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SLOD! Best Price Negotiation Strategy

SLOD! stands for Sale by Lawyer Online Direct. An anagram of the word "sold", it also describes the way Lawyers Real Estate has become the "...the new direction in real estate."

By using the "SLOD! Best Price Negotiation Strategy" we are able to achieve the best price in all market conditions by combining best practice with superior verbal negotiation skills, backed up by our deal-making legal expertise as property lawyers, and by avoiding the problems of conflicting interests and commission rage that infect deals brokered by conventional estate agents.

	What is "best price"?
	What is SLOD! and how does it work?
	Clients confirm our best price strategy
	Why only lawyers can achieve the best price
	Why real estate agent processes fail on best price
	Important facts about sale negotiations
	Encouraging the "Knockout bid"
	Conclusion

Our 'Best Price Negotiation Strategy' ensures that your property will sell for the best possible price, and on the most acceptable terms, that the prevailing market can offer.

What is "best price"?

Ask any vendor what they hope to achieve through the sale of their property, and the answer usually comes down to a concept known as the "best price", but most vendors do not really understand what the best price is, or how it is reached.

Best price is not known until negotiations have concluded

The most important aspect of the best price is that it is not determined until negotiations have concluded. This ensures that all options remain on the table, for the vendor's consideration, until the negotiations have concluded and the deal has been converted to a legally binding contract containing the precise details of the agreed terms.

How real estate agents get it wrong

Real estate agents tend to take the view that a price should be established during the first interview with the client, and inserted into the listing contract between the vendor and the estate agent (known as the Exclusive Sale Authority).

Determining a sale price at the start of the transaction has a limiting effect on the sale. First, it allows the estate agent to condition the vendor from the outset. Second, it sets an upper limit at which a sale will trigger an obligation for the vendor to pay a full commission. This triggering of a commission obligation counters any incentive to seek a higher price, as the estate agent will not risk losing the entire commission by holding out for a higher price. The same occurs in auction sales to an even greater degree.

Once the estate agent "falls over the line" by obtaining an offer that meets the sale price, the vendor is expected to sell. If the vendor does not accept the offer commission rage is likely to ensue.

Even if the vendor is able to successfully haggle with the estate agent and have a high asking price inserted into the Exclusive Sale Authority, a general condition in the fine print of the Exclusive Sale Authority allows the estate agent to charge a commission even if a lower offer is accepted. This leaves the door open for the real estate agent to condition the vendor throughout the sale period, until the vendor finally gives in.

The lack of transparency in the setting of the asking price allows the estate agent to manipulate it through underquoting or overquoting - both of which are illegal, but remain in use in the real estate industry, and are extremely difficult to police.

How legal negotiation achieves the best price

Negotiating the “best price” commences with the transparent setting of a soundly based price range which is recognised by all parties to the negotiation.

There is only one reliable and independent source for obtaining fair and objective information on which to base a price range for the sale of real estate - the accredited valuer. Government, courts, tribunals and professional mediators always use professional valuers to provide written assessments of property value, and will accept the sworn testimony of a professional valuer as evidence when determining the current market value of real estate.

Once the valuation has been received, an indicative price range is set, between 5% above and below the valuation figure. Bids are then invited from prospective purchasers, on the understanding that all bids must commence within the indicative price range. (For more on this procedure see "The Fair Deal Negotiation Process")

While the "best price" may initially appear to be a matter of money, a careful analysis of any sale transaction reveals that the dollar value of the property is not the only factor to be taken into consideration.

When determining the best price it is necessary to also consider the terms and conditions of the sale.

Look at it this way. Is a bid of $500,000 with a special condition requiring the vendor to spend $30,000 better than an unconditional bid of $480,000? The following anecdote underlines the importance of considering, and carefully negotiating, ALL aspects of a deal:

The $50,000 Price Reduction

The purchaser of a country property included a special condition in the contract which required the vendor to have electricity connected to the property. The estate agent had the vendor accept the offer on the basis that the price had reached the vendor's predetermined asking price. When the vendor made enquiries about the cost of electricity connection it was discovered that the cost would be between $30,000 and $40,000. Settlement was delayed because the vendor could not arrange for the connection in time, and the vendor was having financial problems. Eventually, the vendor offered the purchaser a price reduction of $50,000 in order to settle and to allow him to access the sale proceeds quickly.

Because the real estate agent had simply seized on the contract price, and signed the vendor up to a sale without properly negotiating the whole of the deal in order to achieve the "best price" rather than the seemingly "highest price", the vendor suffered a loss of $50,000, but the real estate agent received a full commission.

The possible terms and conditions a purchaser may insert into a contract are many and varied, and can have an enormous impact on the “best price”.

What is SLOD! and how does it work?

www.SLOD.com.au is an online self-service facility we have built for potential purchasers, and it is the practical embodiment of the SLOD! Best Price Negotiation Strategy.

www.SLOD.com.au allows potential purchasers to obtain the vendor's contact details in order to arrange an inspection of the property, to download disclosure documents, and to place bids.

By allowing potential purchasers to place non-binding expressions of interest in the form of online or hard-copy bids, SLOD! exposes the property to pure market forces at the very beginning of the negotiation process, rather than in the closing stages as is the practice of non-lawyer estate agents.

