Buyer Agency and Negotiations | LeadingLane Podcast | Episode 50

It also comes back to your original buyer agency agreement. So let's pretend that it's a certain number and maybe you're getting that number via the offer and it comes up in this inspection amendment that they want to reduce it. Well, if you've done your job right and you've explained it to the buyer, they would understand that they're now responsible.

For that difference 100%.

So you as the agent aren't actually at at a risk or at a loss.

Welcome to the Leading Lane podcast for Real Estate Pros by Real Estate Pros with your hosts Ashley Frederick and Stephen Burch. If you're looking for an honest, authentic and raw perspective, you found it.

All right. Welcome back to the Leading Lane podcast. Now we're going to talk about the wonderful crazy buyer compensation. All this in our lawsuit. We've been in it for a little bit and yesterday. Yeah, there's a whole nother. I mean just it's more chaos. Right. Like which we knew which is going to happen. But now that it's in the wild, we're seeing it boots on the ground and you know, people have had some time to digest it. Some people haven't still haven't even learned about and even know about it, which is just wild to me. But we have a transaction that we obviously negotiated. We went fully executed. We're in the midst of the negotiations for inspection period without going to the terms of everything in it. But there were a lot of different things that came up in this inspection that are going to cost the seller way more money than what they anticipated. And so they're looking at their bottom line and in the counteroffer of the inspections for resolution, the like basically they're going back and forth on their amendment. Yeah, what's going on? They, the seller asked to go back and decrease the buyer's agent compensation because they're looking at their bottom line. Now this, we made a post about it in a broker group and we're getting a lot of different kind of pushback and different perspective, which is okay, I get it because it's something a little bit different. But I have a perspective of the seller is paying for that buyer's agent compensation and everything in a real estate transaction is negotiable. And this particular transaction and what the negotiations were is that the, the buying agent is already wanting to extend the contract by two months for closing. Then when they're going back and forth in the negotiation and inspection period, they're actually asking for this extension as well. And so when we we the Seller reduced the buyer agent compensation. The buyer's agent is completely livid that we, quote, unquote, we keep on changing her commission. We're after her commission, and we are reducing it. Why are we reducing it? So it's just wild that I think she's taking it extremely personal and not understanding the. The whole realm of this. And, you know, are there other things, other tactics that you can go after? Absolutely. But we work for the seller in this transaction, and we are. We have to do what they want to do. So what is your opinion on negotiations? Let it be either, you know, front in the initial offer or in inspections or really, I mean, anytime within the contract, these types of different bullet points of terms that you can negotiate. Do you think that's fair?

So we literally just had this happen last week. So funny that you ask. So the way that I view it is that, yes, the whole point of an amendment is to change what was initially agreed upon. And that can be numerous things. That can be inspection deadline itself. It can be the appraisal deadline, it can be the closing date, it can be a closing cost credit. So sometimes we'll have that. Right? So maybe there wasn't a closing cost credit, and then there's. There's an inspection and the seller decides to. I just want to give them a $3,000 closing cost credit. Right. So that. That wasn't initially part of the offer, but we're changing it. So my feelings are that, yes, everything in the contract is negotiable when there are different stages. So I think what it is probably for agents, and I get it because like I said, this just happened. I think it's frustrating. In the past, our commissions didn't come into play. Like, we knew that when we had the offer accepted. Oh, you know what? That's not true either, because even though we had commissions, right. Like the seller agreed to pay a commission. I can't tell you how many times in a transaction, which, again, like, it always frustrated me because this is something that's wrong with the seller's house. And then they'll say, well, Both agents take 500 off their commission, and then we'll make it happen. Right? So actually, it did happen in the past that our commissions would be negotiated, you know, halfway through and many times, right. Like, I think it's dumb, but I'll be like, whatever, $500. I am not standing in the way of someone buying their house, et cetera. So now it's just different because I think people just are so in tune to, like, now it's in the offer and they still think that it's set in stone where, like, let's be honest, nothing is set in stone. Can. It also comes back to your original buyer agency agreement. So let's pretend that it's a certain number and maybe you're getting that number via the offer and it comes up in this inspection amendment that they want to reduce it. Well, if you've done your job right and you've explained it to the buyer, they would understand that they're now responsible.

For that difference 100%.

