Negotiations

Who would actually pay price the builders are asking?

December 17, 2007 by Spencer Barron

I noticed that many builders have inflated their abstract pricing on their inventory in order to offer better incentives and offer ‘dramatic’ price cuts so that buyers feel like their getting great deals when they buy a new home.

I recently sold a home in the Village at Centennial near the Denver Tech Center where the builder was offering the same home at $505,000 even though they hadn’t sold a home like it for more than $450,000. In fact, the majority of the similar home sales were around $425-$440k. This method has helped the builders maintain their net in the face of foreclosures appearing on the market. In fact, it actually helps keep the lenders from pricing their homes to low. The BPO (Broker Price Opinions) usually include price of homes that are currently for sale. So even though the foreclosed homes are trashed out, they are priced just under what the builder will accept new. And of course, the buyers leave like they’re getting a great deal.

I talked to the sales rep in the office about their current inventory and he admitted that he had the ability to move as much as 15% off of the list price depending on the ‘read’ he got off of the customer. That’s the sort of thing that doesn’t bode well for the current homeowners that may have paid too much. Especially when they get in a need to sell situation like a job change. It also tells me that most unrepresented buyers are like deer in headlights when they walk into the sales office.

Funny part is, most buyers still fall for the ‘base price’ system where they hook you with a lower price while showing you a better product in the model. They then either raise the price or act like their giving you a deal by offering you incentives in upgrades.

When a builder is offering $50,000 in upgrades, it makes you wonder, how did they arrive at that number?

Filed Under: Denver Real Estate, foreclosures, housing bubble, Marketing, Negotiations, pricing

Dealing with contractors for Inspection Objections – Knowledge is power

October 17, 2007 by Spencer Barron

I had a listing this week where we went under contract as my client was preparing to leave town on his honeymoon. Instead of ruining his honeymoon, I had the pleasure of meeting contractors with the prepared solution (provided by an electrical engineer) while he was gone and getting certain inspection items done in a timely manner. Now I must say, this isn’t my first rodeo. I know what things cost. It truly is a wonder what a range of bids you will get for the exact same job.

I have one rule I use to quickly guesstimate the value of service work so I can ballpark the cost. It’s a bit general but it seems to work well….

Filed Under: Denver Real Estate, Negotiations, pricing

Why you won’t get feedback on all showings

February 5, 2007 by Spencer Barron

1. Most agents won’t respond to the email request for feedback because they are just too lazy.

2. Most agents won’t respond to any messages that are left on their phones for feedback because they just don’t care.

3. Most agents show more than one property in a day. So if they don’t respond in the first day or two, they probably don’t even remember any feedback.

4. If a buyer’s agent has an interested client, it’s not in his client’s best interest to give feedback, as it could compromise a future negotiation.5. Most feedback will only be negative, since if they really like the home it would fall under number 4. So only considerate agents with some free time and an uninterested client will give feedback when there was something definite their client did NOT like.

When you don’t get a call back you can assume:

1. They may be interested but are not certain about writing an offer at this time and don’t want to tip their ‘hand’.

2. The property didn’t make any impression on them, or they just don’t remember it among the other homes that were shown.

3. The agent that showed the home is incredibly lazy and inconsiderate.

Less than 1 in 3 agents will actually give feedback. Any agent that claims they get feedback for every showing is either lying to you or making it up. I make a reasonable attempt to get feedback, but as a rule, I won’t hound agents to get me feedback unless it’s the very first showing. It just makes you look desperate to agents that may actually have a buyer. Besides, if you did your homework, there really isn’t a whole lot you can learn from feedback except things to support a future price drop.

Technorati Tags: Denver, Real_Estate, Realtor, Feedback, Home_Value

Filed Under: Denver, Denver Real Estate, Negotiations, pricing, Realtor

Money Magazine – Buyer's agents co-ops and how to get a better deal buying or selling a home.

