer can enjoy the refund every pay period, when it will do the most good for his budget.

The different types of buyers discussed above and how each has a special advantage in the negotiating phase, will be covered later.

CONTINGENT OFFERS

Local move-up buyers and move-down buyers share a common decision: To sell their current home first and then buy, or to find their next home and enter a contract that is contingent on the sale of their current home. If the financial considerations are most important, sell the current home first, and then purchase the next home. Being under no time pressure to sell the current home will put your buyer in the strongest negotiating position. Having sold his current home, he will be in a better position, as a non-contingent buyer, to negotiate a lower price on the next home. Further, in many market situations, sellers do not even consider contingent offers. Remember, like the incoming transferee described earlier, your buyer should be able to find the best available home that meets his needs and negotiate a favorable contract within one week if necessary. And the time available for a home search is often four to six weeks.

Your buyer should enter a contract to purchase a home contingent upon the sale of his current home only when he has found a home so special and unique that he must buy it, or when there are so few acceptable homes available that he is afraid of selling his current home and then being unable to find any suitable home at all. In fact, if it is that difficult to find an acceptable home, your buyer should seriously consider not moving. Contingent contracts are rarely a good idea for buyers or sellers under any market conditions.

In any event, move-up and move-down buyers will have to deal with either a quick sale of their current home (in the case of a contingent contract) or a quick purchase of their next home after the sale of their current home. The only way to avoid a quick sale or a quick purchase is to sell the current home and move to rented temporary quarters. The extra cost and aggravation of this double move is unacceptable to most people, but it provides maximum flexibility and involves the minimum time pressure. It therefore puts the buyer in his strongest negotiating position.

THE FINANCING JUNGLE

You will need to keep abreast of the latest financing information in order to offer meaningful advice to your buyer. The following discussion will address a few salient details.

While it might be possible in some cases for your buyer to actually apply for a loan at an early stage (i.e., to obtain preapproval), some lenders will not proceed very far with a loan application until there is a contract to purchase a specific home. Most buyers need only a brief preliminary discussion for planning purposes. But if you will be venturing into an active sellers’ market, being preapproved for a loan can be a significant advantage, sometimes giving your buyer’s offer the power to prevail over others.

When your buyer is considering what type of loan will best suit him, the most important question to ask is, “How long will you be living in this home?” The answer for most people is between five and ten years. But let us examine why this is so important. Remember, we are on the road to determining your buyer’s maximum home buying power. The maximum allowable monthly payment for housing is determined by lender guidelines. The calculation takes personal income and debt into consideration. Let us assume this is a fixed sum since one generally has little control over income and debts in the short term. Let us also assume a 30-year loan, but not necessarily a fixed-rate loan. With those assumptions, it is the mortgage interest rate that will determine how much can be borrowed: The maximum loan amount.

On one end of the spectrum are fixed-rate loans. These carry the highest interest rates and will result in the smallest maximum loan amount. On the other end of the spectrum are one year (or even six month) ARMs, or adjustable rate mortgages. ARM loans carry the lowest (initial) interest rate and result in the largest maximum loan amount. The actual difference is striking: A one year ARM might allow one to borrow 50% more than with a fixed rate loan at exactly the same monthly payment, providing the lender uses the ARM’s initial low interest rate in the qualifying calculations. Check this with a loan officer because this is not always the case.

But a one year ARM probably is not suited for anyone who plans to be in the home for more than three years, due to the uncertainty of future changes in the monthly payment. On the other hand, an interest rate fixed for 30 years will have no benefit for most buyers who almost certainly will sell the home and move on long before the end of 30 years. So why pay the high interest rate associated with a 30-year loan? Worse yet, as we have seen, the higher interest rate lessens your buyer’s borrowing power and will result in having to settle for much less of a home than he otherwise could afford.

In counseling your buyer, be sure to warn of potential problems. One loan feature that is best avoided is a balloon payment. Balloon loans involve a large payment at a certain time. If your buyer obtains a loan with this feature, he must be sure to sell the home, refinance the loan, or inherit the family fortune before the balloon payment is due. If the payment comes due and it cannot be paid, the balloon will pop and the home will be lost to foreclosure. Some balloon loans include an option to extend the loan after the balloon comes due, but you will need to investigate the details and ensure your buyer’s complete understanding.

Another loan feature to avoid is negative amortization, which is associated with some ARM loans. Negative amortization will occur when a limitation on the monthly payment’s increase prevents the buyer from paying the true amount owed. The deficit is made up by increasing the total amount that is owed. Therefore, your buyer could make loan payments all year and end up owing a greater amount at year’s end than at the beginning. Also try to avoid a loan that has a prepayment penalty. This feature requires a seller to make a sizeable payment if the loan is repaid before maturity for any reason, even including sale of the property.

An alternative source of funds is owner financing: Getting a loan from the current owner of the property. The potential problem with owner financing is that individual sellers often do not want to tie up their own funds for more than three or five years. This means that either your buyer’s payments will be unmanageably high or that a balloon payment will be required. This can be true whether the owner is financing the entire loan or is just taking a second mortgage for a portion of the total loan amount. Terms of a second mortgage often have a significant negative impact on the amount a first mortgage lender will lend.

The following are essential questions your buyer should ask a lender about any loan:

Can I be preapproved? That is, approved for a loan assuming a satisfactory appraisal will be obtained on the home of your choice.

What kinds of loans are available?

How much can I borrow?

What is the interest rate, and can it change during the term of the loan?

What interest rate is used in the qualifying calculations?

What is the term of the loan in years?

What are the initial fees? Brokerage fee? Application fee? Origination fee? Discount points? Appraisal cost? Credit check cost? Underwriting fee? Processing fee? Document review fee? Tax service fee? Flood certification fee? Final inspection fee? Et cetera? Et cetera?

Can the interest rate and points be “locked in” or fixed between the time of loan application and the closing date? Do you give a written commitment on this?

What is the monthly principal and interest payment?

What else is to be included in the monthly payment? Real estate taxes? Fire and hazard insurance? PMI or MIP? Homeowners’ association dues? Condominium fee? Other?

What is the maximum allowable seller contribution or closing cost credit?

Is the loan assumable by the next buyer? Under what conditions?

Is there any prepayment penalty?

Is there a balloon payment?

Is negative amortization possible?

What documentation will you need from me?

In addition, ask these questions about an ARM:

How often can the interest rate be adjusted?

How often can the monthly payment be adjusted?

What are the lifetime caps or limits on the interest rate?

What is the cap on each interest rate adjustment?

What is the margin? Is this a competitive figure?

hat index is used? Where is it published? Where does it stand at this time? Is this a good index for me at this time?

What is the “fully indexed” interest rate? In other words, if this loan were adjusting today, without caps, what would the interest rate be?

The fully indexed interest rate will always be somewhat higher than the initial rate quoted. Therefore, your buyer should expect that the first adjustment on such a loan will most likely be an upward one, quite possibly to the limit. This is especially true for an ARM that will adjust soon, say in six months or a year.

Your buyer might feel that obtaining a loan is a bit of a hassle. But he is getting far more than just money. The lender is an expert in lending money and in staying out of trouble, not in the business of foreclosing on unfortunate borrowers. Since the lender will do all possible to safeguard his investment, your buyer’s money will be almost as safe. Some examples follow:

The guidelines the lender uses to determine the maximum monthly payment are designed to keep buyers from getting in over their heads and having financial problems.

The lender will have the property valued by an appraiser to verify that your buyer is not paying too much for too little.

The lender will require a title search to ensure that the seller of the home is the real owner.

Your buyer will be required to obtain title insurance to defend against unforeseen ownership questions that could result in loss of the lender’s money.

Your buyer will not get a loan until there is adequate fire and hazard insurance, which customarily is included in a Homeowner’s Insurance policy.

Your buyer will not get a loan until the property has been inspected for wood destroying insects, for example termites, and any damage therefrom.

In addition to requiring the safeguards above, the lender will provide your buyer with an estimate of closing costs, a “Truth in Lending Statement,” and other useful and informative literature.

YOUR BUYER’S SPECIFICATIONS

There are thousands and thousands of homes out there. Does your buyer want to inspect them all personally? Of course not, but an MLS computer search will let you consider them all. So view your search as a process of elimination during which you are “homing in” (no groans please, you’re getting more than you paid for) on the best abode available. You must now develop an initial set of specifications in order to address your MLS computer in a meaningful and efficient manner. If your local Association is not providing a searchable computerized MLS database, by definition you have not achieved major market status.

Work with your buyer to define and modify his home specifications until the output list includes a reasonable number of homes, more than 20 and less than 60. You will not have to see all these homes. Upon reviewing the information on each home, many will be eliminated from consideration without the need for a visit.

Careful consideration of alternatives and important features at this point, will save lots of time and, by eliminating obviously unsuitable homes, will lead you more directly to your buyer’s new home with a minimum of confusion. Recognize that if the home specifications are too easily satisfied, you will have hundreds of homes to see. Rather than attempt this, tighten the specifications by adding requirements or constraints to shrink the list to manageable proportions. On the other hand, if your buyer is dreaming the impossible dream, the computer will bring him brutally back into the real world when it finds not even one home for sale that meets the criteria. Then of course, he must loosen the specifications perhaps by considering smaller lots, higher prices, and by widening the geographic horizons.

