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ABR ® Designation Core Course 1

They Are Back…… Low Inventory and Multiple Offers

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They Are Back…… Low Inventory and Multiple Offers. Frank Mears, ABR, CDPE, CNE, CRB, CSP, GRI, SFR, SRS, SRES. The Big Story of 2013. Low inventory Investors scooping up bank inventory Home Builders’ reduction Home owner holding back Bank shadow inventory The Result: prices going up. - PowerPoint PPT Presentation

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ABR ® Designat ion Core Course

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They Are Back……Low Inventory and Multiple Offers

Frank Mears, ABR, CDPE, CNE, CRB, CSP, GRI, SFR, SRS, SRES

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The Big Story of 2013

Low inventory• Investors scooping up bank inventory• Home Builders’ reduction• Home owner holding back• Bank shadow inventoryThe Result: prices going up

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Seeds of a housing shortage

• Inventory of existing homes at its lowest level in seven years.

• New construction at a 50 year low mark• Distressed home listings will continue to fall as

fewer owners are delinquent.• Normal non distressed home owners have been

holding off selling until the market gets betterLawrence Yun, NAR Chief Economist

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October Existing-Home Sales Cool but Low Inventory Drives Prices

WASHINGTON (December 2, 2013) – Existing-home sales declined for the second consecutive month in OctoberTotal existing-home sales1, which are completed transactions fell 3.2 percent to a seasonally adjusted annual rate of 5.12 million in October from 5.29 million in September, but are 6.0 percent higher than the 4.83 million-unit level in October 2012. Sales have remained above year-ago levels for the past 28 months.Lawrence Yun, NAR chief economist, said a flattening trend is expected. “The erosion in buying power is dampening home sales,” he said. “Moreover, low inventory is holding back sales while at the same time pushing up home prices in most of the country. More new home construction is needed to help relieve the inventory pressure and moderate price gains.”

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The Inventory Shortage MythRealty Trac June 2013

• Consider housing inventory. How can it be that the U.S. Census reports there are 13.9 million year-round vacant homes in the U.S. while major media outlets like the New York Times reports that there is “not enough houses for sale to accommodate the recent flush of demand?”

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So which is it: oversupply or undersupply? • If you believe the major news outlets there is a

shortage of houses for sale. Or, to be more clear, a shortage of cheap houses for sale.

• If you trust the government’s numbers then there’s a glut of vacant houses.

The truth is somewhere in the middle

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The artificial shortage of homes for sale and the subsequent rising home prices are being driven by the two forces: major banks and their Wall Street buddies, many of whom were subprime lenders five years ago and now have transformed themselves into real estate “investors.” These all-cash foreclosure investors are buying distressed property at the low end of the price scale, muscling out first-time homebuyers and smaller mom-and-pop investors. Big investors are snatching up low-priced foreclosures in bulk and renting them out to people who can’t buy. By amassing thousands of rentals, the Wall Street landlords are putting a crunch on housing supply, driving up prices and lacing their pockets with profits.

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• Paradoxically, home sales and prices are up, but home ownership is down because it’s investors — not first-time homebuyers — buying up the majority of homes.

• RealtyTrac data shows about 3.5 percent of all home purchases in the first quarter were done by “institutional investors.” Institutional purchases are up 34 percent from a year ago.

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Multiple Offers

The most frustrating situation faced by REALTORS®

Potential for misunderstandingWhat is fair? What is honest? What is to be

done?Who decides?There is never a simple answer to complex

situations

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Why look at generational commonalities and differences?

Gain insight into what is important Learn best ways to communicate and

market Learn motivations, lifestyles, hopes, and

fears Provide frame of reference and perspective

Generations

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The Generations

Seniors | GI Generation1900-1925

Seniors | Silent Generation1925-1945

Baby Boomers1945 - 1965

Gen X1965 - 1980

Gen Z Millennials2000 - Present

Gen Y1980 - 2000

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• Address by Mr./Mrs.

• Respects process, procedure, laws, specialists, designations; experience, stability

• Verify preferred method of communication

• Appreciates personal touches

• Very loyal

• May have more time

• Usually have equity

• Sale requires patience

5 GI - Silent Generation

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• May not appreciate your value

• Include Resumes, Designations & Experienc

• High Maintenance – Constant Attention

• Probably uses email

• Time is precious

• Limited Loyalty

• Income Rich, cash poor

3Boomer Generation

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• Expect technology savvy professionals, online presence with rich content and easy to use

• Expect a packaged transaction with high-caliber skills and advocacy

• Email and texting preferred

• Use smart phones w/ mobile apps, QR codes

• Will be loyal if they choose you

• High Expectations

• E-Transaction

Gen X Generation

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• GenY are very comfortable in a virtual environment and global community

• Purchase will not be restricted by domestic boundaries; crossing a threshold may not be necessary to make a decision; property portals will include all decision points

4Gen Y Generation

• Will be an involved partner

• E-Transaction (search to close) will be the new normal

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Generation Z Millennials

• 21.4% of population• 66.5 million• Age in 2013: 13 and under• Technology adept, connected, introverted, short

attention span, individualistic, impatient, communication in online communities

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Cultural Generalizations, Stereotypes

Generalizations allow revision of opinions and responsesStereotypes interfere with treating people as individualsCultural learning can work both waysAdapt your outlook and behaviorYou don’t have to change who you are or your culture

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High Context Low Context

Formality, face-saving, relationships, slow pace

Informality, direct communication, results, fast pace, punctuality

Asia/Pacific, Russia, Middle East, Central and South America, Southern Europe, Africa

United States, Canada, Northern Europe, Australia, New Zealand, South Africa

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Cross-Cultural Business Skills

How can you:

Be sure your behavior is appropriate?