So you as the agent aren't actually at a risk or at a loss. I mean, you could choose to reduce it if you felt the need to, but, you know, getting upset or whatnot. I mean, it's no different that if when in your original offer they negotiated it and you took a lesser amount than your buyer agency agreement, your buyer is paying the difference. So, for example, in ours, when we originally wrote the offer, they tried to negotiate the buyer agent commission and the buyer was like, nope, I want that paid for. I'm not paying for that. On top of, you know, my down payment, etcetera, we offered more money for the house so that they could roll in their buyer agency costs. You know, you know, a little bit of backstory on that is how it all came into play was this seller met with another agency that automatically offered them reduced commission and told them that they shouldn't be offering xyz. They already had it in their head from this other agency that that was too much in general. But right at the end of the day, they need to decide if they want to sell their house or not. And are they going to let this percentage stand in the way if it's that important for the buyer. So they agreed to pay the full. Right, great. So we have a inspection and there were numerous things. So as a buyer, right, like there's a lot going on here. And you know, I think we had. I think we had five amendments back and forth for the repairs. And then it kind of started to get a little crazy and that, you know, they had the right to cure. But for example, like radon, they. This, I've never seen this before. So you guys have radon, right?

Yeah, we did.

So the radon level was high. It was above 4.0. And so in these amendments back and forth, it was radon mitigation system to be installed and level to be under 4.0 standard. Right. Like in the actual offer, it states for a right to cure for the radon to be a Radon mitigation system. So the last amendment comes through and it says seller to seal. Back that up. I got the retest results because they did this while we were negotiating and the retest was 3.9. And I have never had that with a radon mitigation that it went down so small. I was like, well, that's strange that it didn't go down to like two or something. Anyway, we get this amendment and it says seller to seal sub pump pit and retest. So all they did was seal the sub pump, test, retest, and it got to 3.9. So that was their mitigation, even though you can't mitigate it that way. So with the buyers occupying the basement, they were like, like, that's not kosher. So I'm not willing to do that. So. Right. They were upset with some other things. So as part of negotiation then we wanted to raise the purchase price and then have a closing cost credit because now the buyer would have some funds to make the repairs themselves since the seller wasn't willing to do that. So they were willing to do part of that. But then it came back that then my commission was to be reduced as well. But what they had agreed to pay, they wanted to go down on that and go down on the closing cost credit. And I think that when you're like six amendments in like, the level of frustration of. Of everyone is really high. And so then they were already taking on repairs and then they were going to have to take. They knew that they'd have to pay the difference for me. So they were upset and that now it's just another added cost and they are fully aware of it, but they decided to walk on all parties for in agreement that we were not come to come to an agreement over that. And you know, I don't feel like I stood in the way. Like they knew their expectations from day one and that they're responsible for whatever the difference is. But I think with the steps that the seller took to not necessarily cure things in the right way and then just keep on changing things, like that was kind of the ultimate for them. And it is something. I mean, they could have agreed to it and they could have then came up with, you know, more because again, like all parts are still negotiable, even let's say that, you know, next week the appraisal came back a different number. Who's not to say that they come down in price and ask the agent to reduce their commission. It can be done, can be asked. Doesn't mean you have to agree to it, but it can be asked. But again, if you're, if your buyer understands their responsibility shouldn't be. It's just a matter of whether they're comfortable with the difference.

And I think that you, you hit the nail on the head there is that the buyer needs to know the responsibility of what it is the agent in opinion in, in our scenario, the agent did not educate the buyer that they're responsible for the difference. So therefore they do get offended when a reduction, the seller's asking to reduce that negotiations because they feel that it's being taken away from. Well, the seller is not necessarily taking away. Like, yeah, they're looking at their bottom line, but the buyer is the one that is ultimately responsible for whatever the agreed upon was beforehand. So it's not even their fee to be paying technically, if you want to look at it. So if, you know, to me, yes, the, in all of these different scenarios, I mean, like we say it all the time, it goes back to the education of how you're making sure that your client is aware of what is going on, but is also the power of negotiation. Like if, if I know like that an agent is going to have a hard time actually getting commission to be paid for. Like I'm going to use these things to my advantage to make sure that I'm, if I'm representing the seller to make sure I'm getting them the most to the further bottom dollar. So I, I just think it's kind of funny with these changes that the, the status quo or the common courtesy, the common, you know, professional courtesy type of thing. Like I, I get that we have to work together. I get that, you know, we are competition still and I understand that there are so many changes that are happening and people don't have the same type of leadership and we're, you know, like we're very invested into this industry. But that's not my job to ensure that they are getting paid properly for their career. They need to step up to the plate to be able to negotiate properly and to educate their client properly. That's not my common courtesy to have to just hand out money for them. I'm here working for my client, not working for that other agent.