Every MLS home search includes geographic boundaries. Remember something about location, location, and location? While proximity to friends, relatives, schools, shopping, and recreation might be considered, the single most important location factor is frequently the length of the commute to and from your buyer’s place of employment. This should be measured in minutes rather than miles. Of course, there are three facets to the concept of location. First and most important is the concept of geographic location mentioned above, which should be addressed at this time. The other two equally important facets of location will be discussed later.

Every MLS search also includes a price constraint. Start with the information you developed in defining your buyer’s maximum price limit in the previous chapter. If most buyers are negotiating a discount from asking prices, you can safely search for homes priced a bit above your buyer’s limit. The selling-price-to-asking-price ratio provides some indication of how much can be negotiated off the average asking price. If the average selling-price-to-asking-price ratio is about 95% then it is safe to consider properties about 5% above your buyer’s limit. See APPENDIX C if you need to verify the average selling-price-to-asking-price ratio or to determine what it is currently, for your segment of the market.

Remember that each seller is an individual, not an average, and might demand full price or might sell for a 20% discount or more. You will not have any idea until your buyer makes an offer. Keep your buyer’s expectations within a reasonable range so that time is not wasted viewing properties your buyer cannot afford. Resist the temptation to show homes that are priced too far over his price limit. If you create the impossible dream, it will become your possible nightmare.

If price is truly your buyer’s most important consideration and he does not mind severely limiting the choices, search only for vacant properties. Some of these will be bank foreclosures, relocation company owned homes resulting from employee transfers, and properties owned by someone who has moved out and would like to shed the mortgage payment. Many of these properties will be priced attractively, be very negotiable, or both. But do not expect a gift. These sellers still want to get the highest price possible. They differ from the typical seller because they often cannot afford for the property to sit on the market unsold, and they probably have little emotional attachment to the home.

You will find it is most efficient to search the MLS database for homes priced in a range near your buyer’s upper limit. The lower boundary of the search range should be about 10% to 15% below the upper limit. For example, if the upper limit is $200,000 the lower limit should be $170,000 or $180,000. This approach is broad enough to include the rare bargain that might be out there. A price difference of about 5% is noticeable in the market, and there is no need to see homes priced so low that they obviously are unsuitable and can never compete with the homes priced nearer your buyer’s upper limit. If you get on the road and see a dozen homes, finding they are all much more than your buyer needs, he might ask you to search in a lower price range. You might guess that buyers rarely need to make this request.

A minimum number of bedrooms and bathrooms are frequently used constraints in a MLS database search. A home’s age is also a frequent search criterion. Some buyers desire the features and established look of a home 25 years old or more. Others will consider only brand new or newer homes with large gourmet kitchens, master suites with luxury Roman bathrooms, skylights, and vaulted ceilings. A home for every buyer and a buyer for every home: They find each other eventually.

Perhaps the idea of a brand new home is overwhelmingly attractive to your buyer. New homes have been very popular in many areas. Where do all those new home buyers come from? Remind your buyer that when he eventually sells, a once new home will be a resale no matter what. Is a brand new home an economically attractive purchase in your area or is there a new-home price premium, with one-year-old resale homes selling for less than when they were new? The current rate of home price appreciation that exists in your local market can be a mitigating factor.

APPENDIX F should be reviewed at this time with particular attention to those criteria that appear in Categories A, B, and C. Use this part of the Checklist at this time to ensure that any criteria that are controlling factors in your search are included in the MLS search criteria. Your objective is only to eliminate all homes that are clearly unsuitable.

There are many other factors that can best be evaluated only by visiting a home: Whether it is in good condition and nicely decorated, or whether the next door neighbor is running an automobile junkyard on his front lawn. Without a visit it is even hard to tell if a home is unacceptably close to a major highway or if it is on a wooded lot. What is the definition of “wooded” anyway? Just take your buyer, have a look, and decide for yourselves. (Note that the definition of is, is beyond the scope of this book.)

Review the description of each home, including the home’s location. Sort out the homes that are clearly unsuitable, and plan to see the rest. In the meantime, do not let your buyer get too attached, sight unseen, to the home that has the perfect description (you should be so lucky). Become proficient at putting the homes to be seen into geographic order for an efficient tour. It’s finally time to hit the road.

ON THE ROAD

Now it is time to leave the planning, the numbers, and the theory behind and actually see some homes. You will soon realize that the time you spent planning will be rewarded with time saved in the search. As you visit homes, try to confirm that you are on the right trail. If your buyer needs to change the direction or focus of the search, the sooner you realize it, the better off you will be.

What is your objective? Obviously, to find a home... but remember that you are also building your buyer’s market knowledge. When it is time to make the choice, no one else in the world will be better equipped to make the decision. It is best to show your buyer all homes that might meet his needs, the bad ones along with the good ones. Without this knowledge, he cannot comprehend his segment of the market. Previewing homes for your buyer is generally a waste of time. Worse yet, you rob him of an accurate view of the market, and might even rule out his dream home. Try to have a good time along the way. Showing property should be fun.

You can show up to 40 homes in a day, even spread over a wide area, if the tour is arranged in proper geographic order. This is a bit tricky, but you must become an expert in arranging a tour unless your MLS program includes a sequential tour-mapping function. You might send a local buyer on a tour to see the outside of homes without you. Supply the list of homes in geographic order. Is the buyer-broker agreement signed?

As you are driving to see each home, have your buyer locate it on the map. Is it convenient to major roads, shopping, schools, and work? Evaluate the second facet of location: The area, or neighborhood. Are the homes and lawns well maintained and is the separation between properties acceptable? The third and equally important facet is the home site. Is the lot large enough? Does it have enough useable space? Is the home properly situated on the lot? Is the home reasonably similar in value to surrounding homes? Does it fit or blend into its surroundings? Is it free from noise from roads, railroads, and airplanes? Do you see the front of the home as you approach? Is it good looking? One does not live inside “curb appeal” but it is an important factor. Remind your buyer that even experienced agents cannot accurately determine the size of a home from the outside so that he is not fooled.

Is the general design of the home acceptable? Is it well proportioned and well sited? These factors are difficult to modify. If the answer is “No,” then do not waste your time. Grab your buyer (gently) and drive on to the next home on the tour. Yes, the seller might have spent an hour getting ready for your visit, but that is not a good reason for you to waste time and possibly even leave the seller with a false sense of hope.

What about decorating? Most buyers are unwilling to deal with any major work. But if your buyer is willing to see past the decorating and the mess, he might buy a home for a very good price because it will appeal to very few others. Even a soggy basement might be fixed for a reasonable cost, but be sure to get an expert opinion before you are under contract. Be alert to special features as well as potential problems, but resist the urge to play home inspector unless you are ASHI (American Society of Home Inspectors) qualified.

Train your buyer to take less than ten minutes to inspect a home. Just a few quick notes of the most important factors and perhaps a memory jog. The main question your buyer should be trying to answer is, “Do I ever want to return to this home for a second visit?” Once the answer is apparent, it is time to go. But never offend sellers by making negative comments in their presence.

Your buyer should pay careful attention to his demeanor when in the presence of the seller. One can smile and act friendly, but keep comments to a minimum. Avoid telling the seller that he has just fallen in love with the home and must have it at any cost. This would be less than clever, but it does happen. Comments about price range or timing can also compromise your buyer’s position. Remember, even if he is dying to have a swimming pool, do not admit it. If the seller has invested in a pool, he expects that it will be a gift to the next owner. Do not spoil this notion with needless conversation. If the seller is talkative, you might gain valuable insight. You might even learn why the seller is selling as well as his desired moving date. Feel free to listen, but your buyer should keep his comments to a minimum.

It is your buyer’s responsibility to keep the homes you have visited in perspective. One valuable aid: After you have seen a few homes, tell your buyer to keep the best one clearly in mind. Compare each successive home inspected with this first choice replacing it in memory when a better one is found.

Use what you are learning on the road to tailor your tour if necessary. It is a process of elimination. Your buyer should be developing a short-list of two to four homes that you will visit again and then consider carefully. If your buyer tours homes just waiting for that one to jump out at him and not making careful notes, you will all end up disappointed at the end of your search to find that everything is a blur, nothing jumped out, much time has been spent, nothing has been accomplished, and you are standing at “GO” not even having collected your $200. Also, you certainly do not want to go back to see all of those homes a second time, even if it was fun.

The choice of a home is very personal. Many factors are readily apparent, such as the age, lot size, and number of bathrooms. Many factors are not, for example, the feeling your buyer has inside a home or in the general area. The more questions you ask, the more you can help your buyer compare, and the more you attempt to quantify, the better choice he will make. To get an idea of the choice by-the-numbers concept, see APPENDIX F. You might even design a checklist to take on the road to help your buyer collect important information. Just remember to keep it simple. If one tries to record even 10 or 15 factors, the process will soon become unmanageable.

Freely share your wealth of information on how the market views certain factors. A buyer will consider this information carefully if the home needs to be a good investment and readily salable when the time comes. The more you discuss, the more information will be available to make that important decision. So talk to your buyer in each home as well as in the car.

