Active Rain December 20, 2011

The Rules of Engagement with Offers and Due Diligence

The things you see showing housesPerhaps my colleagues can relate to the following scenario:

A buyer is interested in your listing. Their agent emails you a slew of questions, and you get all the answers. There might be one of those 2nd or 3rd showings where where half a dozen extended family members come by and stay for 90 minutes to kick the tires while your seller client improvises family dinner at Arby’s. We recently had three generations of a family look at a house in Yonkers for 2 hours and when my seller returned to his house the washing machine was broken! What in the world were those people doing? 

We have had prospective buyers come back for 3rd visits and stay for hours. They’ve walked through with friends of the family. In laws. And that is fine in this cautious environment. But at some point, lines and protocols should be clarified, even in a buyer’s market. Taking your contractor buddy, your HVAC guy, or your architect is not appropriate unless and until you have an offer in on that house

Unless you have really peculiar circumstances, structural inspections and most types of due diligence are done once you have a deal. In most areas this is known as the review period of contracts, and in Westchester County it is done before contracts but certainly after an acceptable offer is made. That’s how it is done. 

BUT PHIL, I can hear some agents say, My people don’t know if they want to make an offer until they make sure that their roofer/plumber/electrician/rabbi/sheetrock whisperer say it all checks out! To those agents I would say learn how to sell real estate. If I had a client ask me to do something backwards I would, um, tell them that is backwards. I would educate my client.  

BUT Phil, I hear another agent say, I don’t want to WASTE MY TIME if they aren’t going to go forward. We have to make sure everything checks out before I type up an offer … To those agents I say, do your job and stop trying to cut corners. It is ironic that you are so willing to waste the seller’s time. The occasions where there should be something verified before going forward exist, but they are rare. 90% of them probably involve you going to the town clerk or building department, not in the garage and attic. 

The gravity machine works great at our houseDeal first, due diligence next. Here’s why. If I as the listing agent encourage my sellers to allow curious, albeit uncommitted buyers and their posse to track insulation dust throughout the house enough only to have them not go forward, at some point my clients blow an O-ring. The broker’s job is to smooth out the process, not introduce a period of intrusive hell into their lives. Selling a home is disruptive enough. 

And when I represent buyers, it is the same thing. Here’s why: If a buyer has a deal on  a house, he has leverage on the seller. The seller does not want to lose the deal. And if the discovery period yields an issue, the seller is more likely to address the issue for a committed buyer than with someone they perceive as a nuisance. Buyers get far more consideration than lookers. Doesn’t that just make sense?

That’s the takeaway for consumers. You have to give to get. It isn’t about making things convenient for the seller (although that doesn’t hurt- alienating the seller is not the way to start an offer), it is about leveraging a stronger position to get what you want. And if your agent says that something is a bad idea, don’t get upset that they won’t be obedient; be glad you have a strong agent with backbone. They’ll be a better negotiator for you. 

If you are a buyer and the house feels like home but you have a reservation about the physical condition, that is what inspections are for. Lock the deal in first, then you do your due diligence. Any risk that you’ll find vampire bones in the basement is abated by the seller being more likely to fix the issue for a good faith buyer than a looky loo. Deal first, due diligence next. That is the rule of engagement, and that is why the protocol works. 

Update: Read Debbie Gartner’s comment: 

 I’ll also add perspective from the contractor’s end…it is very frustrating and a waste of your time to have us do an estimate, if you are not even sure that you are going to buy the house.  I’ve wasted too much time doing this.  It’s one thing if I lose an estimate to someone else, but totally different if the customer doesn’t buy the house.  my time is valuable too.  I try to avoid these like the plague.  I’m happy to go if it’s in contract.