At least fake that you like the other side of your negotiation.

Today’s chaotic market presents pricing, communication, marketing and mortgage challenges that vary with each transaction, each listing, and each buyer. However, one often overlooked component common to every transaction is the lost art of negotiating. I call it a “lost art” because many sellers focus solely on marketing and advertising when choosing an agent, and buyers focus heavily on finding the perfect finishes in the perfect house. These, however, are only small components of the selling and buying processes, and the number of sales that fall apart during negotiations has risen drastically in today’s market.

Sellers are still offended by very low offers and sometimes refuse to open discussions with the buyers. Buyers continue to believe that every list price is outrageous, and that every seller is desperate to sell. Sellers who won’t actively engage the buyer presenting a low offer reduce the value of effective negotiating to zero. Buyers who stop talking when a seller makes a weak counter offer do the same. However, the deal is not dead until each party has given their absolute bottom line.

Aggressive, fact-based negotiating is the key to keeping communications open and bridging the buyer-seller gap. Information and experience are critical to successful negotiations. On both the buy and sell sides it is the agent’s job to provide useful data and a meaningful analysis upon which to base discussions. The CMA, or competitive market analysis, is prepared by both the buyer’s and seller’s agents as the basis for determining a fair market value for the property.

While data is critical, negotiating is still an art, not a science. Experience is the only way to master the art, if that is even possible. Predicting the other side’s next move, target sales/purchase price, and other triggers is at best an educated guessing game, since each transaction, participant, and situation is completely unique. However, guessing is far more effective when it based on a useful data and extensive experience earned from hundreds of prior negotiations.

While it is impossible to accurately outline the flow of each real estate negotiation, there are a few points that are worth mentioning:

1. Engage every buyer or seller despite the unattractiveness of their current position. It is only their final position that counts. Negotiate until you know that final position.
2. While extremely difficult, try to keep emotions out of the discussions. Emotions only taint the discussions. You do not have to like the buyer or seller, but you will get further if you play nice, or at least fake it for the sake of the negotiation.
3. You must give a little to get a little. Offending the other side may irreparably damage discussions, causing the other side to back into a corner. Getting them out of the corner is more difficult than giving a little.
4. Know your data. Fact-based positions are hard to dispute. Do not be afraid to provide your CMA to the other side if it bolsters your position. Comps are public information, but each party may be looking at different comparable properties for different reasons. Make your reasons clear and listen to the reasoning of the other side. You can always dispute their data if it is incorrect.
5. Find an agent you trust. Negotiations will happen between the agents, with your input and direction, but not directly between buyers and sellers. Do not take offense if your agent initiates discussions with questions about your position and approach unless they seem to be just trying to “get the deal done.” He/she may pose questions that help him better present your position to the other side. Conversely, do not be afraid to question your agent’s approach if you do not feel right about it. While they are the voice, you are still the buyer/seller. They are ultimately there to advise you, not make decisions for you.

So what is the bottom line? Negotiations are a critical factor in the real estate buying and selling process. Find an agent with proven experience, either through a referral or by interviewing him/ her extensively. Ask them how many of their transactions have fallen apart during negotiations, how many times their buyers’ homes have appraised for more than the purchase price, and their years of experience. Discuss their offer/negotiating approach, and switch agents if you become uncomfortable during the listing or search process, before negotiations begin.

Comparing Apples to Apples

I recently spoke with a long-time client who is considering refinancing their home to take advantage of today’s low interest rates. The client had called her mortgage banker to start the process. Her northwest Chicago home was purchased in May of 2004 for $590,000, not quite at the peak of the market, and several years before the crash. During the conversation, the banker did a “valuation” of the home using a very popular consumer-friendly website, and determined that the home had lost $250,000, or roughly 43% of the 2004 purchase price. While my client had anticipated a drop, she panicked at the $250,000 quote and immediately called me for confirmation. After an evaluation of MLS data, I estimated the value of this home at a minimum of $550,000, or 93% of the 2004 purchase price.

On-line Valuation Services are Riddled with Problems

The problems with the mortgage banker’s so-called “valuation” are numerous. Many of the consumer-friendly websites, whose names are commonly thrown around as solid sources of accurate information, use mysterious valuation formulas based on comps chosen solely by the computer. There is no human evaluation of the information before a number is spit out to the homeowner. If you use these sites for valuation purposes, keep in mind that when reviewing the comps, you may find homes that are geographically close to yours, but physically very different, including size, style, and condition. If the $250,000 drop quoted by the mortgage banker was even close to accurate, my clients’ home, which was completely gutted to the studs and rebuilt in 2004, would be priced less than a currently listed home with one-half the square footage and finishes original to its 1952 construction date.