Before you have seen 20 homes, your buyer will have developed firsthand knowledge on his segment of the market. Many of the homes you visited have been clear rejects, but someone will buy them some day. At some point your buyer will develop a short-list of two to four properties that will receive very careful consideration.

Return to each home on the short-list and spend enough time to collect all the information your buyer needs. You might even check clothes closets to determine how many of the owners currently are living in the home. Make careful notes of any important questions. All the homes should be revisited in one day. If your buyer needs to get the kids’ opinions of these homes, include them in your final tour.

As you visit each home, ask your buyer whether he has a comfortable feeling. You might ask him to sit quietly for a few minutes in whatever room is his favorite. If he is not comfortable, there is something negative reaching his senses but avoiding his consciousness. If you can determine exactly what the problem is, then the solution probably will be either simple or nonexistent.

During this round of final visits, your buyer should be able to eliminate some of the homes. This is progress. If you are lucky, one or two of the homes will stand out above the rest. By the time you are done, the short-list probably will be shorter and your buyer will be in a position to make a choice.

While the process described above will work well in many market situations, it does require time. In a hot sellers’ market, encourage your buyer to develop the ability to make a final assessment of a home’s acceptability immediately on the spot. Time consuming deliberation and a second visit to any home can mean that the home is sold to someone else before your buyer’s offer is even prepared.

MAKING THE CHOICE

If you are lucky, your buyer has found the perfect home and has fallen in love with it. Because this rarely happens, one must be prepared to view a home choice as a compromise. The very best home probably will not be absolutely perfect in every respect. Unscientific studies have proven conclusively that most buyers would find true happiness in a home priced $100,000 above their upper price limit. But your buyer is stuck in the real world with a real choice to make, and it probably will not be easy.

As your buyer considers various properties, suggest that major importance be assigned to the unchangeable features of the home, for example, the location, the style, and the lot size. Of less importance are the changeable features, the missing deck, or the decorating that makes one gag. Even hardwood floors, a fireplace, and sometimes a garage can be added, if required, to an otherwise suitable home.

Many opt not to buy the typical home. There are many excellent values in non-typical homes. Many buyers do not need four bedrooms, and two and a half baths. They might not need a garage. So why should your buyer pay for what he does not need? The market will not be living in this home every day or paying the mortgage payment every month. It is a very personal decision, so respect this fact. But your buyer should consciously consider where the mainstream of the market is flowing and whether or not the typical home is right for him. It is part of the compromise process.

If your buyer is considering a new home, there will be questions about the builder. New homes are constructed in conformance with voluminous building codes and are inspected by local authorities during the construction process. While this does not ensure that every new home is perfect, it does establish basic minimum standards. It is likely that most new homes will still be standing years after construction. An important factor to investigate is the builder’s attention to finishing detail. How carefully done are the trim woodwork, the painting, the installed fixtures, and the flooring. If care was taken on these items, it is likely that what is underneath is also acceptable. Does the builder keep delivery promises? Is there any time limit or guarantee? But remember, the builder wants to go to closing just as much as your buyer... probably something to do with getting paid. Ask about prompt courteous service after the sale. This can be more important than a written warranty. The builder’s sales agent surely will have all the answers. Your buyer should verify the agent’s claims by talking to a few of those who have already moved into the builder’s new homes. Counsel him not to be alarmed by any single, unverified comment: Some people have nothing but problems. If your buyer does opt for a new home, encourage him to retain a home inspector for a final inspection. Discuss this with the builder up front. You might want the inspection to be mentioned in the contract.

In any complex and important decision, the key to success is assembling the pertinent information. As a home choice decision nears, a seemingly endless series of questions might pop into your buyer’s mind. Take each one seriously. Take a moment with each question to ask where the answer best can be found: To whom should the question be directed? It might seem natural to ask the seller of the home or a real estate agent about the quality of the local schools or about the vacant land adjacent to the property or the crime rate. But this is the easy way out, and one can often be misled quite unintentionally. Be sure that your buyer addresses any important questions directly to those with the answers.

If schools are important, your buyer should visit them; talk to teachers, administrators, parents, and students; collect published information and make a judgment. Ownership of vacant land is best determined through local governments: They have to know who gets the real estate tax bill. An obvious source for information on crime is the local police. If they do not have the facts, no one else will. These are just a few examples. If your buyer has an important question, be sure to get the right answer. He should go to the source and talk to the experts. One would not ask a teacher to help find a home, so why ask a real estate agent about schools? Alternatively, if a question is not that important, do not pursue an answer that does not matter anyway.

Gather information for all of the properties in the areas or subdivisions containing each home on your buyer’s short-list, sold properties as well as available ones. There is a wealth of important information here. Does the price your buyer is likely to pay fit in with the information on similar sold properties? Is the home he is considering the most expensive or least expensive home in the area? Least expensive is better, but if the home in question is not more than about 10% above the top of the range, there should be no reason to worry.

PREPARING THE OFFER

As you are considering your buyer’s offer, take a second to reflect on the valuable service that you have been providing to your seller clients from the beginning of time. Almost every potential seller client expects and receives a market analysis so that he can define what his property is worth. If the climate of your market permits, you can greatly increase your value to your buyer by providing a market analysis on his home of choice at this critical stage. While APPENDIX B describes the analysis procedure in the context of performing it for a seller, the same procedure also can be used to define market value for your buyer. While this may not be a common practice your area, it is strongly recommended if you are acting as a buyer-broker.

Use a procedure similar to that described in APPENDIX A to calculate the number of months supply of homes on the market for each area under consideration. Compare the months supply figures you have calculated for each area. Lower numbers indicate that homes in that area are selling well. This indicates that sellers who are aware of this fact might be somewhat less negotiable. A lower number could be advantageous if the area’s popularity continues until it is time for your buyer to sell. Higher months supply figures mean sales are sluggish. This might be noted to your advantage during negotiations with the seller. But recognize that your calculations are based on a very small number of available and sold homes; your results provide only a coarse analytical tool. For example, the difference between a 5 month supply and a 6 month supply might be meaningless, but perform this calculation for your buyer and utilize the information if applicable.

If your buyer is considering a townhome or condominium, there might be concerns about the stability of the complex, that is, the number of units that turn over in a year. Of course these numbers can vary from time to time. Add the number of units sold in the past year to the number of units rented in the past year. Divide that sum (the number of units changing hands in the past year) by the total number of units in the complex your buyer is considering. The result is the annual percent turnover. Compare such figures for each complex being considered in order to get an idea of resident stability.

With a condominium, your buyer’s lender probably will investigate the percentage of units that are rented. Too high a proportion of rented units will make a lender hesitant to lend mortgage money for that location. This usually is not a problem, but investigation might be in order at an early stage.

APPENDIX F should be reviewed again at this point to ensure that full consideration is being given to all criteria that are important. One final aid to help your buyer in paring the short-list down to one or two homes: Try the “Ben Franklin approach.” Using a sheet of paper or a computer spreadsheet, list advantages on the left, disadvantages on the right. Consider the relative importance of each factor listed, giving more weight to the important items. With a little luck, your buyer is now ready to make an offer on his next home. If he cannot make a decision between the last two homes on the list, flip a coin and forge ahead. With two equally suitable homes, your buyer is in a superb negotiating position.

The choice of a home is a very important decision and should not be rushed. But once the choice is made, proceed without delay. Keep in mind that other active buyers probably share your buyer’s home preferences and market knowledge. The home he has carefully selected will also appeal to them. The risk in delaying an offer or stalling during negotiations is that another buyer will crawl out of the woodwork and make an offer on the home. Do not discount this risk. It happens more often than anyone would guess, even in a soft market when a home has been on the market for many months. Neither you nor your buyer needs the aggravation of competing with others to buy the home of his choice, and you certainly do not want to start from “GO.” Act now.

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NEGOTIATING

THE PROCESS

Details of each transaction are very different. The process of negotiating the contract will vary depending on the applicable laws, as well as local customs and procedures. Some negotiations are quite simple, some are impossible. To exhaustively treat real estate negotiating would fill several volumes, so we will address only the most important factors. With the growing popularity of buyer-brokerage bringing increased emphasis and poignancy to the always important negotiating phase, negotiating will be generally discussed from this standpoint.

Negotiating a contract for your client should be a challenging and exciting part of your job. It will be satisfying to see the effort you have spent come to fruition: From the planning; the searching of the countryside for that perfect home; or that one ready, willing, and able buyer; to mapping the strategy and executing the plan.

Visualize the negotiation process as traveling down a road. The beginning is marked by a buyer’s offer to buy. He will have complete control over the timing and content of that first offer. At the end of the road is a contract to purchase the home in which he will live happily ever after, and that the seller will happily never after see. Of course, the contract must be mutually acceptable to both buyer and seller, a meeting of the minds. If it is to be legally enforceable, which is highly desirable, it should be written. You, as an expert agent, will also have a good deal of control over the final content of the contract, and you will exercise this control by sharing your expertise during the negotiation phase. But the road can be filled with bumps and potholes (surprises), can wind over hill and dale (confusion), and will surely contain many forks (decision points). So keep your eyes on the road, your hands upon the wheel.