Project a positive attitude?

Adjust to the need for high or low context interactions?

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Do’s and Don’ts

Save faceTalk less, listen moreRelationships firstFormal, slow pacePunctualityContract—end or beginning?

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Do’s and Don’ts

Respect for hierarchyFamily matters are privatePractice with interpretersDouble check software translationsObserve nonverbal signalsCommon sense

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Non Verbal Red FlagsRe-adjusting distanceAverting eye contactScowling, frowningInappropriate laughterCovering the faceSilence, no questionsDisplaying impatience

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Behaviors to Avoid Hands in pockets or on

hips

Intense, prolonged eye contact

Crossing legs

Showing the soles of feet or shoes

Pointing or touching with the foot

Fleeing or invading personal space

Initiating any physical contact

Showing impatience

Pointing or beckoning with the fingers

Hand gestures

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Negotiations and Decision Making

Win-win or win-lose?

Consensus, committee, or hierarchy?

Accept and adapt to the client’s practices

Follow up in writing

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Gender IssuesCultures that strictly separate sexes may have difficulty adjustingBe deferential to women even if their own culture is less soInclude the spouse or other colleagues in invitations to male clients or colleagues

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Fundamental to cultural identity, norms, traditionsLearn about others’ beliefs and traditionsYou don’t have to change your own beliefs and traditions

Religious Traditions

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Active Listening

Facilitates cross-cultural communication

Paraphrase

Ask open-ended questions

Invite listeners to explain understanding

The conversation IS the message

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What type negotiator is the other agent?

• Soft

• Hard

• Principled

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SOFT

• Participants are friends• The goal is agreement• Make concessions to cultivate the relationship• Be soft on the people and the problem• Trust others• Change your position easily

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SOFT CONTINUED

• Make offers• Disclose your bottom line• Accept one-sided losses to reach agreement• Search for the single answer: the one they will accept• Insist on agreement• Try to avoid a contest of will• Yield to pressure

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HARD

• Participants are adversaries• The goal is victory• Demand concessions as a condition of the

relationship• Be hard on the problem and the people• Distrust others• Dig in to their position

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HARD CONTINUED• Make threats• Mislead as to bottom line• Demand one-sided gains as the price of agreement• Search for the single answer: the one you will accept• Insist on their position• Try to win a contest of will• Apply pressure

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KNOW THE RULES

1. You Can and Should Negotiate Most negotiations are not lost at the bargaining

table. They are lost because the parties never got to the table.

2. Check Your Ego Sometimes we are our own worst enemies. This is not the place to show off your

cleverness.

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3. Avoid the ‘Sympathy’ Trap Negotiation is not social work; it

is not charity. You are responsible to look out for your clients interest.

4. Take the High Road Anything you do to destroy

trust will harm the negotiations.5. Be The “Squeaky Wheel” Sometimes it pays to be a little

aggravating and persistent

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6. Beware of Knowing “Too Much’Showing off how much you know can work against you.

7. Confront a “Psychological” Attack Allow it and you lose. Draw attention to it and its

power vanishes.

8. Ask a lot of “Why” QuestionsIt may get them to open up and reveal their true motivations.

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9. Be Flexible Negotiation is a “give and take” process. Must gets Intend to gets Nice to gets10. Question authority

Sometimes the authority is only voicing an opinion.

Find an alternate authority. 11. “Listen”

You’ll discover what they really want.

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12. Search for Options. Seldom is there only one right answer. Know

when you’re deadlocked on a particular issue. “ Lets put that aside for now” and continue on. 13. Challenge the Written Word. Just because its in writing doesn’t mean it’s

true.14. Defend and Value Concessions.

Negotiations are give and take. Never concede anything without asking for something in return.

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15. Be Informed “Knowledge is Power”

1. Do your Homework. 2. How16. Try To Obtain An Offer That Can Be Closed. Do the possible first. Leave the impossible to

later. Remember some deals can’t be made no matter what.

Worse that not making a deal is making one in which you loose.

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17. Empathize With The Other Party. Understand what they want and why they want

it. You don’t have to agree with their position. Just

understand it.18. Get the other party to invest TIME

The more time invested, the more to lose if it doesn’t go through.

19. Set a DeadlineNo deal ever closes without a deadline.

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Remember. Everything we do as negotiators is to try to help our clients get what is important to them.