Yeah, I was just looking at some of the posts, you know, and it's like, you know, might be unpopular, but I don't believe in negotiating a buyer commission concession. I will negotiate that on the net. So, so I mean that is another way of looking at it is that if, you know, for the agent, you Know, okay, great. Like, is it that or do you want to change your purchase price? Do you want to counter with, if you want me to make all these repairs, then you need to pay $1,000 more and then the net stays the same of whatever you're offering the buyer's agent. So I think that that's the other thing is that people just are getting so focused on just that buyer, agency, piece. But there are other means, you know, in this situation. I mean, two months is a lot of extra costs. I mean, we're talking about mortgage payments, utilities, snow removal, holding costs. Right? Like, that's not the only thing. So maybe had they requested, you know, we close in two weeks and whatnot, well, then they wouldn't have had many as many out of product expenses and they could have left it as is.

And you know, like, and I'm not saying, you know, there aren't other tactics that could have been approached this way, but I think the, the blind eye, if you will, that, that can't be touched is what is really aggravating me because that's, that's not the case. Would I have increased or would I have done other things not to touch it? Like, of course. But also that other agent needs to be empowered to be able to say, cool, I see where they're going with that. I know that it's important for my buyer to be able to have somebody else pay or have the seller pay for this for them, because they don't have the money to come out of pocket. So these are the solutions that we can come up with. It's their job, in my opinion, to come to the table with the solutions, not just.

Yeah, I mean, like one of these is. Yeah, the agent. What does the agent's compensation have to do with the inspection? You can negotiate something else. I'd be annoyed if I were Spyer's agent and you tried to cut that. It's only professional courtesy. Hitting the compensation mid sale feels dirty. And I think the other thing we have to remember is that we have to do what we're instructed to do from the seller. So I mean, the other agent too is like, Ashley, like, I'm so sorry that this is coming back. But that's what the seller and the seller knows their options. So it doesn't necessarily mean that the other agent is trying to do someone dirty, but they're doing what the seller asked them to do, whether you agree.

With it or not, 100%. And again, that's their, it's their money. And you know, that's where like it's also wild to me. Like some of these comments is like the whole reason of the lawsuit is being able to negotiate it, being able to make sure that people have the transparency of who is paying for what. And it's not just a set in stone type of thing. You know, feeling dirty. Well, cool. And if you want to feel dirty, that's on you. I don't feel dirty about it at all. I believe that it's very important for the seller to be able to call those shots. Like they're paying for it and I am not cutting it. That is the seller. And so I think that's where agents a lot of times put their emotions into these transactions and they take offense and then they lash out. Like to me, they're really in a transaction, there shouldn't be anything that makes you have an ick or feel dirty or anything because it is not between you and the buyer, you and the seller. The contract is between the buyer and the seller, period. So what is actually negotiated on there has nothing to do with you. And so if you're putting your feelings of ick into it, that means that you are too far into that. And maybe you only have a contract with the seller, period. And so that should be the only thing that is there.

So I don't know, like even talk, it's just a matter of how you're talking to your seller. So if my seller said that mid contract, I would probably just say like, you know, that that may or may not go well because that buyer may not have the means to pay their agent because likely they have an agreement signed with their agent that they have to make up the difference. So could we increase the purchase price instead to account for that? I mean, I think you have to be open with your seller. But I also think that sellers are so confused right now because. And I actually relate that back to this one that we just had because they had a very different conversation with an agency in our town that does not understand what's going on. And then you have an agent, you know, with one of an agent, our office, that understands what's going on. So he's already been jaded, if you will, from the conversation with the seller, the other agent that doesn't necessarily know how to talk about that. So then you have a situation like this and they've already, they're going off of what, you know, this other agency told them. I think we have to remember too that sellers are not just sellers. Sellers and buyers are very confused right now. And I Mean, so for example, like, even though it wasn't mid, you know, this was a, just on a counteroffer. But my seller, we had a buyer that asked for, and they're way off on price, but they asked for a $3,500 closing cost credit. And then they asked for a $500 buy down and they asked for the buyer agent compensation. I mean, we were like almost $20,000 of concessions and already off on purchase price. Right. So my seller was like, well, we're gonna have to remove some of these things. And I mean, they wanted to remove, you know, buyer agent compensation. And so I just said like, maybe we leave that one and we, you know, try to negotiate on the closing cost credit or whatnot. I mean, that offer wasn't going to come together anyway, you know, but those are conversations, those are all different concession items. Like. Right, like closing costs, buy down, buyer, agent, which one are we going to address? That someone has to have some skin in the game somewhere.