You might recognize at this point that it would be rather cumbersome if we had to negotiate a written contract each time we wanted to buy a loaf of bread. So, what’s the difference? One difference is that homes are unique in comparison to loaves of bread and neither the seller nor the buyer has nearly as much experience with the transaction, assuming they either buy bread or own a bakery. The home’s price is less certain, hence the need for negotiation. In addition, home purchases are more complex and involve more details, hence the need for writing. But also important, consider the length of time between the agreement and consummation of the agreement, or closing. If the buyer and the seller agreed on a price and other pertinent details and went immediately to closing, all necessary information and funds being available, then written contracts might be avoided. But this is not practical, as we know very well. Therefore, negotiation and written contracts will continue to be an essential part of the home buying process for the foreseeable future, and a critically important part of our function.

YOUR ROLE / YOUR OBJECTIVE

When clients become dissatisfied with their agent, it is frequently due to problems that arise during negotiations. If there is one big blind spot shared by too many of us, it is lack of appreciation for the importance of the negotiations.

The term “negotiating” has a nasty ring to some people. The seller sees the buyer’s offer as an insult. This buyer obviously wants to steal the home, a bottom fishing, low baller! The seller’s not prepared to take a penny less than the asking price and the buyer will not pay another dime! Feelings seem to be overpowering thoughts. An adversarial yelling and screaming match is imminent. Even the agents are getting emotional. Although the above scenario is possible, it rarely happens. Skilled agents focus on the facts and concentrate on resolving differences not on creating or even orchestrating them. Buyers and sellers almost always will settle for what they believe to be fair and reasonable. You will sometimes find that the responsibility to keep negotiations moving forward in a meaningful and unemotional manner rests squarely on your shoulders alone. That is why you are making those big bucks. It will be most satisfying to see your own calm advice prevail. But be sensitive to the fact that negotiations will produce more anxiety for your clients than any other phase of the transaction.

Negotiation is the process of give and take during which a fair and reasonable set of terms and conditions is defined into an agreement or contract. Your objective is to convince the other party and his agent that your client’s position is fair and reasonable. You will have a major advantage if your position is close enough to fair and reasonable in order to seem so. Stretch the credibility of your position too far and negotiations will fracture.

You are the agent and you are the broker. Consider what these terms mean in a general sense. As an agent, you normally will not have the power to act for or to commit your principal, so don’t even try to play this role. You are charged, however, with using your expertise to advise your client what is in his best interest: What to do, when to do it, and how. You are also charged with having the required expertise. This is a big responsibility.

On the other hand, you are acting as a broker: Bringing the parties to the transaction together. But when buyer meets seller, your job is not done. In fact, it is only beginning. As you very well know “bringing the parties together” includes conceptually, in the form of a meeting of the minds evidenced in writing. This is the most important reason a seller needs an agent. This is the most important reason a buyer needs an agent. This is the main reason you get paid. Remember, if you negotiate so ineptly that there is no agreement, it is worse than a lose/lose situation. It is a lose/lose/lose situation and one in which you do not deserve to be paid.

Your role is to negotiate the very best set of terms possible for your client within the context of what you have to work with: The seller, the buyer, the other agent, the laws and customs, et cetera. Negotiating toward a super deal for your client that is too far from agreeable to the other principal is a waste of everyone’s time, not to mention a disservice to your client. Remember too that you are the advisor; the client is the decision maker. And regardless of the outcome of negotiations, you have a prime responsibility to keep your client out of trouble.

The secret of successfully negotiating the negotiating process is control. To control the negotiation, control yourself. Never let the tone reach a state of emotional strain. To do so will always cost time and money and frequently will destroy the ability to reach an agreement. In all stages of negotiation, maintain a reasonable or at least a defensible position. Always project your sincerity, friendliness, and understanding. Avoid emotion and stay in control. These overall guidelines along with good information plus a clear and firm mindset will lead to your client’s most favorable contract.

STRATEGY

Negotiating strategy refers to the overall plan: The big picture. The nitty-gritty details and tactics will be discussed later. The overall process of making an offer and negotiating an agreement in your area probably has developed over many years into a well-defined and orderly ritual. The main objective has been to develop a process, including the forms and the procedures, to resolve and record pertinent details and avoid problems, while treating all parties fairly. Part of the process is rooted in law, part in custom. You should advise your client regarding what is customary, and all should conform unless it is impossible. Do not try to rewrite local custom.

If standard contract forms are used in your area, insist on their use and resist changes in the wording by anyone. Did you ever meet an agent who liked to play attorney? If someone maintains that wording changes are needed or if your client has unresolved questions, advise him to consult a local real estate attorney.

Prepare your client to make concessions if necessary; it is expected in many markets. But give little and give slowly. Try to give on terms that are of lesser importance. When one gives, one will get something in return, if only a step closer to an agreement. At each stage, carefully consider whether your client should compromise or say “No.” Rationale will be required to explain the basis of each offer or counteroffer. Be prepared. Develop a workable plan to reach an attainable goal and stick with it. So much for the generalities... onward to gain further insight into the process.

Your client’s response to a verbal offer invariably will be, “Put it in writing and it will be considered.” Those who make verbal offers have so little interest in the transaction that they are unwilling to invest an hour in the paperwork. Serious offers are always made in writing. Only written offers get serious responses. Do everyone a favor, especially yourself. Put your client’s offer in writing. It will sometimes seem easier to proceed verbally. But having so proceeded, it will often seem to have been a mistake.

You will be your client’s advisor and communications link. Never forget that it is your client’s responsibility to define clearly, exactly what terms and conditions are satisfactory to him. No one else can handle that role. No, not even you. One of the greatest services you provide to your client is insulation from direct negotiations with the other party. This is invaluable in avoiding snap decisions made before complete and careful consideration of all options and implications. Many buyers and sellers understand this value. They might have noticed that important negotiations, business or diplomatic, are rarely conducted directly by the principals or the ultimate decision makers.

If you get to a point in the process where the other party is irrevocably convinced that someone on your side of the table is negotiating in less than good faith, you have an important decision to make quickly: Assuming that someone on your side must take the rap, will it be you, or your client, or both. First, for both of you to be bad guys is needless, pointless, and counterproductive, if not self-destructive. (Pretty subtle?) If at all possible, you as the agent should take responsibility for the offending action, advice, or statement. Whenever you can, preserve the good image of your principal.

TACTICS IN GENERAL

The initial offer defines the minimum outcome of negotiations; the asking price defines the maximum. The final outcome usually will be somewhere in between the two. Your objective is to convince the other party to see things your client’s way and agree on a price and terms very near what you are proposing.

Some offers or counteroffers are ridiculous, designed to determine how desperate your client is or to shock him into mitigating his expectations. It is no time to be insulted and scuttle the proceedings. An emotional response is always the biggest enemy. It turns down-to-earth issues and quantitative differences into an ill-defined mishmash that will be impossible to deal with. Although an offer might make you or your client mad enough to expectorate, try to remember it is the very best offer you have today. Better to deal with it. Use your judgment. If an offer is not acceptable, you must either reject it or counteroffer. Review the information at your disposal, obtain your client’s decision, and give the best available rationale (known in Washington, D.C. as “spin”).

You and your client will take utmost care at every stage to be friendly, to be serious, and to appear reasonable by supporting your position with carefully prepared information. Your expertise concerning a sense of timing will be invaluable. Just as important as what to say is what not to say. Before responding to any comment, ask yourself whether a response is needed, whether it will support your client’s position, and whether this is the best time to make the response. Sometimes a question is an effective way to lead the other party to your conclusion. Just be sure of the answer before you ask. No one likes unpleasant surprises.

You might reach a point where someone says, “Let’s split the difference.” If this is satisfactory to your client, then it should be accepted. There is, however, no basic rationale to support this approach, so feel no obligation to give an automatic “Yes.” If splitting the difference is not acceptable to your client, reply that he simply cannot afford to split the difference and therefore will make a counteroffer.

Somewhere along the way, the idea of face-to-face talks between seller and buyer might surface. Sounds reasonable enough, two adults sitting down and coming to a mutual agreement directly. While this has surely been done, it is advisable only as a last resort. The danger of a fatal injury to the talks is so great that it usually is better just to break off negotiations, leaving a chance that they might reopen later. If there are four principals at the negotiating table instead of two, the chance of total failure rises exponentially.

If you and your client say this is absolutely your last offer, be prepared to mean it. Do not bluff by making a take-it-or-leave-it offer. This can end discussions in a hurry. If you did not really mean it, the other party will have learned that you do not mean what you say. The credibility you have built will be reduced to rubble. If the other party gives you a last offer and it is satisfactory, take it. Otherwise consider rejecting it without a counteroffer and without comment. In doing so, you are telling him that you believe what he said. The subtle message is that you and your client mean what you say too. But recognize that most final offers are not really final.

An excellent alternative to making a take-it-or-leave-it final offer is to make your last offer without any mention of finality. If it is not accepted, resubmit the offer exactly the same as it was originally submitted. Be calm, reasonable, brief, and almost apologetic. You will make your case in a strong but non-threatening manner. This works.