Inaccurate Information can Hurt Your Relationship

While we all know that home values have decreased in many areas, a 43% drop should have immediately raised the “common sense” red flag for the mortgage banker. As a member of the Chicago real estate community, he/she should have enough expertise to know that there are very few neighborhoods in the city where prices have dropped that drastically. The mortgage banker acted irresponsibly, and did not properly service his/her client. Note that the number quoted by the banker could just as easily have indicated a $250,000 INCREASE in price, also completely inaccurate, depending on the home and the location. This usually occurs when the subject home is the smallest in the neighborhood.

What is the Bottom Line?

The bottom line? There is absolutely no substitution for human participation in the real estate valuation process. No website or system currently available is robust enough to account for all factors affecting a home’s value. Buyers will be evaluating the value of your home using their agents’ input, and sellers must do the same to get an accurate estimate. The MLS is the most comprehensive source of sales information, and is generally available only to real estate agents and appraisers. Appraisers are bound by very stringent state laws in creating their reports, and usually cost $200-$300 per appraisal. Real estate agents will generally provide what we call a CMA, or Competitive Market Analysis, free of charge. We are hoping to get your business, of course. However, a good agent will provide you this report with no pressure and plenty of supporting analysis.

We would like to thank Dillinger for kindly sharing today’s photo via the Creative Commons License.

18 March 2010
You either love it or hate it – the iconic purple brick hotel at the corner of Touhy and Lincoln. Previously a Hyatt, the hotel has allegedly been the site of a mob hit, raucous sex parties, and the base for Stuart Levine’s politically corrupt activities.

Now, however, Lincolnwood town leaders are losing patience with the building’s owners, Donald Bae and his family. While Bae had an offer to sell the property for $27MM two years ago, the deal fell apart with the economy. The property is now on the market for $25.8 MM. But, according to developers, the site is very attractive but the price is very high.

Village leaders are pursuing code violations in an effort to get Bae to either tear the building down or get more realistic on the asking price. The property is being marketed by ForeFront Properties, which will be holding a luncheon presentation for prospective buyers next week.

12 March 2010
While the market for loop office buildings has been stagnant, the family that makes Jose Cuervo was expected to close yesterday on 303 W. Madison for more than $60. This will be the first sale of a downtown office building this year, and one of the first significant real estate investments made by a Mexican investor. Despite market conditions, multiple investors bid on the building, driving the price above initial projections.

Also hitting the market is the new skyscraper at 300 N. LaSale, which was completed early last year. The building is 95% leased, including law firm Kirkland and Ellis LLP, which occupies over 50% of the space, Boston Consulting Group, law firm Quarles and Brady LLP, and private equity firm GTCR Golder Rauner LLC. The building is expected to bring between $570 and $620 MM.

4 March 2010

Jones Lang LaSalle, Inc, just published the 2010 Chicago Skyline Review, its graphic report that highlights the downtown rental market. While vacancies in some key buildings are limited, including Willis Tower and several others, there is plenty of space available in prime locations.

Vacancy rates currently run at just under 15%, which is up 5% from a year ago, and rents have decreased about 25%. Three new office buildings joined the market in 2009, but no additional units are expected in the next several years. According to Jones Lang LaSalle, no significant influx of tenants is expected until at least 2011, since most employers want to see a much more stable economy before expanding operations or changing space. While this combination has building owners concerned about their maturing debt and building value. However, Jones Lang LaSalle managing director Bruce Miller projects that most lenders will extend terms before suing for foreclosure, and that more of these buildings will be marketed in the near future.

25 February 2010 ?

Tuesday was a big day for one of Chicago’s newest skyscrapers, located at 225 N. Columbus in the Lakeview East development. The Aqua, a 82-story residential building was named 2009 Skyscraper of the year by Emporis, a firm that sells data about tall buildings and annually judges the best new projects. Second place went to O14 in Dubai, third place went to the Met in Bankok. Chicago Trump International Hotel & Tower finished 5th.

The Aqua was designed by Jeanne Gang, of Studio Gang Architechts. While this is her first hi-rise structure, Gang relied on principles she uses to design smaller buildings. Her philosophy is to focus on function first, then design a structure to fit that function and the surrounding environment.

The judges praised the building for its curvy design that changes depending on the angle of the view, and its eco-friendly features, including coated concrete to reduce heat-islands, balconies that strategically shade units during full-sun hours, and windows that deter birds from flying into them.

