Tips and Traps When Negotiating Real Estate: Question Authority

Learn to Act: Question Authority

“Question authority” is an old phrase out of the 1960s when the flower children believed that everyone over 30 was the enemy. Of course, all of the flower children are now over 60, so I suppose it no longer applies in a sociological setting. But it does have a special meaning in real estate.

When you’re negotiating, the other side may sometimes take all the energy out of a deal with their “authority.” If you let them continue, they could kill the deal.

For example, I was involved in the sale of a home near the coast­ line. The buyer’s agent kept insisting that the seller should lower the price because the house was run down and small and the Coastal Commission would prevent any buyer from improving the property. The seller wasn’t going to lower the price, and I could see the life slipping out of the deal. I had to reenergize it.

I wasn’t that familiar with the Coastal Commission regulations, but I did know they were very strict when it came to anyone building within their jurisdiction. But, I suspected, not as strict as the buyer’s agent portrayed. So I challenged her, saying I didn’t think the buyer would be precluded from improving anything on the inside of the property and probably could add on to the outside, but with a permit.

She immediately said I was wrong, that I didn’t know the rules (which technically was true), and that she did because she handled properties in this area all the time. Now there was a decision to be made. The seller and I could either accept her as the authority or we could challenge further. We decided to take it another step. I halted the negotiations and called the Commission on my cell phone. I was referred to a local attorney who handled a lot of cases involving their rulings. By contacting the attorney we discovered that yes indeed they were strict, but the kind of changes that this buyer wanted to make would probably be allowed without much difficulty. Suddenly the buyer’s agent’s arguments for a lower price disappeared . . . and the seller got a better deal.

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When it’s the authority that’s causing you a problem in a deal, challenge it. Usually the worst you can do is discover that the author­ity is right. But often the best you can do is to find out that the authority is wrong.

On the other hand, sometimes the authority is only an opinion. For example, you may be involved in a transaction where the critical factor is whether or not you, the buyer, will qualify for a particular mortgage. If you qualify, the deal will go through because both par­ ties are agreed on price and other terms. But if you don’t qualify, then there’s no deal. You have a preapproval letter, but it was issued a week earlier for a different property you originally wanted and is for a smaller amount than needed.

The seller’s agent, on the spot and hoping to bring in her own offer, may say your preapproval letter proves you won’t qualify for the deal. The seller looks at you and you see that the deal’s history, unless you can counter the “authority.” So you call up the original mortgage broker (assuming you’re the buyer), hopefully one with whom you’ve already made arrangements, and she now tells the seller that, yes, you will qualify for the needed loan and that she will fund it. Further, she will immediately fax a new preapproval letter for the right amount.

Suddenly things look up. Your authority is better, presumably, than the one the seller’s agent has. When your mortgage broker puts it all in writing, you have a solid deal. (And next time, get the right preapproval letter!)

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Challenging the Authority’s Credentials

There are many different cases where you’ll want, to challenge an authority’s credentials. One of these may be when someone who, you suspect, shouldn’t be butting in at all is giving you a hard time. For example, recently there was a transaction where the escrow offi­cer kept calling me up and insisting that I produce this document or that, claiming they were essential to the transaction. At first, I com­ plied simply to get the deal done with the least amount of hassle. But when I was asked to come up with a birth certificate, driver’s license, Social Security card number, and bank reference, I balked. The escrow officer said these were necessary to identify me in the trans­ action and to be sure that the check I submitted for the purchase was valid.

TRAP

In the past, if you were a buyer, simply putting a cashier’s check into escrow was usually considered suf­ficient for completing a deal. However, in recent years some unscrupulous people have devised ways of can­celing cashier’s checks, and some escrows and title insurance companies have been burned by transfer­ ring title and issuing their own payment checks only to find that the buyer’s cashier’s check had bounced. (Believe it; it does happen!) As a consequence, today escrow agents often require additional safeguards, usually in the form of time. The cashier’s check must be deposited 24 or 48 hours prior to the close of escrow so it has time to clear.

I understood the escrow officer’s concerns, but realized that he was going overboard. So I said “No.” I’d supply a driver’s license and Social Security card number, if necessary, and deposit the cashier’s check ahead of the close of escrow. That was it.

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The escrow officer said that wasn’t sufficient.

I replied that the escrow officer was simply there to fulfill the wishes of the parties concerned and had no authority to demand more. If he kept insisting, I’d be forced to change escrows, even at that late date.

The escrow officer was furious and called the title insurance com­pany (to whom I was well known) and the lender. The escrow offi­cer called back an hour later saying that he had, “smoothed things out” and the extra documents weren’t really necessary after all.

Beware of people who are officious—especially those who feel is it their duty to create rules and build barriers because of their appar­ent position of authority. In the final analysis, they may not have the credentials to make their demands stick.