Develop an idea of timing or the rate of progress. Always move ahead in discussions whenever possible to avoid losing momentum. Be alert for that rare occasion when it is preferable to delay your response, assuming time is on your side. Delays usually favor the seller: If another buyer does appear, the seller will be equally as happy with his money. But for a buyer, the second choice home might be a distant second, or worse yet, non-existent. Stay abreast of your local market conditions (See APPENDIX A) and tailor the timing your negotiations accordingly. For example, when you are representing a buyer in a hot sellers’ market, you will be preparing an offer that the seller will sign immediately and you will be pushing for the offer to be presented without delay. In such a situation, your goal is to win your buyer’s home of choice, not to negotiate price concessions.

If negotiations do break down at any point, it might not really be the end. Before you walk out, have a plan by which you can walk back in. You will not run back immediately. Let some time elapse. The hardest thing to change is a mind (unless it is your own). It always takes time. How much time it takes is a matter of judgment. If you return too soon, you will have gained no mind adjustment from the other party and will have lost some of your credibility. But don’t be too proud to initiate resumption of negotiations. The other agent can be a major help in this event. Ask for his advice.

You no doubt realize that all of this negotiating information is merely the tip of the iceberg. Always keep your primary goal in mind: A seller wants to sell a home; the buyer wants to buy it. If you use all the information at your disposal, the chances of negotiating an excellent agreement for your client are very good. You and your client can be happy even if you beat the average selling-price-to-asking-price ratio by only a few percent.

TACTICS FOR LISTING AGENTS

Finally, some unsuspecting buyer is making an offer on your seller’s property. Upon hearing an offer, you should ask some questions to help define what type of buyer you are dealing with. A few examples:

A first-time buyer is apt to be cautious, if not downright scared, liable to withdraw the offer without warning, never to return.

An incoming transferee on a five day house hunting trip will buy for sure, and usually has no home to sell. Do not delay, and do not let him get away.

A serious local buyer might have a home to sell. Is it on the market? Is it reasonably priced? Has he seen many homes or made other offers? What happened? Is there any urgency?

A bargain hunter or “bottom fisher” is willing to live in a cave as long as the price is discounted by 50%. Your offer is likely to be one of many such offers.

Each type of buyer needs special handling. Has the buyer seen enough homes to be satisfied that your seller’s is the one? How long has he been looking for a home? What features did he especially like? Were these features present in any other home?

A host of new considerations can surface during the presentation of an offer. A few examples, all designed to implore a seller to accept the offer, are the following:

The market has suddenly worsened.

Interest rates are about to rise.

The home will not appraise for more than the offered price.

Some investment newspaper article is predicting doom.

The buyer likes another home, a close second, and that offer is already written and waiting.

The buyer can afford no more.

The price offered is even greater than the seller’s real estate tax assessment.

This is not the time to ask a seller to make an important decision based on brand new, alarming, unverified, irrelevant, or fabricated information. So we must quench a consuming desire to get this one signed and get on to the next one, and re-pledge our troth to fiduciary duties.

Remind yourself that your seller’s position is justifiable. You are on firm ground. You have an unbeatable team, you have done your homework, and you have much more ammunition (information) than the buyer does. Approach the problem carefully and logically. What information formed the basis for the buyer’s offer? Do you need to rebut the tax assessment myth? What information is the buyer lacking? How can you impart the understanding required to bring the buyer’s errant view into line with yours? Can you offer information on comparable sales, a recent appraisal, or perhaps your original market value analysis? Work through the selling agent, who will be your messenger. Convince him, and you are at least halfway there. By the way, the selling agent dearly wants this to work or else he will be back on the road showing properties instead of paying bills and going to the grocery store.

It is no surprise that price is usually the most difficult factor to negotiate. The price is composed of two parts, the down payment plus the mortgage. If necessary, reexamine the buyer’s financial data. Can the down payment be increased through the sale of liquid investments, borrowing from retirement funds, a new loan on a paid-off car, or a gift from relatives? Will the buyer’s income support a larger mortgage? Recognize that an extra $5,000 on the price could cost the buyer less than $30 per month. Always send the selling agent back with the additional monthly cost number in hand. This is a powerfully convincing tactic. What kind of a mortgage is the buyer seeking? To stretch the maximum mortgage amount, ask that the buyer consider a loan with a longer term, a lower interest rate, or even a lender with higher qualifying ratios.

In general, your seller should never accept a price lower than 90% of the asking price unless he is in dire straits with the anchor dragging. By settling for too low a price, you bypass an entire segment of the home buying market who never saw the home because they never dreamed you would give it away. So before you do give it away, expose it to the market at a 5% to 10% lower price. You might just end up with multiple offers and full price.

While you are busy offering and counteroffering, ask your seller to consider this sobering thought to help put the offer into perspective: Assume he is asking $200,000, and the buyer is offering $191,000 on the second round of negotiations. Your seller is considering counteroffering at $195,000. If the buyer accepts, you all should be happy. But if the buyer walks off, the seller has in effect just purchased his own home for $191,000 with the expectation of selling it for $195,000 in the near future. Was this a sound business decision?

TACTICS FOR BUYER-BROKERS

Now it is time to prepare the offer. Your buyer will have a lot of questions and an anxious feeling. “How long has this home been on the market,” he asks? If a home has been on the market for more than three or four months, it might indicate that the seller is weary, or to the contrary, does not have a strong desire to sell. File this question in your memory; the answer will appear in due course.

Another very important question is, “How long has the home been marketed at the current price?” If there has been a significant reduction recently, this could indicate that the seller is getting desperate. However, the seller might be very hesitant to give another large concession so soon. If the home has had a significant reduction and this has brought the price into an attractive range, do not hesitate: Suggest that your buyer offer now, and do not let negotiations become protracted. But if the home has been on the market too long at the current price, it is by definition, priced too high.

You will need to answer the following questions in light of the other pertinent details of your buyer’s offer such as the closing date and concessions requested:

What is the lowest price the seller will accept? How can you attain this? How long will it take? The more you need to adjust the seller’s mind, the longer it will take. The longer it takes, the greater the risk of a second offer appearing on the scene.

What is an acceptable price, a price at which your buyer will feel he has done well?

What is the absolute maximum that your buyer would pay for this home? What are the options in the event this price is still unacceptable to the seller? Is the second choice home still available?

How much time is available for negotiations? You might have plenty of time in a buyers’ market, or no time at all in a sellers’ market.

Reflect on the months supply (Market Index) you calculated for this home during your buyer’s home selection process. Compare that number with a recent calculation for the market in general that can be generated as described in APPENDIX A. This comparison will indicate your negotiating strength relative to the seller. Then adjust the timing of your negotiations to your local market conditions. Your buyer’s negotiating power will usually be at its seasonal maximum in November and December, at its minimum in March or April.

Refer to APPENDIX C and calculate an average selling-price-to-asking-price ratio for the area you are considering. How much have other buyers been negotiating off the asking prices of nearby homes? Are there any sales for which the ratios were exceptionally high or low? Can you find out why?

Review APPENDIX G at this point. What month is it? It’s a savvy agent who even has a clue. (Just kidding.) If it is May, June, or July there are probably a peak number of homes on the market: Buyers have the best selection of homes; sellers have the most competition. Will these facts worry a seller into accepting your buyer’s offer? Yes, but only if you convincingly make your case.

Have a look at APPENDIX H. In April or May you will be able to point out to a seller that the number of home sales is all downhill from here. Remember that most sellers believe the peak selling months are May to July. Dispel this myth if you can, by providing this valuable information to the seller. If you are negotiating during September to December, don’t you have a responsibility to advise the poor seller how few buyers will be visiting his home?

Be alert and adjust your negotiating strategy to the type of market you are dealing with. During a buyers’ market in December, you will be able to take a hard line and obtain an attractive low price, but in a spring sellers’ market the name of the game is buying the home of your buyer’s choice before someone else does. Be quick to make your best case and come to an agreement without delay.

Don’t be shy: This is an adversarial proceeding. Even in a win/win situation, don’t you want to win more? View each piece of information in two ways. First, what does it indicate about this transaction in the context of the market? Second, how can this information be utilized best to support your buyer’s position? You will be amazed at the results you can achieve through your effective use of available information. If you happen to uncover some information that supports the seller’s objectives, it is not your responsibility to point it out.

Some buyers will even stoop so low as to review the tax records and use this information if it suits their purpose. As you have seen in the “Working with Sellers” section, tax assessments have no consistent relationship to market values. But most sellers and even some agents do not know this. There is also a good deal of confusion between assessment and appraisal, which is due, no doubt, to the fact that they both begin with the letter “a.” The tax assessment argument is used more often and more successfully than anyone would suspect. It is a graphic demonstration of the assumed legitimacy of the printed word, or number in this case. Indeed, the printed word needs to be challenged a bit more often, the publication in your hands excepted, if you please.

While you are reviewing the tax records, advise your buyer that the fact the sellers paid $8,600 for the home in the year 1931 is irrelevant. You might, however, find information detailing the present loans on the home. If the seller owes an amount close to or even more than the asking price, he might have very little cash as well. In this case, he will not be able to accept a very low offer, even to escape foreclosure. (One option, negotiating with the current lender to accept less than the outstanding loan balance is a specialized process, which is beyond the scope of this discussion.) Note that back taxes and mortgage balances often take priority over real estate commissions. If there is nothing left, that is what you will get. On the other hand, if the seller has a good deal of equity in the home, he probably has the ability to sell for a lower price. All you need is to gain his willingness.