18 February 2010 ? In 1979, producers of “The Blues Brothers” brought to life and then destroyed the old Dixie Square Mall in Harvey. The mall had been closed for a short period before the film’s famous car chase wound its way through the stores and shoppers. Today, the mall sits in ruins, redevelopment plans have risen and fallen over the years. But a new life for the site may be more of a reality now than ever before. A group of local business owners and industrialists has tagged the site for potential development of a discount retailer shopping center, with the possibility of additional industrial and residential construction. Flood control would also be part of the plans, as the site is prone to flooding. The idea was generated by the current owners of the site, Main Street Capital. Investors have put up $3MM to clear the title of the property, but needs at least $5 MM for demolition. The group is looking for government help to complete the project, but information on the type of funding has not been made public. If funding is obtained, demolition could start as early as March.

Saving Your Pennies?

The struggling real estate market has forced sellers to look for creative solutions to squeeze dollars out of their sale to break even or minimize their loss. More and more frequently, listing agents are asked to ?share the pain? and cut their commission to cushion the blow to sellers caused by lower property values. The dollars saved on the lowered commission may appear to be an easy solution. However, there are significant costs to this approach that sellers may not see immediately.

No Standard Commission Rate in Illinois

While there is no standard commission rate charged in the state of Illinois, 2.5% of the selling price is commonly expected by buyers? agents. When a property is offered at a lower rate driven by a lower total commission paid by the seller, buyers? agents may choose to eliminate the property from their buyers? viewing schedule. This is very easy to do in a high inventory market where there are plenty of properties offering higher commission. Is this ethical? Maybe not, but if the buyer still finds a home they like, some buyers? agents believe this is acceptable. Most good buyers? agents do not look at commission rates, but in this environment when agents may find it challenging to fit all available properties into a viewing schedule, commission can be the determining factor when deciding which properties to eliminate.
Listing agents? costs increase in times of slower sales. It takes more time and exposure to sell a property, more effective and costly marketing, and there are usually more showings required to generate a contract. It also takes a significant amount of effort to hold deals together after initial negotiations due to complex and unpredictable mortgage and closing processes. So, while sellers may ask an agent to ?share the pain,? active listing agents may be forced to take short cuts to make a lower commission listing worthwhile. Additionally, successful and active agents may choose to reject listings whose owners want to cut commission. This leaves the seller with less skilled and experienced agents who need to ?buy? their listings rather than earning the business through superior qualifications. For quality agents, listings are relatively easy to come by in this market ? selling the property and holding deals together has become the difficult part. Sellers need every bit of experience, knowledge, and commitment from their agent to negotiate the best possible price and attractive terms, and to manage a process that culminates in a successful closing.

Sellers Should Demand Exemplary Service

The cliché ?you get what you pay for? can be a tough lesson learned when this important, high-dollar transaction is at stake. Small glitches and oversights can generate costs that far outweigh the potential savings in commission. Sellers should demand exemplary service and expertise from their agents in both the buying and selling process. The best agents will not cut commission, and sellers need top agents to tackle the challenges of today?s market.

[Editor's Note] We invite opposing opinions!! Please comment below or if you’d like to write a post, Contact Us!

We would like to thank Pfala for kindly sharing today’s photo via the Creative Commons’ License.

11 February 2010 ? Chicago City Council voted yesterday to grant the Lorraine Hansberry House landmark status, a result of the home’s critical role in early desegregation movements. In 1937, the Hansberry family’s peace was shattered when a concrete chunk was thrown through the window of their new home, sending a racially charged message that the family was not welcomed by white neighbors. The family fought to stay in their home at 6140 S. Rhodes, and three years later in 1940 the US Supreme Court passed a decision ending racially discriminatory housing covenants in Chicago. Before this ruling, African-Americans were limited to living in crowded and run-down neighborhoods on the city’s south side. The segregation was enforced by property covenants that restricted non-whites from moving into white neighborhoods. While the Hansberry family was a leader in this housing, they were not unfamiliar with taking a stand against discrimination. The family frequently ate at establishments known to discriminate, and if denied, would sue for equal access. While the current home owner could not be reached by the Tribune for comment, Mamie Hansberry, now 86 and living in Los Angeles, says she’s honored that the city is considering this recognition.

4 February 2010 – Chicago’s perpetually troubled Spire project has begun to cut deeply into developer Garret Kelleher’s international firms. Ireland-based Clarinabbey Ltd, a subsidiary of Kelleher’s Shelbourne Property Group, recently posted an annual loss of $197.2 million, mostly driven by cross-division transfer of funds tied to the Spire.

Kelleher and other company leaders are in discussions with their banks, attempting to avoid a default on the company’s obligations. While Kelleher has been seeking alternative sources of funding for the Spire project, no significant agreements have been reached.

The Spire development has been plagued with issues since its inception, and existed for over a year as an idle hole in the ground located at 400 N. Lake Shore Drive.