North Sound Property News

One of the problems we commonly see in the current real estate market is that buyers and sellers do not tend to agree on the value of any house.  Rare is the buyer today whose buying strategy is to pay full asking price for any home on the market.  And rare is the seller whose intention is to accept the first offer that comes along, no matter the price.  Even when a house is new on the market and priced seemingly competitively, most buyers are looking to see if there is any room to make a lower offer.  After all, the thinking goes, homes are declining in price so if I buy today, prices will go lower tomorrow.  Most buyers want to take that discount upfront, and this is where they get into conflict with sellers.  Most sellers want to sell at today’s best price rather than tomorrow’s worst.

 Which brings us to the idea of the “Offensive Offer.”  One of the first things that struck me as odd when I entered the real estate field was the idea that an offer could be so offensive that a seller would just decide they didn’t want to negotiate at all with a particular buyer.  Yet, we see it happen all the time.  After all, the rational mind asks, isn’t something better than nothing? 

Turns out, the answer to that question is often no.  

 It seems to go against common sense.  After all, in a difficult market, you’d think a seller would realize that getting an offer is a good thing, even if it’s not the one you are looking for.  And in a stronger market, why bother getting offended when you can just wait until a better offer comes along?  Why get emotional about it?

Turns out, this kind of emotional response has been studied by behaviorists, and has been found to be very common.  This article in Slate today, resonated with me:

We like to think we go through life as rational beings. Much of economic theory is based on the notion that humans make rational choices (which may mean that economists don’t get out much). In 1982, some economists came up with a little game to study negotiating strategies. The results showed that rationality is subservient to more powerful drives—and demonstrated why human beings so easily conclude they are being wronged. The idea of the “ultimatum game” is simple. Player A is given 20 $1 bills and told that, in order to keep any of the money, A must share it with Player B. If B accepts A’s offer, they both pocket whatever they’ve agreed to. If B rejects the offer, they both get nothing. Economists naturally expected the players to do the rational thing: A would offer the lowest possible amount—$1; and B, knowing $1 was more than zero, would accept. Ha!

In the years the game has been played, it’s been found that almost half the A’s immediately offer to split the money—an offer B’s accept. When A offers $9 or even $8, B usually says yes. But when A’s offer drops to $7, about half the B’s walk away. The lower A’s offer, the more likely the B’s are to turn their backs on a few free dollars in favor of a more satisfying outcome: punishing the person who offended their sense of fairness. This impulse is not illogical; it is essential. In Descartes’ Error, neurologist Antonio Damasio shows that humans who behave purely rationally are brain-damaged. Patients who have suffered injury to the areas in the brain that control emotion, but who retain their intellectual abilities, end up acting in socially aberrant ways.

My job as an agent is to try to get a buyer and a seller to see eye to eye with regard to the value of a home.  Knowing that when a seller is presented with a lower offer, his response is likely to be offense rather than acceptance, the way that an offer is presented is critical.  One of the most important aspects of this is to create a situation where the buyer and seller can understand and hopefully empathize with one another’s point of view.  Sellers are more likely not to take offense, and to consider a lower offer, when it is presented as “best we can do” vs. “most we will pay.”  Buyers also need to understand that sellers tend to counter offer only when presented with an offer that is in the range of what they feel is a fair price.  This is why we rarely see offers accepted if they are not within 10 - 15% of asking price. 

This illustrates why negotiating skills are so essential when selecting an agent.  Part of what a good negotiator does is create a situation where the ultimate goal of both parties–that is, for the seller to sell, and the buyer to buy–can be reached.

About the Author: Sandy Kaduce is Associate Broker of Gallery Homes Real Estate. She serves buyers and sellers in North King and South Snohomish counties. She is 2009 Board President of the Mukilteo Chamber of Commerce, as well as Vice President of Site Selection for Habitat for Humanity of Snohomish County. For more information, visit Sandy on the web at www.sandykaduce.com! Read more from this author