Review the information you have developed in order to set your goals. Go through it again to determine what bits of information will best support your case. Then assemble a phased plan. Do not use all your information in the first encounter. Decide where each bit fits. Presentation of the first offer, assuming it is not accepted, should be an information gathering mission. Merely offer whatever justification you can for your rotten first offer, and not much more. Save the big guns, the suggestion that your buyer is about to pursue another course of action (i.e., another home), for a later round. This is the seller’s ultimate worry, and it certainly should be.

If it is customary in your area for the seller to help with the buyer’s closing costs, include a request in your original offer for the seller to give a credit equal to the maximum allowed by your lender. If your buyer is worried about the remaining life of the home’s appliances and major systems, add a request that the seller buy a one year warranty. These insurance policies are widely available for less than $400. This amount is a minor item in the context of most negotiations, but the seller will only give so much. Loading the offer with minor requests will seriously damage your ability to negotiate the best price. You will need the seller to focus on the facts that lead him to a lower price, so stay focused yourself.

The most common buyer mistake is to offer too low a price initially. If the seller truly is desperate, the asking price already reflects that fact. Perhaps that is why this home seemed to be such a good value. Further large reductions might take so long to negotiate that another buyer will appear and end up with the home. But whether or not your buyer is concerned with this risk, to insult the seller by offering a price that is too low will not help your position. Remember, in all contacts with the seller so far, you and your buyer have been friendly. Hopefully, you have impressed the seller as friendly and reasonable people. Maintain this impression to achieve your goal. Sellers are human too, and they are more likely to accommodate (price wise) someone they like, rather than someone whom they perceive as ignorant and aggravating. So where does one draw the line? In general, you can ask for the lowest price that you can support with a rationale. In addition, ask for whatever other concessions that fall within the envelope of acceptability. If you plan and execute this properly, you will avoid eliciting an emotional response and will be well on your way to a favorable agreement.

Note that it usually is counterproductive to list, either in an offer or verbally, all the things your buyer does not like about the home and that he is planning to change immediately. After all, the seller put a lot of care into selecting those precious things your buyer’s going to trash. How insulting! Further, your buyer is admitting overtly that the seller has not yet negotiated him out of his last penny. (He’ll have money left to undertake renovations.) So the seller will just negotiate harder: Your buyer has no right to exit this transaction with anything more than pocket change.

The seller probably will have some idea of what type of buyer your buyer is. If not, some general information on the subject during presentation of the initial offer might be enlightening. A few examples:

A first-time buyer has the right to be cautious, if not downright scared, liable to withdraw the offer without warning, never to return.

An incoming transferee on a five day house hunting trip will buy for sure, usually non-contingent. A serious seller will get nervous at the slightest delay and will not let your buyer get away.

A serious local buyer has time on his side. Even if he needs a home this week for tax purposes, do not divulge this. Just let the seller assume that your buyer can wait him out.

Whatever type your buyer is, be sure to utilize it to promote some uncertainty in the seller’s mind.

Remember that your position is justifiable. You are on firm ground. You have an unbeatable team, you have done your homework, and you have much more ammunition (information) than the seller does. Your buyer’s ultimate weapon is to buy another home. To use this weapon is to lose his first choice home. So do whatever you can to avoid the ultimate confrontation. Approach the problem carefully and logically. What information formed the basis for the seller’s counteroffer? What information is lacking? How can you impart the understanding required to bring the seller’s view into line with yours? Can you offer information on comparable sales, order an appraisal, or offer a market value analysis like that shown in APPENDIX B? Convince the listing agent and you are at least halfway there. By the way, the listing agent really wants your buyer’s offer to work or else he will be back on the market writing ads and holding open houses instead of deciding which bank account can take the commission deposit without exceeding the FDIC insurance limit.

Be alert to the occasional seller who is overly concerned with the top line. If you hear that the seller is stuck on some price or fears for the home values in the neighborhood, you might be dealing with an emotional issue. Offer $10,000 more and ask for a $10,000 credit for closing costs, if you have not already exhausted the seller credit approach. Your buyer has given nothing but a number. Check with the lender to be sure you do not exceed the limits on seller credits.

Portray your buyer as being personable and likeable. The seller will be more inclined to give concessions to a nice buyer. If at some point someone has to be the bad guy, just step right into the breech. It is in your job description. In regions or individual instances where you do not present the offer to the seller in person, always draft a cover letter to introduce your buyer, detail his rationale in making the offer, and plead his case. In addition, be sure that you and your buyer will be instantly contactable by telephone during the period when offers are being reviewed by the seller and the listing agent.

PRESENTATION OF THE OFFER

A presentation of the offer will be made to the seller. (And let us all resolve to call them offers, and not contracts.) The listing agent should always be involved personally unless he has passed away. There is now no place on earth where telephone communications are unavailable. Those of us visiting the other side of the world might lose an hour’s sleep. (Remember that there are always real jobs out there.) Your client hired you, not your assistant or stand-in. Depending on local custom, the selling agent might also be present at the offer presentation. The seller will listen carefully to the entire presentation and might discuss the following concerns:

Are the price and terms acceptable?

Where is the money for the down payment coming from? Is it readily available? Is a gift letter required?

Can the buyer afford the proposed monthly mortgage payment? Should a prequalification letter be obtained from a mortgage lender? Should a credit check be requested? Or is the buyer preapproved for a loan?

What are the potential problems between contract and closing?

Is the proposed contract contingent upon the sale of the buyer’s current home? For how many days?

The seller’s complete set of response options to an offer are the following:

Accept the offer exactly as written

Reject the offer

Propose a counteroffer.

After appropriate discussion, the seller will select an option. The response should be in writing.

If the seller accepts the offer, all can thank their lucky stars. If the seller rejects the offer, often no information will be given other than that the offer did not form a basis for discussion. Rejecting an offer is rarely the best course of action for anyone, since it can end negotiations. Will the seller consider another offer? If your client is the buyer, you should give the home another try, buyer willing, using what you have just learned.

Even if an offer is rejected, it is imperative that this fact is communicated in writing in order to be certain that the transaction has been closed and so that all parties have evidence of the proceedings. A professional agent will neither offer nor accept shortcuts or cheap verbal imitations. If your client were looking to hire a lazy agent, he would have retained someone else. If the party’s over, get it in writing.

If one party makes a counteroffer, he implicitly is rejecting the other’s offer. The counteroffer becomes the only offer on the table. Notice that when one makes a counteroffer, control is returned to the other party. It is then his decision whether to accept, reject, or counteroffer, and when. Advise your client to counteroffer only if the changes proposed are truly of major significance. Do not give away control over a minor issue. A counteroffer should always be made in writing.

When the parties reach an agreement, the bulk of the negotiation is finished. Check to ensure that the paperwork is all signed, initialed, and in order, and that your client has a complete copy. Keep in mind that contract provisions can be altered with the agreement of all parties. So if someone needs a minor change later, it might be possible.

Occasionally you will be representing a buyer and dealing with a seller who is in another location or with a seller that is a bank or a relocation company. In these cases, the presentation of your buyer’s offer will be made by fax or telephone, sometimes without your presence. It is not reasonable to expect the listing agent to remember your buyer’s rationale and repeat it verbatim to the seller. A most effective tool is to give the listing agent a separate written summary of the reasoning behind the offer, in the form of a cover letter. This not only makes his job easy but also provides a written, dated record. The listing agent does not want to risk this document surfacing later in the negotiation as a surprise to the seller, so be assured that it will be transmitted in an accurate and timely manner. Some examples of rationale summaries are found in APPENDIX J.

Avoid telephone negotiations unless the change involves only one item and is relatively insignificant. Be especially reluctant to negotiate verbally with a distant seller through the other agent. Although it will be easier and faster to proceed verbally, you will have no assurance that the actual seller or decision maker has heard your entire offer and has made a complete and clear response. Your offer was written. Demand that any counteroffer be signed, initialed, and official before you respond. Fax signatures are legally acceptable in many jurisdictions.

MULTIPLE OFFERS

Multiple concurrent offers put the seller in an excellent negotiating position and spell trouble for buyers. If you are representing the buyer, try to independently verify existence of the other offer. Can you determine which real estate firm or agent has prepared the other offer? In some regions there is an “offer registration” process to help you verify that multiple offers actually exist. Your buyer should be afforded time, before the presentation of his offer to the seller, to modify any offer prepared while thinking that he was the only prospective purchaser. Serious reconsideration is in order. Make sure you and your buyer understand the process that will be used to deal with multiple offers. Sometimes there are procedural differences when the seller is a bank or a third-party relocation firm. The effort you have spent in developing your negotiating skills will be invaluable in the event of multiple offers.

As a listing agent dealing with multiple offers, you will focus on maximizing the advantage for your client, at the same time being fair and even-handed with each selling agent, all within the context of local laws and customs. A specific time should be set to consider all offers, and all parties should be advised. Critical questions are whether selling agents will present offers in person and whether each will be allowed to hear the other offers. To the extent that information is power, it is probably better to have agents present their respective offers separately. If the selling agents are not going to present their offers in person, you might have the offers submitted to you in sealed envelopes to be opened in the presence of the seller at the appointed time. Of course you will avoid making counteroffers to more than one buyer at a time; your role is to sell the home only once. If a counteroffer is necessary, set a reasonable deadline for the selected buyer’s response, verbally or in writing according to local custom.