And I think that's where, when I represent a seller, like, and I used to do this before even the lawsuit, but to be able to say, okay, at this price, the seller is willing to provide $5,000 credit concessions. And I think that's another thing that, you know, we need to evaluate is the definitions between what closing costs are, what concessions are. Like, there's allowances, right? There's all of these different things and there's different terms. But I want to be able to negotiate, to be able to say, okay, at this price, we will provide, the seller will provide $20,000. How you divvy up those $20,000 for, you know, closing cost or buyer agency compensation or whatever else that you're needing or buy down, blah, blah, blah, like you figure it out, let us know. But this is the number that we're willing to go to. And I think that that that makes a strong negotiator when you're able because that you're lumping all of that in. And at the end of the day, it doesn't really matter to me as an agent which category is filled there. No, because I know at the end of the day, my job on the other side, on buy side, is to try to maximize or help my buyer in whatever their financial situation is. I can advise them and I have to make those determine determinations at that point because my buyer is responsible for my compensation, not the seller. The seller's not responsible for that. So how can I be mad at the other side to be able to do it? And when you flip the hat on here, when I'm representing the seller, I don't really care where they're putting the money at. Like that makes my life so much easier. I don't have to try to second guess or wonder, what if I put it here, what if I do it here? It now makes the power all one for that buyer. And I'm not putting myself at a position because what if I put all the money towards the buyer agency and that kills the deal when it could have flipped to a different line item. And I don't want that wait on me.

I think that the other thing, which I know that your office does and I believe, I mean I believe your office does and my office does, is an estimated net proceeds. So I know that there are a ton of agents that never do that. I mean, it's like a guessing game when the seller gets to the closing table as to what their proceeds are. So that in itself I think helps a lot of things. So I like to prepare them like here, like abcd, like this sell price, this sale price, this sale price. Because who knows in today's market if we're going to get asking, if we're going to negotiate, right? So at least we have a window of, I don't know, I normally do like 15 to $20,000, right. And then I do all of their fees so they can know like what are you paying for title insurance, transfer fees, etc. I put in my commission and then the next line I do put like buyer agent compensation range and then I normally pick the middle of it and I like write in there like I'm using XYZ for example, and then the rest of their, right, their mortgage, their taxes, et cetera. And they have a bottom line so that when we get that offer with a request of a buyer, agency compensation, they already have a pretty good idea that that's what I tell them. Like nine times out of ten it's going to come in, in the offer. If it's a really bad offer, we don't, it's not part of what we're doing. It's out of our equation. But if you've prepped them from day one to expect these types of concessions or credits, I don't think they're as defensive or as taken back. I mean, not only that, but how are they making appropriate decisions for closing? I many, many times ago, you know, had a buyer on a property and I think it was like, I don't know, maybe like five days before closing. And here, like we found out that the seller was $7,000 short for closing. How did we not know this?

Right?

No, and I know that that hasn't been the market that we've been in lately. But I remember 10 years ago when sellers many times, you know, had bought in 2008 and they were selling and they had to bring $7,000 to the closing table. And had we not talked about that on day one, I can guarantee that conversation didn't go well five days before closing. You know, so I think that if you're prepping your sellers and making them educated, it's a lot easier for them to decide how they want to negotiate.

And same thing on the buying side. Yes, we do an estimate of cost for the buying side as well. Like we do one for either party, whichever one we're representing. And honestly, we will do it for the other party even though we're not representing them. Because how do we know need to like we need to be able to see the opposing side's numbers to understand the strategy of negotiation. So I teach our agents now that they do it all the time or not. Like if you're representing the seller, do a buyer's net so that you can see this is the buyer's perspective, this is the seller's perspective and you understand where we're at. And then each time there's a negotiation or an adjustment throughout the contract, like you make that adjustment on your net sheet so that you can then bring them back to reality of this is where I'm estimating and I over, not overinflated by tons by any means, but I want to make sure I give them the worst case scenario of these are the different possibilities. And then as that sewer inspection comes in and the repairs come in, like anything that is happening with numbers, I readjust my net sheet so that as the transaction is building, I'm making that adjustment. So then when I get that final settlement statement, I can take my net sheet and then that final settlement statement and I'm typically within a couple hundred dollars off just because there's different things that I didn't know on the lending side or whatever else. But and I think that because I did that every single time on all of my transactions, that's why I am so good at negotiating with numbers and playing with numbers. Because actually like that is what we are negotiating in the entirety of the transaction are numbers. And it is wild that people don't do it on the selling side and is extremely mind boggling that people don't do it on the buy side. Like they Just expect the lender to be able to say, this is, these are the fees and this is what's going to go. And let's be real, not all lenders are going to be accurate with that or they're going to scare the shit out of your buyer or whatever the case may be. How are you supposed to negotiate if you don't know the number?

