Buyers and sellers often ask the wrong questions
Originally appeared in Bay Area News Group publications on February 20, 2015
“The art and science of asking questions is the source of all knowledge.”
– Thomas Berger
Buying and selling real estate continues to get more complicated. The questions sellers and buyers typically ask their agents are not necessarily those that will help them avoid trouble or get them the most useful information.
Rather than asking, “How many listings have you sold in this neighborhood in the past year,” it is better to ask, “How familiar are you with my neighborhood and why are you qualified to sell my home?” With the former question, it is assumed that agents who have the most listings will do the best job in representing you and this is not always true. Also ask, “What are examples of how you protected your seller when it did or might have cost you a commission?” (For buyers, before choosing an agent, same question, substituting buyer for seller.)
“When did the sellers buy? How much did they pay? How much do they owe?” In the present seller’s market, substantial seller equity does not mean they will sell it to you for less. Negative equity, however, where the seller paid more than its current value, is a good thing to know because it may not be worth your time if the seller is unrealistic.
Instead of, “Do you agree that, since the house across the street sold for $900,000, my house is worth more,” ask, “Which comparable sales are you relying on to determine what you think my house will sell for and why?” Keep in mind that there must be reasonable justification for the list price.
The question, “How much above asking price are homes selling for in this neighborhood,” has a number of assumptions that could be problematic for you. If buyers are paying 25% above asking, does that mean you should? Do not assume that all listing prices accurately represent the minimum value of the home. It might be grossly overpriced or underpriced. This needs to be carefully evaluated before you receive a meaningful answer. The condition of each property is an important factor related to value and that is rarely accounted for in response to this question.
For multiple offers, “Is there any reason I should not accept the highest bid,” is not a bad question, but an improvement is, “Which offer do you think is the strongest and why?” Remember that the best offer is the highest one that is most likely to close. This may not be true for the one that has the top purchase price.
“How much do you think we should offer?” Agents must be careful to allow buyers to make this decision. The final purchase price is dependent on many variables. These include the number of offers, location of the property, number of other comparable houses now on the market, uniqueness, charm or lack of it, proximity to desirable shops and schools, number of steps, indoor/outdoor living, floor plan, light vs. dark, updating or none, and many others. I prefer the question, “Assuming multiple offers, what is the maximum price that makes sense to you and why?” This query implies that making a sensible bid is more important than paying whatever it takes.
“Do I get the buyer’s deposit if he backs out?” This is a convoluted area and cannot be adequately answered with a “yes” or “no.” It depends on why the buyer did not close and what the contract says about contingencies and the “Liquidated Damages Clause.” A competent agent will be able to answer the improved question, “What happens to the deposit if the escrow does not close?”
“What if we make our contract stronger by eliminating all contingencies? Our friends did that and got the house.” The question does not reflect any danger in doing so. In fact, although quite common in our area in multiple offer scenarios, it is a bad idea because it strips out buyer protections built into the purchase contract. Better to ask, “How can we improve our offer without making ourselves too vulnerable?”
“Why shouldn’t I wait to sell until prices get even higher?” Clearly, this question assumes that the market will continue to rise. I speak from personal experience that the market changes and it is risky to count on a continuation of any current trend. A superior question is, “What is the worst-case scenario for me if I wait a year or two to sell?”
At the time I begin working with a new buyer or seller, I tell him that I will answer questions he does not even know to ask. When I buy items like hardwood flooring, lighting fixtures, interior and exterior home paint, refrigerator, or sell my car or camera equipment, I look to fill in gaps in my knowledge so I can make the best decision.
This is why my final question always is, “What did I not know enough to ask you that could make a difference in what I do?” Try it; you will be amazed about how much additional, helpful advice you will receive.