NEGOTIATING NEW HOMES

Although the ideas above will be invaluable if you are negotiating a resale home, some of them might not be useful if your buyer is buying a new home. In this event you are dealing with a professional home seller in a unique market environment. The new home builder knows where the market is and where his products fit into the price spectrum. Otherwise, he would be out of business whether his prices were either too high or too low.

New home prices usually will be less negotiable than resale prices. Sometimes they will not be negotiable at all. But sometimes a builder will include extras at little or no additional cost. A builder can add a $4,000 deck during construction of your home for much less than $4,000. Most builders will help with closing costs by giving a credit. Sometimes the builder’s agent will volunteer information on standard or even possible additional concessions. Contracts should be read carefully by both you and your buyer, but be sure your buyer understands that you are not a substitute for a lawyer.

When your buyer is ready to make an offer, call the builder’s agent and ask if the builder is considering offers. The agent wants to see you again. His job is to bring contracts. Profitability is someone else’s job. If the agent has any chance of making an offer work, you will be encouraged. If he tells you that the list and option prices are firm and there is no negotiation, he is risking your buyer’s business. But you can expect an accurate answer in any case. Everyone will agree there is no future in spending an hour or two on an offer that surely will be countered at the list price.

Especially important with new homes: Ask that your buyer’s deposit be held by a real estate firm or by the closing agent. Real estate broker and closing agent escrow accounts are generally subject to strict governmental controls. In the event your builder has unforeseen irreparable financial difficulties between the time of contract and the closing, your buyer’s funds will be safe. Buying a home that is not yet built requires a degree of faith and trust over and above that required for an existing home. It is especially important to begin the process with a comfortable feeling.

LET’S PRETEND

In any event, new home or resale, you often will not know what is in your client’s mind. While this might be due to your obliviousness, at times you cannot know because your client hasn’t a clue either. Not all buyers and sellers express remorse following conclusion of a negotiation, but such feelings are widespread. As an experienced agent, you can help. When negotiations are nearing agreement, hopefully at the last stage, play this imagination game with your client. Ask him to consider carefully the terms and conditions to which he is about to agree. Remind your client that a contract is binding and that details can be changed only with the agreement of all parties. Then ask him to imagine that the proposal on the table was finalized and that he has had a good night’s rest and it is now tomorrow morning. Will he have reservations about the agreement? Could he have done better? Remind him that tomorrow morning will be too late to make changes. Is he sure he wants this proposal to become a binding contract now? Of course you will be alert to that introspective client who decides to sleep on it. Just advise that there will be no additional information available in the morning, and that a delay can serve only as an opportunity for the other party to reconsider too: So if the terms are acceptable, sign now.

See the author’s article “Avoiding Deadlocked Negotiations” which appeared in the November 1998 issue of REALTOR Magazine through the link at www.davidr.net/agents.htm

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ADDENDUM FOR NEW AGENTS

WHAT’S IT REALLY LIKE ?

Most agents are associated with a real estate firm, the broker. While the broker can be an enormous help, you must view your activity as having your own business. While this book describes the technical aspects of the real estate business, do not forget that running your own business also involves providing for your own retirement; buying health, life, and disability insurance; and keeping records to enable income tax preparation as well as paying your estimated tax on a timely basis. Most agents are independent contractors in every sense of the term. They are self-directed for the most part and are a small business entity in the view of the “tax man.” The state and the broker will provide some important guidelines, but the object is to have your income from commissions exceed your expenses at the end of the year, that is, to have a profit. Divide that profit by the number of hours you spent and you get an estimate of what you are worth per hour. You will have direct control over your time and your expenses, and while you will often wonder whether it is true, you will have effective control over your gross income from commissions. Do not shrink from accepting responsibility for you own success.

Although many residential real estate agents across the country have annual gross commission income of several hundred thousand dollars, a practical limit for an individual without a full-time staff is in the neighborhood of $300,000 (i.e., your personal income before business expenses). This assumes that your organizational skills are superior and you do not need a lot of sleep. Depending on your local market and the commission split with your broker, this means closing a minimum of 40 transactions annually. Contrast that with the fact that the average real estate agent has gross commission income (before expenses) of less than $25,000 per year. To be successful in real estate, it will have to become an integral part of your life, not a job that you work at set or limited times. Real estate success is generally not compatible with anything that resembles a normal family life. Nevertheless, if you love work, thrive on unending challenge, bounce back from insult and adversity, and have what it takes, residential real estate sales can be financially rewarding, personally satisfying, and often just plain fun.

WHAT IT TAKES TO BE AN AGENT

Most states require a certain number of classroom hours as well as successful completion of an examination in order to obtain a real estate sales license. Recognize that real estate licensing is done for protection of the public during one of the most stressful and financially significant transactions that most will ever undertake. It is little wonder that licensing requirements are mainly concerned with ensuring that practitioners understand the important real estate basics, especially federal, state, and local law. Do not expect the state to train you to make money; its overriding concern is that you stay out of trouble. After licensing, you will affiliate with a broker, that is, someone licensed by the state to run a real estate business. Your broker does care whether you make money: In taking you on, he will incur costs that will be recovered only if you are successful. Your broker, like the state, also wants you to stay out of trouble: His license to operate might depend on it. He probably will provide additional training aimed at making you a successful, trouble-free agent.

After all this state and broker training, you will be anxious to get rolling. But be careful... you still have a lot to learn. It will be a great help if other agents in your office as well as the broker or office manager can spend a few minutes to help you from time to time. Watch what the successful agents are doing in the office and try to determine what they are doing outside the office. Offer to help them, even if it is without compensation. Watch and learn, then try to emulate effective behavior. But always question what you see and hear. Think for yourself. You will find that what everybody knows and what everybody does are sometimes rooted in custom and habit rather than in fact and effectiveness.

On the equipment front, you will need a telephone answering machine or a service that forwards messages or alerts you to waiting messages. You will also need a pager, a cellular phone, or both. You can really impress clients with systems that allow them to access you directly anywhere, no messages required. Do not compromise. Today’s communication technology is just not that expensive. Of course you will need a computer, which will be a significant financial outlay. Focus on the tax deduction. These are the tools of the trade.

The key to success in real estate is in caring. That is, caring enough to strive always to do the best for your clients. Among the superior skills you will need, communication ranks first. Listening, understanding, and being able to analyze, simplify, and translate the desired result into effective action. The required technical skills include intermediate math acumen for understanding mortgage loan calculations, map reading and navigational skills for showing property on the road, and especially computer literacy because major markets utilize computerized MLS databases. Any successful agent will also need word processing, spreadsheet, and database capabilities to keep track of ongoing business and expenditures, as well as clients and prospects.

If you are not self-starting and self-directed, forget the whole real estate idea. There is no one other than you who decides when you should work, what you should do, and how you should do it. If you are beginning a career in real estate, you need to be brutally honest with yourself in this regard. If you need a job where someone points you toward the work, this is not it. Finally, our discussion would not be complete if we did not mention that real estate has been rated as one of the most stressful occupations. Good luck.

SURVIVAL

Very few of today’s new agents will still be agents five years from now. The reason for this is that:

Most agents enter real estate understanding neither the time nor the skill requirements. Even those who are told do not believe what they hear.

Few individuals possess a blend of technical skills, people skills, and self-discipline necessary to make a living in the competitive real estate sales environment.

Many aspiring agents do not have the financial resources to live during the initial months or years of little or no net income that are required to build a real estate business from nothing.

It is frequently heard that 80% of the real estate business is done by 20% of the agents. That’s right, the old 80/20 rule right out of MBA school. In reality, it could be that 90% of the business is done by 10% of the agents. In any event, you get the idea. Reflect on how little the average agent earns in a year. So, you will need to plan to excel. Be prepared to spend at least 60 to 80 hours weekly, at least during the first year. Focus on learning, building, doing the right things at the right times, and while you’re at it, on being a person. Your public will seek to do business with a person rather than with a real estate agent. You will truly need to like the work and the sometimes seemingly hopeless challenge. At times you will think that your entire role in life is to resolve an endless series of problems. You will have to deal occasionally with seemingly senseless rejection, which is most disconcerting when it comes from a friend. If you are in this just for the money, get out now.

But you are different, you have read, you have understood, you are resilient, you have the right stuff, and you are ready, willing, and able to commit the time and money required. Take a deep breath, ask yourself one more time why you are doing this, and if you get a reasonable answer, then go for it.

CHOOSING A BROKER

The choice of a real estate firm and office with which to associate is a critical decision. The following discussion will be of value to new agents as well as those considering a switch. The special considerations for the new agent are the extent of formal and informal training available and most important, the name recognition and favorable reputation of the broker. The importance of the training consideration is intuitively obvious. Is telephone duty freely available? Is it mandatory? Are farm areas allocated or restricted?

