Wednesday, March 18, 2015

Pigs Get Fat | California Tactics in Boulder Real Estate

by Osman Parvez

Heads up sellers! 

California style bidding wars are also bringing California style negotiation tactics into the Boulder real estate market. We've run into the following situation several times in recent weeks.  


Here's how it plays out:   

Step 1. Buyer makes an absurdly high (usually cash) offer. Other buyers are blown out of the bidding war or simply won't pay that far ahead of the comps. Seller and listing agents are shocked, but pretend to be otherwise, and accept. Buyer's earnest money goes into an escrow account.   

Step 2. Now that the property is tied up, buyer's agent uses the inspection objection and resolution to negotiate an absurdly large discount. If buyer can't find a real inspector to play ball, they use a bogus inspection (example). Inspectors are very poorly regulated and certification is not required in Colorado. If the negotiated discount doesn't drive the price low enough, buyer terminates and gets their earnest money back.   

Rinse, repeat. 

Understand the Negotiation Leverage

Sellers, beware. Once a property is under contract, leverage in the negotiation mostly falls to the buyer - yes, even in this inventory deprived market. Why? Because the seller bears the risk of a tainted listing if it returns to market. The seller pays for wasted time and incurs holding costs. The seller has few options to exit the deal without a buyer default because that's the standard position in the Commission approved contract in Colorado. At most, a buyer default only risks earnest money (unless they choose § 21.1.1. Specific Performance). 

Ever heard the phrase, "Pigs get fat, hogs get slaughtered"? If the offer is too good to be true, you're probably looking at a less than earnest offer.

Want to fight back? Smart listing agents use multiple offers to reduce or remove buyer contingencies and utilize Additional Provisions to claw back leverage
How? If you're thinking about selling your home, call me. 

Note to fellow agents: Boulder is small real estate market. The vast majority of deals are done by a handful of agents. If your buyer is playing this game, your reputation is on the line. Negotiating in bad faith will cost you and your future clients down the line.   

California love...







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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

Image:  Andy L

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