We owe absolute loyalty to their interest above all other interest including our own.

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Multiple Offers

• Tilts the negotiating scales in favor of the seller?

• Always ask if there are multiple offers

• Always ask who has the other offer• Know your BATNA

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• Standard of Practice 1-15• REALTORS, in response to inquiries from buyers or

cooperating brokers shall, with the sellers' approval, disclose the existence of offers on the property. Where disclosure is authorized, REALTORS shall also disclose, if asked whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker.

Does the Listing Agent Have to Tell?

Multiple Offers : No

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• Standard of Practice 3-4• REALTORS®, acting as listing brokers, have an

affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker’s firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/ landlord or a cooperating broker). … (Amended 1/02)

Variable Rate: Yes

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The Seller’s side

The risks to seller and the seller’s agent:• Unhappy buyers• Multiple offer don’t always result in a higher

price. Some or all of the buyers could elect to walk away

• “Highest and best” may result in a better offer or result in no offers

• Seller inadvertently obligates to more that one contract

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• To avoid being blamed for the seller’s good fortune turning into misfortune. The key decisions on how to handle multiple offers should be made by the seller

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$1000.00 more than the next highest

Offers that are $1000.00 more than the next highest up to a certain amount.Good idea or not?• Buyer may pay less than willing• Buyer may pay more that intended• Two Buyers make the same offer• Dishonest seller

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Presenting Multiple Offers

1. Individual presentationPresented to the seller and listing agent

only2. Group presentation

All offers are presented at the same time with all representatives present

Buyers should be notified if others will hear offer details

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$370 Asking Price #1 #2 #3 #4

Offer $375k $367 $352k $354k

1st deposit $1k $5k $10k $7k

2nd deposit $0 $5k $10k $8k

Inspect none Hm/Pest Full Full

PQ/PA/Cmt none PQ PA Cmt

Mtg Cmt 6 weeks 4 weeks 4 weeks 2 weeks

LTV 100% 90% 80% 50%

Close 120 days 90 days 60 days Flex

Conditions $10k closing costs

Home sale contingency Hm pend none

Adjusted Gross $365k $367k $352k $354k

Presenting using the grid method

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Counter Offers

• Implement the negotiating strategy • Reassess objectives• Identify points of agreement and

differences • Prolonged, incremental negotiating is

risky—seller may take another offer or buyer may walk

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$370 Asking Price #1 #2 #3 #4

Offer $375k $367 $352k $354k

1st deposit $1k $5k $10k $7k

2nd deposit $0 $5k $10k $8k

Inspect none Hm/Pest Full Full

PQ/PA/Cmt none PQ PA Cmt

Mtg Cmt 6 weeks 4 weeks 4 weeks 2 weeks

LTV 100% 90% 80% 50%

Close 120 days 90 days 60 days Flex

Conditions $10k closing costs

Home sale contingency Hm pend none

Adjusted Gross $365k $367k $352k $354k

Which offer would you ‘counter’?

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List Price @ $150,000 1st Counter @ $145k Buyer counters @ $x 2nd Counter @ $140k Buyer counters @ $x 3rd Counter @ $135k Buyer Counters @ $x No seller counter Buyer waits for ? $$$

Counter Offer Signal Pattern

Equal Reductions create deadlock

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Reducing Counters Yields Closure

Counter Offer Signal Pattern

List Price @ $150,000

• 1st Counter @ $147k• Buyer counters @ $x• 2nd Counter @

$145k• Buyer counters @ $x• 3rd Counter @ $144k• Buyer Counters @ $x• 4th Counter @

$143.5kDoes buyer expect more?

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The Buyer’s Side

1. Develop a good rapport with the listing agent.

We like to do business with agents that we have a good relationship with.

Don’t be difficult to deal with.

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The Buyer’s Side

1. Gather information on the seller with the skill of a detective

2. Encourage the buyer to make a strong offer (give the seller what's important to them)

3. Strike while the iron is hot4. Encourage the buyer to NOT “Major in the

Minors”5. A letter to the seller?

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The Appraisal Issue

• Multiple offers may drive the price up for the seller but will it appraise.

• What happens if it doesn’t?• Seller counter special stipulation: “Buyer agrees to pay any difference between the sales price and appraised value in cash at closing” (Have a local attorney draft the language to conform to the laws in your state)

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When You Should Avoid Negotiating

1. When your client will lose everything.2. When you’re “Sold Out” When you’re running at capacity, Don’t Deal.3. When the demands are Unethical, Illegal or

Immoral. It’s your Character, Reputation and License.

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4. When You Don’t Have Time You’ll make mistakes When under the gun, you’ll settle for less than you

could otherwise get.5. When You’re Not Prepared. You’ll think of all your best responses on your way

home. Don’t negotiate until you’re ready.

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Remember

Every negotiation is different and each is a learning experience.The best negotiators are the ones with the most information.

“Knowledge is Power”

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Thanks For Having Me

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FrankMears.com