The importance of the broker’s reputation is critical to the new agent’s success. A new agent competing for buyers and sellers with experienced agents will have to bridge a credibility gap. Most sellers want to hire an agent who has experience. How does the public know that you have what it takes to do the job? A strong broker with a good reputation will be invaluable in helping to answer the question. Larger brokers tend to support more training, are very concerned with their reputation, and almost always have the strongest name recognition. So, new agents, seek out the leader... number one or at worst number two in your area. Look for a large active office that says “success” with friendly, helpful agents who are busy enough to welcome your help. It is a simple choice.

Of course monetary details should be compared and considered. Should you associate with a 100% brokerage where you are paid the entire commission and pay flat fees and occasional special assessments to support the office and appurtenant services? Some brokers will offer the traditional arrangement as well as the 100% option; it is your choice. Dust off your spreadsheet analysis skills, Lotus or Excel. In any event, what is the commission split? How much of your commission does the broker keep? Must you pay franchise fees or an advertising assessment? What does the broker provide? Are there any benefits? Providing health or disability insurance frequently is viewed as being inconsistent with an agent’s independent contractor status. To what extent will the broker bear the cost of your periodic mailing program? What expenses are for your account? Are there occasional assessments for advertising, insurance, et cetera? Is training provided free? Business cards? Signs? Lockboxes or keysafes? Will the broker pay your Association dues? MLS fees? Many of these items are small potatoes for the successful agent, so don’t get hung up philosophically. In major markets most brokers will be reasonably competitive with each other. It is likely that there are more important distinctions in choosing a broker than the monetary ones. Be sure to review a copy of any agreement of association that you will be asked to sign.

The real monetary issue is where your business will come from. Do not expect any broker to bestow unlimited referrals of ready, willing, and able buyers and sellers. In addition, it is rare that call-ins or walk-ins will provide a meaningful source of business. You will have to generate and develop your own leads in order to make it. You will have to build your business by constantly learning and adapting. Is informal training available? Are there super-successful agents in a certain office from whom you can learn? Is a support staff available to assist in accomplishing routine and repetitive tasks? What is the broker’s philosophy, target market, and atmosphere? Large broker? Small broker? Do you fit in? Will a large broker help you attain your goals or will you function more efficiently and effectively in a small broker environment? Is there an advantage to being centrally located or being located in the perceived center of power or influence?

An interesting exercise is to imagine yourself as a buyer or seller trying to locate a particular real estate broker in the phone book, white pages as well as yellow. Does one broker stand out? Is another broker trying to economize? Call the office that you are interested in and get directions. Who or what answered the phone? Was it a pleasant experience? Would you want to share it with your clients and prospects? Then try to drive to the office. Is it easy to find, well marked, and in a convenient and safe area? Is there plenty of parking? Are the facilities adequate and pleasant for meeting clients as well as for working? Are there computers; software; a collating, stapling, full-color copying machine; digital cameras and scanners? By the way, what are the broker’s hours of operation? Is the office open on weekends? A silly question? It is hard to believe, but there are brokers that choose to be closed at peak business times. Buyers and sellers will tend to avoid them and so should you. If you cover a wide area, a broker with multiple offices can be handy: No telling when you might need to stop in for a rest, a desk, a form, or to use the computer. Those who are strong listing agents will do well to consider an office whose policy demands that all specific property inquiries be referred to the listing agent.

Quantifiable differences between brokers or various offices might be unclear or negligible. Your feelings could be the best indicator. Try to talk with some of the agents as well as with the broker or manager. Determine whether there is an atmosphere and spirit conducive to success as well as some sense of direction. Where are these people headed? Do they seem to have a mission? Obtain a recent calculation of the annual production of the average agent in the office and translate this into a gross income estimate. Is this acceptable to you? If no broker seems satisfactory, you ultimately will have to become a broker and open your own office. Assess the risks as well as the opportunities, and forge onward. Good luck!

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APPENDICES

(Most Appendices are omitted in this Web Edition.)
A - A MARKET INDEX

B - MARKET VALUE ANALYSIS

C - SELLING PRICE / ASKING PRICE

D - TYPICAL PERSONAL LETTERS

E - RENT OR BUY ANALYSIS

F - HOME SELECTION CHECK LIST

G - HOMES ON THE MARKET

H - HOMES SOLD

J - RATIONALE EXAMPLES

K - GAIN A STATISTICAL ADVANTAGE

L - AVOIDING DEADLOCKED NEGOTIATIONS

APPENDIX A

A MARKET INDEX

The supply of homes can be combined with the demand for homes into a number that is an important measure of whether there is a buyers’ market or a sellers’ market. This market index, called the months supply of homes, is calculated by dividing the number of homes on the market during a month, by the number of homes sold in the same month. A number greater than 6.0 indicates that buyers have the upper hand. A number lower than 4.0 favors sellers. A number less than 1.5 is indicative of a “hot” market.

Note: The data above was developed in one typical major market area. Do not assume that your market is exactly the same. Obtain your own local data. You might be the only one with the real facts.

There is one important calculation that can be done easily. Develop information for all properties in any subdivision, condominium complex, or area that your buyer is considering. Count the number of homes on the market. Divide this number by the number of homes sold in the last year for the same area. Multiply the result by 12 and you will have a rough approximation of months supply for that market segment. Compare this with a similarly developed overall figure for your market. This exercise will provide a rough indication of the current popularity of the area being considered by your buyer relative to the overall market.

APPENDIX B - MARKET VALUE ANALYSIS (omitted)

APPENDIX C

SELLING PRICE / ASKING PRICE

The selling-price-to-asking-price ratio is probably the most important single statistic available about today’s market. It is simply the percentage of the final asking price that is agreed in the contract. When you are working with a seller, the selling-price-to-asking-price ratio is invaluable in determining what the asking price should be, once the fair market value is known. The ratio tells how much “fat” is required in the asking price. When you are working with a buyer, the selling-price-to-asking-price ratio provides some indication of how much can be negotiated off the average asking price. You need to know this ratio so that your buyer’s expectations are kept within a reasonable range and so that time is not wasted viewing properties that obviously are priced too far above his price limit.

Sellers and buyers alike are usually surprised to find the ratio so high. It is estimated to be around 95% nationally. The number is used here for illustrative purposes only. Another way to interpret a 95% selling-price-to-asking-price ratio is that the average home does not obtain a viable offer until it is priced within 5% of fair market value. With the price too high, a seller will have no offers to negotiate, will lose hope, and become anxious.

A very valuable use of the selling-price-to-asking-price ratio is as a measure of your performance. Show your clients that you care: Be sure to keep a record of your personal transactions to compare with your local average. If you engage in buyer-brokerage, keep a separate tabulation of your accomplishments in this arena. Just think what a great self-promotional tool it would be if your personal average when working for sellers were greater than the local average. Likewise, what if you found that, when working for buyers, you obtained a greater discount off the asking price than is customary. WOW!

To verify the current selling-price-to-asking-price ratio, randomly select 200 or more recently sold homes out of your MLS database. Data can be limited by style of home (e.g., detached) or price range, in addition to contract date and geographic constraints, but this probably will not matter. It is most important to have 200 or more individual sales. Divide the total of all the selling prices by the total of all the asking prices to find the selling-price-to-asking-price ratio.

The ratio calculated might be slightly lower if only expensive homes are included, and slightly higher for less expensive homes. What about vacant homes? Perform a calculation tailored to your own needs.

APPENDIX D - TYPICAL PERSONAL LETTERS (omitted)

APPENDIX E - RENT or BUY ANALYSIS (omitted)

APPENDIX F - HOME SELECTION CHECK LIST (omitted)

APPENDIX G - HOMES ON THE MARKET (omitted)

APPENDIX H

HOMES SOLD

The number of homes sold, or more specifically, the demand for resale homes, is an important factor in determining how difficult it is for buyers or sellers. Often home buying activity is greatest in March. Who would have guessed? Home buyers who can control when they buy should be active in the market between September and December. During this period, seller price flexibility should be at a maximum and competition from other buyers is at a minimum. Spring buyers, on the other hand, are most likely to face competition for the available inventory from other buyers. Bear in mind that most sellers believe that the peak selling season is May through July.

Caution: Homes sold information in the media can easily be two to four months out-of-date: The media reports frequently are based on closings, not contracts entered. Even your local Association might be reporting closings instead of contracts entered. Be alert to this time lag. For example, the reporting of strong “sales” (closings) for June (usually reported in July or August) is probably based on contracts entered in April. Other agents will be content to quote the published figures. Find or generate the correct and timely data for your own market area and use it to your advantage. The rest of the world will catch up some day, but for now, you will be one of a very few with the important information.

APPENDIX J - RATIONALE EXAMPLES (omitted)

APPENDIX K

GAIN A STATISTICAL ADVANTAGE
Click the link below for the author’s article which appeared in the April 2000 issue of “REALTOR Magazine” (ISSN 1522-0842) which is published monthly by the National Association of Realtors.
April 2000 - Statistics


APPENDIX L

AVOIDING DEADLOCKED NEGOTIATIONS
Click the link below for the author’s article which appeared in the November 1998 issue of “REALTOR Magazine” (ISSN 1086-8054) which is published monthly by the National Association of Realtors.
November 1998 - Negotiating

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