How Buyers Can Walk in the Shoes of Sellers and Listing Agents

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It was Starbucks today.  Sometimes it's a living room.  Other times it's their favorite restaurant for lunch.  Real estate, especially with prices like we have here in Silicon Valley, involves some critical decisions that are sometimes stressful to think about, so I try to help my clients feel more at ease any way I can.

That means sitting outside with a cup of java, for example, isn't all that unusual.  There's something about being across a desk or meeting in a conference room under florescent lighting that makes people more tense than less. 

Today was an especially important day.  We were submitting her offer tomorrow.  We anticipated multiple offers but didn't know how many there'd be.  This home was in an extremely popular downtown area and the last offer we'd submitted here wasn't the one out of six. 

Obviously, she was a little disappointed, but we talked about how much she was willing to pay, and the possibility that someone else would just be willing to pay more for that piece of Silicon Valley.  You can't predict or control what other people are going to do, but she was satisfied that she gave it her best effort based on our preparations and analysis.

Since we wouldn't know how many offers there'd be until tomorrow, I prepared two different offers for her to sign.  We'd submit the one with a higher price if there were three or more other offers.  She knew the answer to, "How much would I pay?" --- we'd done the research, analyzed the comparables, and decided what was really important to her ---  but the answer to "How much should I pay?" could only be found by walking in the shoes of the seller and their listing agent.

Getting Information From the Outside, Even If It's Imperfect

It's a question almost as common as saying hello and many times it's just as informative.  The answer may be simple, but you might hear different takes on the same situation.  One time, I figured out the answer was, "The seller's business hasn't been doing that well since his biggest customer standardized on another vendor, so instead of taking a second mortgage, he's going to sell his home and buy a smaller one" --- when the answer I got was, "The family is upgrading to a home in a different neighborhood."  

A listing agent's responsibility is to the seller and no matter how straight-forward that agent is, volunteering details that hurt their client (unless its disclosure is required by law) is not on their priority list.  My clients understand how that works, so I think of the question, "Why is the seller selling?" as an icebreaker.  But if the listing agent is signaling the terms they want by giving us more detail than they "have to," I recommend my clients see if this answer is consistent with their other answers.

Some Simple Questions That Get Straight-Forward Answers

1)  "What is the seller looking for?"  Simple and to the point.  I know I'm working with an agent who's done their homework when they can tell me what their seller values and how their seller prioritizes price, contingencies, closing, and other options like rent-backs.  With this information, my clients can more easily see whether their willingness and abilities match the seller's wants.

2)  "Is there anything I should know when talking to my client about your listing?"  Most agents are very forthcoming with important facts like whether they're related to the sellers or if there is something abnormal about the property, like an easement or damage.  Sometimes the agent will say to read the disclosure packet at this point.  Reasons for this vary.  (See the article Why the Perfect House Wasn't So Perfect.)

3)  "As the listing agent, if you could change one thing about the property, what would it be?"  Many agents take a moment to let me into their thought process.  Some mentioned they wished the seller would have staged the home, others have talked about how the skylight reflects off the mirror in the hallway blinding people at open houses.  Some say with confidence, "Absolutely nothing."  The irony is that --- most buyers being risk averse --- it's easier to assign a higher price to a home whose flaws (and nitpicks) are known than to one which has question marks.  

4)  "Are you representing any offers yourself?"  Surprise and righteous indignation to a quietly formed, "yes".  Answers range the gamut, but if the listing agent or their company is also representing offers, my clients may need to compete with an offer price that's artificially higher because of a dual agency discount.

Walking in the Seller's Shoes

Some information, though, doesn't depend on points-of-view or whose side is being represented.  There is an art and a science when it comes to determining offer prices, and by walking in the seller's shoes --- and combining that information with our analysis of how this Silicon Valley home meets their needs and what they're willing to pay --- my clients gain a better understanding of what to offer and how the offer will be received.

Factors Both the Buyer and Seller Consider

1)  How Much the Seller Paid.  When a seller wants to turn over real estate not long after they purchased it, the key factor in their pricing decision is how much they paid, what their frictional transaction costs are going to be, and if they can recoup any of their taxes and mortgage costs.  That doesn't mean my clients should consider the sum of those factors to be the price.  After all, the seller could have overpaid.  It does mean that the seller would be more willing to part with the property if those factors are considered.

2)  Comparables.  It's not a surprise that real estate is highly symmetric.  Sellers who understand how buyers operate will sell their homes faster and for more money.  Likewise, I do a comparative market analysis (CMA) on properties where my clients are considering an offer.  My clients get a good idea of where the sellers are coming from (and how realistic their pricing is) by comparing the Silicon Valley real estate we believe to be most relevant to the examples the listing agent believes are the most relevant.  Being on the same page is a good sign.

3)  Driving the Neighborhood.  Take two identical homes.  Put one across the street from low-rent apartments and the other in the middle of similarly-priced houses.  It's not hard to see that external factors have an enormous influence on housing prices.  When using comparables, it's easy to just look at square footage and miss comparing neighborhoods.  And many sellers are so used to the "quirks" in the area, they don't even notice them and expect their home to be priced like more attractive ones.  I drive the neighborhood with my clients, many times to check comparables, so we have a context of what the "right" price is.  (See the article Not Overpaying When Buying a Home.)

4)  Asking Price.  The asking price is a signal, not a starting point --- it's an opinion that the seller provides as to how my clients should think about making an offer.  In parts of Silicon Valley, it's a tool that, when effectively manipulated, produces multiple offers above the asking price itself.  It can be a smokescreen that gets people to compare properties that really aren't on the same level.  (See the articles The Price of the House Across the Street and Its Long Shadow and How Identical Properties Are Apples and Oranges, or Just Apples.)

My clients can act with confidence and without regrets because we know their reservation price --- how much they're willing to pay --- then adjust their offer terms based on the analysis we've done and situation at hand.  "How much should I pay?"  That's why we had two offer packets