Sellers have plenty of reasons to be emotional during the final negotiation. They are undergoing change, making huge decisions, and dealing with a transaction that probably involves a major, if not the most important, investment they own. Your role in this environment, and the key to your success, is twofold: Be prepared and protect the seller at every step along the way.
Be Prepared
By carefully preparing before you present a buyer's offer to your clients, you can shorten the meeting, craft a better counter offer, keep seller emotions in check, and focus your clients on the next important steps.
Follow this advice:
First and foremost, remain calm no matter how high or low the offer starts.
Go through the buyer's offer carefully and note any key issues that need addressing.
Flag any contract points that merit your seller's attention, so you can easily reference them during the meeting. If you're faxing the document, also summarize the key points on the fax cover sheet. This way your seller won't dig through every line of the contract. That's your job!
If your meeting will take place by phone rather than in person, fax the offer to the seller within minutes of your conversation. If your phone conference is set for 2pm have the documents faxed sometime between 1:30 - 1:45pm. You don't want the sellers to spend a few hours brooding if the price is low, and you certainly don't want them to call you with questions, concerns, and panic attacks half a dozen times prior to the scheduled phone conference.
Protect the Sellers at All Times
The worst thing that can happen to a seller is to have the transaction fall apart a few days before closing. By then they are emotionally invested in another property. They've already made plans to move. They're excited about the future. And then, wham, everything falls apart and everyone -- you and they -- lose market time, marketing momentum, and a considerable investment of time and money.
In the aftermath of this kind of disastrous situation I've had the chance to look at the contracts that were written. I've seen examples that make me cringe, where the Agent didn't protect the client, and all parties paid dearly for the mistake in the end.
Even the most thorough approach will result in a broken deal once in a while. By taking these precautions you can keep disasters to a bare minimum:
Require prospective buyers to deposit enough earnest money to secure your client's position. Set the earnest money high enough to make it difficult for the buyer to purchase another home if they walk from the deal once all contingent conditions are satisfied. You may be thinking that this advice conflicts with your objective to achieve a win/win outcome. In fact, it simply requires buyers to uphold their end of the deal or sacrifice their deposit. Remember, you are representing the sellers, and protecting your client's interest is your fiduciary duty.
Not many buyers will walk from a deal when an amount like $5,000 at a minimum is at stake. Yet many agents allow initial deposits as low as $1,000 or $2,000 to squeak by. The rationale is that the buyers won't have the cash available to make a higher deposit, but if the buyers need $15,000 to close in 30 days, depositing $5,000 upfront won't kill them.
If necessary, consider accepting part of the deposit in the form of a short-term note. Only do this if there is no other way to increase the earnest money. If available cash really is a buyer issue, at least get a few thousand dollars deposited immediately and make arrangements to receive the balance within a few weeks, securing the latter portion with a note. Never secure the initial earnest money with a note for more than 24 hours. If you accept a note for the additional earnest money, be sure it's redeemed within a stipulated short period of time.
Do not accept notes redeemable at closing. If the closing never happens, your seller will never be able to redeem the note. It becomes a worthless piece of paper, since the transaction never closed and technically the note never came due. Even legal action won't fix this Agent mishap.
Another area of caution is the financing. Require the buyer to provide proof of loan approval with no conditions. You want proof-positive that the buyer can and will perform within two weeks of acceptance of the offer. Lending institutions are notorious for writing loan approval letters with conditions or weasel clauses that protect both the institution and the buyers. Make it clear on the counter offer that no contingencies or conditions will be acceptable after two weeks.
The prevailing rule in seller protection is to tighten the language every step of the way. Remember at all times that your job is to protect and secure the interests of your client, the seller. The broader the language you allow, the greater the number of interpretable clauses -- familiarly known as weasel clauses – make it into the transaction, each one endangering the level of security you can provide your client.
Published: October 24, 2012
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