Several times recently I’ve been in the position where I have either turned down listings or not “gotten” them because I’ve refused to list them too high. While we may be in a bizarre competitive ”Buyer’s market” in much of the Phoenix market right now, buyers still aren’t willing or able (we’ll talk about appraisals later) to pay too much for a house. Sometimes, I’ll if push comes to shove I’ll allow a seller to list the property higher than I think the market will allow for as long as we have an automatic price reduction in place. Now, all you purest REALTORS who are up in arms that I just said that, I do know that the first couple of weeks is when we’ll get the most showings and activity and I make sure a seller is fully aware of that. But if they still persist and I think more reason can be seen later I’ll allow for it.
So once the house is listed how do we tell if a house is over-priced?
That’s when I use what I call the Rule of Tens.
- If the house is on the market for 10 days with no calls or showings…it’s over-priced
- If the house has 10 showings and no offers…it’s over-priced
That’s it.
Plain and simple…my Rule of Tens.
On a totally personal note: 10 is my youngest daughter’s favorite number. Her name is KiersTEN and this year she’ll be 10…on 10/10/10.
I thought I’d share with you a bit of negotiation strategy that just helped my buyers secure the property they wanted with 5 other offers on the table…
Like it or not each REALTOR has their own “bag of tricks” (if you will) when it comes to negotiation tactics. Now, I don’t really mean *tricks* as in the bad, unethical form of the word but rather negotiation tactics which have been found useful and advantageous to representing the buyer or seller in a transaction. With the competitive seller’s market that has reared its ugly head in the lower end market lately I have found it useful to pull out the ESCALATION CLAUSE from my bag. Dictionary.com defines ESCALATION CLAUSE (sometimes called an escalator clause) this way:
| a provision in a contract calling for adjustments, usually increases, in charges, wages, or other payments, based on fluctuations in production costs, the cost of living, or other variables. |
For our intents and purposes it works slightly differently. Here’s how I might define it:
a provision in a purchase contract allowing for incremental increases in the offer price, up to a predetermined amount, based on and evidenced by competing offers.
Here’s how it might look:
A house is listed at $250,000. Mr. & Mrs. Buyer would really like to pay $245,000 for it but they are willing to pay up to $260,000 for it. They offer $245,000 and use an ESCALATION CLAUSE that says something like this, “In the event of a competing offer the buyers will pay $1000 over the highest offer’s net up to a purchase price of $260,000. In the event of an escalation, seller to provide proof of competing purchase contract with LSR (that’s our pre-approval form here in AZ) or Proof of Funds. Seller represents and warrants that competing offers are true and valid offers.”
Without an ESCALATION CLAUSE Mr. & Mrs. Buyer do one of two things: they automatically increase their price to the highest they are willing to pay for the property OR they offer less than they might actually pay and gamble on what the other buyers are offering.
With an ESCALATION CLAUSE Mr. & Mrs. Buyer are able to offer what they might really want to pay for the house. Then they use the ESCALATION CLAUSE to offer $1,000 (or $2,000 or whatever) over the highest competing offer up to their maximum.
There are a couple of things to keep in mind when using ESCALATION CLAUSES:
- Is there any way to really tell if the listing agent or seller is being truthful? No, probably not. There are liars and scumbags that exist everywhere. Plain and simple, we do the best with what we can so make sure you are comfortable with the top price that you offer. You may be escalated.
- In my experience banks won’t deal with them.
- Unless you remove it the appraisal contingency still exists so the property must appraise for the final price.
There you have it! ESCALATION CLAUSES…the little gem that helped my buyers get the house they wanted and saved them $4,000 in the process. I’d love to hear your thoughts and experiences regarding them.
Photo Credit: Stig Nygaard, Creative Commons
- Are We at the Bottom Yet? Why Timing Doesn’t Work
It happened again today…and yesterday for that matter. I inevibility get the question, ”What is the Phoenix market going to do?” and that is usually coupled by “Are prices going to continue to go down?” What they REALLY mean is, “I want you to tell me the exact moment that the prices are at their lowest and then I want to buy my dream home.” This way of thinking is flawed for a couple of different reasons:
- You know the saying “Hindsight is 20/20?” It is a common saying for a reason and it pertains to real estate markets, too. It takes three months of “different” activity to create a trend. The problems is that we won’t know that we’ve hit bottom until we are already three months past the bottom. Look at this diagram:
- Different areas and communities bottom out and trend a little differently. Did you know that houses are flying, FLYING off the market in Queen Creek? They are cheap but it’ll take some doing to get one that you want. Multiple offers, over asking price, cash buyers. Sound familiar? My experience recently with a couple of clients out there…20 houses, 4 offers, 1 house (as a back-up offer when the first buyer couldn’t get it done).
- Interest rates play a role, too. Would you rather have a payment on a house that: a). you got for $10,000 less or b). the interest rate was 1% less? HMMM??? Not sure? Food for thought…
- Will you be emotionally invested in your home or is it an investment that you have no real ties to? Even with the quantity of homes on the market right now finding that perfect one is still challenging for some. And what if you lose it by waiting for the price to come down an extra couple of thousand dollars? It’s never fun for anyone (least of all your Realtor) when we have to live with “the one that got away”.
Here’s another diagram for you that depicts the cyclical nature of markets.
My wish for my clients and all the rest of you out there is that we would focus on the safe zones. Is it a safe time to buy? YES!!! Might the market decline a little still? Sure.
Might we be in the Lucky Zone?