Well, and I think, I know, like we need to work on the buy, the buy buyer side of it. And I think that it goes back to educating the buyers because we don't want them to be a week from closing and then be like, oh, like I don't actually have all of that. Or we needed to, we needed to negotiate higher closing cost credit or whatnot. I do like the standpoint though of even providing sellers a buyer net sheet. The reason for that, I think both buyers and sellers get really confused that only one of them is playing paying closing costs. So a lot of times when a buyer is saying like, you know, I'd like the seller to pay for 3, 500 of my closing costs, you know, because they don't have many closing costs. And then I'll be like, what? So actually they've probably got about $25,000 in closing costs and now you're going to ask for another 3,500. So just so you're aware. But then same thing on the sell side. They'll be like, well, you know, the buyer doesn't they just have to bring their down payment? And then I'll be like, no, not true. Like they have to pay for the inspections, they have to pay for the, you know, origination fees their appraiser about. Are they going to prepay taxes, insurance, all of that. And so I think when both sides are aware that both sides have expenses, again, they're more likely to be like, oh, I get it, I can, yeah, we can negotiate a little bit more.

Well, I mean, imagine in this situation with the, the one that you're talking about, like they were way off on price and they asked for all these additional concessions. Let's be real. When, if you would have went to that buyer and said, okay, I did a net sheet for you of where they currently are and then what you asked for, look at the bottom line of the difference. Like you're changing this by 25,000. I'm just throwing numbers out, right? 25, you're asking for $25,000 in difference if somebody were to come to you and say, you know what your house, like, I like it, but I'm Going to offer you $25,000 less. How would that make you feel? Like what would, what would your position be? And I think a lot of times when you change their perspective and be able to see from the other person, like yes, we need to negotiate, but we have to make sure that we're also not just going to shoot ourselves in the foot and go and piss them off and they're not going to negotiate at all. Let's, let's put our must haves that we truly mean and build off of that to make sure that we are getting you in the best position as possible. So yeah, no, I think that it is education. It's to the buyer, it's to the seller. It's for opposite sides of this as well. And you know, I would love to have every single agent out there do every single transaction, both net sheets, buy and sell, because I think that is going to sharpen your pencil so well handling transactions and negotiating that you're going to become a master at putting deals together versus maybe you're great at getting the people now, but you can never actually make the deals land this could change your career drastically.

And I think that like buyers, agents, I'll be honest, like I think some just need to have a little bit of thicker skin. Like I understand this is new and different, but again like if you can articulate your value, then buyers should understand. And if you sat down, which all my buyers are very aware, what they would have to pay, how we can negotiate it, there is no surprises. I think I tell people in general, like we're probably better off than where we were because in the past we were just like stuck with whatever the other agent offered. We're now like, we actually have the ability and the means to, you know, have the difference. And I'll be honest, in our area there are, it's, it's unique and that some agents are actually getting more than what they used to get paid. And you know, I've had some of those come across in some of my offers and you know, I'll tell the seller like, I mean that's a decent request but if all of the rest of the numbers make sense to you, then we'll agree to it. And some, you know, agents are getting paid more. Some right, they're going to go back to what they're used to seeing and they'll counter that. And again that's, that's up to that agent. You know, we have another agent in our office that came up with, you know, different areas have, I guess, different expectations as to what a buyer agent request can be and it was higher than what the seller wanted to pay. So they counted it out and I mean that agent accepted it and I'm sure that that agent is getting paid from their buyer and we're going to closing.

I mean that's power of negotiation. It's knowing your worth, articulating it. Like, it's making sure that you aren't just laying down and taking whatever people are throwing at you so well.

And I think it's just important for agents to maybe give grace to other agents. Like, I get that it's frustrating, but at the, at the end of the day, like I can guarantee you that nine times out of 10, the seller wanted an area to cut from and that's where they could at that point in time. And they're doing what, you know, counterback, then counterback with X amount more and have it paid for. But I just think, you know, getting upset in transactions doesn't help anyone at any, doesn't help the buyer, doesn't help the seller. So if we can try to keep calm and try to just be more creative, I think we can, you know, find win win situations.

Totally agree. Totally agree. Well, good talk. I appreciate it. So go like and subscribe and share. If you have a topic or if you are somebody that wants to be a guest on our podcast, please reach out to us. We would love to hear from you.

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