January 17, 2007 by Spencer Barron

Money Magazine - Is your Realtor on your Side? How about that. I actually got quoted in Money Magazine. Albeit my statement appears a bit truncated, it is not incorrect. I’m quoted as saying “People offer higher commissions because it works”. I’ll stand by that. Offering a higher commission to a buyer’s agent does help sell your home. It doesn’t necessarily help you get a better price but it will get you slightly more traffic. I’ll explain, but first, this is what I’m talking about. The February 2007 Article entitled “Is your Realtor on your Side?” by Stephen Gandel discusses the value of having a buyer’s agent. More than that, it actually gets into the morality of the strategies some homeowners and builders are using to sell their homes.

Steve’s seems to be trying to get his fingers on the pulse of real estate but can’t seem to get past the waiting room. I spoke with Steve on the phone after he wrote an article in the December issue of Money Magazine, “Best Ideas for 2007″. I had disagreed with him on many of the assertions he had made regarding strategies buyers could use to get a better deal. To be fair, I agreed strongly with his suggestions for sellers. In our conversation, he admitted that he ‘doesn’t have access to the same information that agents have’. Thus he has to “rely on other people” in order to write these real estate articles. He’s essentially trying to analyze data from hundreds of markets and collate that into advice that could be applicable nationwide. He’s not an expert in the sense of personal experience but rather is forced to rely on so-called experts from across the country to give him accurate information regarding the stories he researches in order to make the valuable conclusions. I’m honored that I can fall into that category. Unfortunately, I disagree with some of the advice in the latest article. It seems the article plays more to what buyers would want to believe rather than the truth about what will help get you a better deal. But then again, who knows what agents across the country tell him. This is how it works in Denver and what I disagreed with…

(If your not sure what commissions are and how they work, check the end of this post)

Why would offering more money to a buyers agent work? Because brokers want to make a living and will be more likely to show your place in among others of the same type. This is often true in the case in newer condos or builder-owned homes where there is often a lot of competition. If you have ten other condos in your building that are essentially the same home at the same price, and then there are lots of other condos in other buildings, most agents want to narrow down what building their client wants before showing them everything that is available in one building. There are literally hundreds of condos that are similar. Do you want to go view all of them or would you like someone to help narrow it down? Most people would like some help here. Well, if I have to pick which one to show first, and they appear all the same, why wouldn’t I pick the one that pays me better, especially if they’re are all priced the same? That’s just good business.

Unfortunately for sellers, this doesn’t seem to bring them a higher price, it just gets you more showings and helps to sell your home faster. From all the home sales I analyzed to prepare my information for Steve, I noticed that of the homes that had higher commissions sold slightly faster than homes that didn’t. It’s not obvious when looking at homes offering co-ops slightly higher than the average because often that money is being offered to get brokers to overlook the obvious problems with the home and bring someone by. While it might not have been as clear in the ‘slightly more’ group that higher commissions bring faster sales, it definately becomes clear in the ‘slightly less’ group. When you offer less than the average commission, there is a marked difference in time on market.

I took a look at this and noticed that time on market goes up immediately when offering even slightly less than the average co-op. Days on market increased by 12% when agents offered less than the average co-op. This can affect the sale price since a long time on the market is viewed poorly. …

Buyer's Remorse – They accepted my first offer!

January 11, 2007 by Spencer Barron

Happiness in homebuying for most people is not about whether they got a great deal. It’s about their perception of how great of a deal they got. The best deal in town will be passed over because of a buyer’s inability to get the seller to come down slightly in his price. Ego gets in the way of happiness. Sometimes though, even when you “win” in getting a home for the price you want, you’re still not happy. Buyer’s remorse can set in, causing the buyer to second-guess their decision. I see this most often when you have your first offer accepted.

Psychology calls this counterfactual thinking. For example, bronze medalists at the Olympics are usually happier than silver medalists. Bronze medalists are happy just to get a medal while silver medalists will forever ponder what might have been. Studies (Dissatisfaction of having your first offer accepted - PDF) have been done that accurately predict that if the first offer is accepted, the buyer will be less likely to be happy with the outcome. They feel they left something on the table….