September means Back to Basics here at Inman. As real estate navigates the post-settlement era with new commission rules, real estate professionals from across the country will share what’s working for them, how they’ve evolved their systems and tools, and where they’re investing personally.
Everyone knows that “nibbling” on a regular basis can result in a significant weight gain. Most agents don’t realize buyers and sellers often use the “nibble” as a negotiation strategy where the nibbler attempts to get just a little more out of the deal. The challenge is that the nibbler will keep nibbling until you put your foot down to stop them.
Here are a few examples and how to quash the nibbling before it gets costly.
The nibble at the close of the transaction
Assume that you’re the listing agent on a property that is set to close in three days. The buyer has removed all the contingencies and you’re ready to close.
Much to your surprise, the buyer’s agent calls and says that the buyers thought the washer, dryer and refrigerator were included in the deal. They’re refusing to close the deal unless you either leave them the appliances or give them a credit for $1,000 to replace the items.
While this could be a legitimate misunderstanding, chances are that you have just experienced the classic “nibble” at the end of the transaction.
The camel and the ‘nose-in-the-tent’ nibble
In this scenario, the nibbler doesn’t initially make outlandish requests. Instead, it begins with a simple request that will escalate into a major cost.
For example, assume the inspection report comes back showing there is lime buildup in the showerhead. All that really needs to be done is to have the showerhead cleaned. The nibbler asks for a new showerhead. It seems like a simple request, so the seller agrees.
At this point, agent beware. When the showerhead doesn’t match the exact color of the other fixtures in the bathroom, the nibbler now demands that all the fixtures in the bathroom be replaced, or the nibbler will cancel the transaction.
The point here is that nibblers will keep nibbling until you put a definite stop to it.
Nibbles during the contract period
A different type of nibbler constantly makes requests for small concessions while the property is under contract. For example, your buyers are under contract with a couple going through a divorce. The wife is devastated and will be moving into a small apartment once the transaction closes.
She doesn’t mean to be difficult; however, little Johnny’s birthday is the week after the transaction is supposed to close. Can’t the buyers give her an extra 10 days so Johnny can have one last birthday at home?
The buyers understand the situation, so they agree to extend the closing date. The day before the transaction is supposed to close, nothing is packed. The seller hurt her back, and her doctor told her she had to stay in bed. She can’t lift anything more than 5 pounds and couldn’t possibly do any packing.
The challenge for the buyers is: Do they throw the woman out of the house when she is supposedly ill? Is it easier to extend the closing date one more time? How much will they have to spend if they have to hire an attorney to remove her from the property? How much will a hotel cost, and how about the cost of storing their belongings? As they contemplate all of this, the nibbler lands her final attack: “The movers can get me out tomorrow on a rush basis, but it’s going to cost an extra $1,000.”
The commission nibble
Expert nibblers love waiting until the last moment to spring their nibble on unsuspecting agents. A classic version of the commission nibble: The buyer notices a crack behind a picture during the walkthrough. The crack is superficial, but the buyers don’t want to have to deal with it.
In the meantime, prices have been increasing, and the sellers believe they can get more for the property if they go back on the market. As a result, they refuse to do the repair. To keep the deal together, you throw in part of your commission to have the crack repaired and the area repainted.
Another version of the commission nibble takes place when the buyers and sellers are $5,000 apart, and no one will budge. They look at their agent’s commission and lean on you to chip in part of your commission to bridge the final gap.
A case study
I once had an REO (bank-owned) listing on the Wilshire Corridor in Los Angeles. The property was in great condition and had new carpets and drapes. We had priced the property to sell and received two offers. The bank took the highest offer, which was also all cash.
The buyers were from another country where bartering is a core cultural value. For my bank clients, the signed contract represented what they expected to receive when the transaction closed. For the buyers, the contract was only the beginning point of the negotiation.
When a buyer purchases an REO, there is usually no physical inspection contingency. This means that the buyer must inspect the property prior to making an offer. Consequently, the buyer has no way to back out of the transaction due to the property condition unless the condition changed while the property was under contract.
Although it was unusual, the bank agreed to the physical inspection because the offer was all-cash. The listing agreement and the purchase contract were clear: The buyers were purchasing the property in “as-is” condition.
The bank was also exempt from the disclosure requirements, though as the listing agent, California law required that I still had to provide the buyers with a disclosure statement. I completed my disclosure and included it as part of the offer negotiation. The buyers signed off on the offer.
The contract called for all appliances to be in “normal working order.” The appliances all worked properly, but the buyers didn’t like the fact that they were 7 years old. They asked the bank to replace all the appliances. The bank refused but did agree to purchase a home warranty to move the deal forward. This was the first nibble in the deal — getting the bank to pay for the home warranty.
A week later, an appraiser called me about accessing the property. The bank had requested proof of funds on deposit with a U.S. bank to be sure the buyer could close within 30 days, and the buyers had provided it.
According to the buyer’s agent, the buyers thought they could bring that much money into the country but were having trouble doing so. Assuming that the property appraised at the purchase price, the buyers had sufficient funds to make a 20 percent down payment and obtain an 80 percent new loan. However, they were going to need an extra couple of weeks to close the loan.
Nibble No. 2
Would the bank be willing to extend the closing week another two weeks? The bank agreed though it demanded a preapproval letter from the buyers’ mortgage company before accepting the change in terms.
The buyers asked if they could bring their decorator to the property. It was a hot day, and the air conditioning was off. The following day, the buyers claimed that the air conditioning system was not in proper working condition as per the contract because it took too long to cool down the property.
They then demanded that the system be replaced. (It worked perfectly when I turned it on.) As an alternative, they said the bank could replace the carpets with marble.
Fortunately, we received a strong backup offer. At that point, the bank gave the buyers five days to close or lose their $10,000 deposit as liquidated damages. The buyers immediately came up with the money and closed.
The moral of the story: The best way to stop the nibbler is to be prepared to walk away from the transaction because, in most cases, the nibbler really doesn’t want to start the whole purchase process all over again.
While these two examples are somewhat extreme, they illustrate the psychology of how the nibbler chips away at getting concessions throughout the transaction.
The strategy for dealing with a constant nibbler is to threaten to cancel the transaction. In most cases, they want the property — they’re just doing everything they can to get the best possible outcome for themselves.
Bernice Ross, president and CEO of BrokerageUP and RealEstateCoach.com, and the founder of RealEstateWealthForWomen.com is a national speaker, author and trainer with over 1,500 published articles.