When the competitive bidding process has taken the price to a level that is acceptable to the vendor, formal negotiations determine the final terms and conditions of the sale.

The agreement between the parties is put into written form, and agreed to by the parties and their lawyers, then executed as a formal and binding contract.

[More information "SLOD! How It Works"]

Clients confirm our best price strategy

You may have already heard the comments from our clients on our home page, particularly Nadine Forder's observation that after consulting an estate agent she had her house valued by an accredited valuer who assessed its current market value at a figure $20K above what the estate agent had quoted. The property then sold by negotiation for a figure that was a further $20K above the valuation. (Go to our home page and click on "Menu" at the base of the video box, then click "Valuations").

Every property we have sold has achieved its best price.

In every sale, we have been able to achieve a sale price higher than that attainable by conventional estate agents. Here are some further comments from our client testimonials page:

"We came to you looking for an alternative to dealing with real estate agents, and what we found was far better than we had imagined. Your service, whilst being fully structured and supportive, put us, the vendors, in an amazing position of control over the sale of our property. Your system of selling houses is so easy to deal with and achieves fantastic results for all concerned."

and this

"We also saved thousands of dollars and achieved a better price than one real estate agent quoted and equal to the maximum of another's. Even if they were able to achieve these prices, we would have lost out on commission."

The secret to our success in negotiating the best price is the close collaborative style of legal negotiations. Lawyers are trained to work in close consultation with their clients, so that all decisions are made by the client but with the advice and guidance of their legal representative. The ability to negotiate "as a lawyer" is why all important negotiations, from international arms treaties to family law settlements, the sale of billion dollar companies and businesses, and the sale of all forms of real estate, are conducted by lawyers.

Real estate agents, on the other hand, are taught to focus on winning the listing and winning the commission. (More on this below.)

Why only lawyers can achieve the best price

The lawyer is a legal representative - a professional negotiator

The role of the lawyer is to provide a service in return for the fee paid by the client; and the service provided by the lawyer is that of "agent". The term agent in this context is has the true legal meaning (see our page "Real Estate Agent - What 'agent' means").

This means that the lawyer is an agent in the truest sense of the word, and that the lawyer owes the client a fiduciary duty - the highest duty known to the law.

Here is an example of how the lawyer's fiduciary duty took our role in the sale of a client's property above and beyond anything a conventional real estate agent could have accomplished in the circumstances. This factual example highlights the use of negotiation through legal knowledge, tact, and the ability to anticipate the needs of the parties:

Settlement was only two weeks away and our client, still in a state of shock, telephoned and asked, "What do you do when your purchaser dies suddenly?"

We explained to the client that the property should be put back on the market immediately, and we contacted the solicitors representing the Executors of the purchaser's estate. We knew that, in the circumstances, there would have to be an inquest into the death, and that it would take some time before the deceased purchaser's estate would be in a position to settle. We also knew that the Executors of the estate would be faced with the problem of having to pay stamp duty on the new purchase, and then having to arrange for the property to be sold, and the proceeds returned to the estate.

We advised our client that, in these circumstances, the Executors would probably welcome an offer to cancel the contract, and we sought his instructions to enter into further negotiations.

The property went back onto the market, and eventually sold for the same price. The new contract was drafted with a special condition that stated that the sale was subject to the cancellation of the original contract.

The solicitors for the Executors negotiated an arrangement with us, and it was eventually agreed that our client would be paid a lump-sum, plus costs, in return for immediate cancellation of the original contract. For the Executors, this was a much cheaper option than proceeding with the purchase. For our clients, the lump sum and payment of costs made the fresh sale a very worthwhile exercise - a win-win situation.

Situations where negotiations extend beyond the capacity of the conventional real estate agent are very common, and vendors regularly miss out on better deals that could have been negotiated and finalised by an experienced property lawyer.

The lawyer's fiduciary duty to serve the client with the utmost good faith, and to give the client the full benefit of the lawyer's expertise and legal knowledge ensures that every opportunity, every option and every possibility is put to the client with the support of sound legal advice. In this way, the client is able to make the well-informed decisions necessary for achieving the best price.

Why real estate agents fail on best price

For real estate agents it's always "eyes on the prize" - winning listings and commissions

It's all a question of motivation and focus. At all times, the focus of the real estate agent is the winning of a commission by whatever means are available. While it may seem that the best and easiest way to win a commission is to work hard to achieve the best price, the opposite is true. This is because of the "all or nothing" nature of commission: sale = big winner, no-sale = big loser (particularly where the estate agents also gambles advertising costs on a "no sale, no pay" basis).

The real estate agent's method is to win the listing, make the sale, and then pass all responsibility to the lawyer. The primary role of the real estate agent is to make money for the selling agent, the listing agent and the real estate agency owner by ensuring that a sale, any sale, takes place while the property is currently listed with the real estate agency.

Here's how prominent real estate agents have described the situation:

From "The Insider's Guide To Saving Thousands At Auction" by Patrick Bright (Brolga Melbourne p.68):

Sale At Any Cost

When a selling agent signs up a vendor their basic plan of attack is to find out the lowest price the vendor will accept, sell the property and move onto the next property...their motivation to achieve the best price is not as high as getting a sale. It's sale first, best price second - that's the typical mentality. That might sound cynical but consider the economics of the situation. You see, if the property isn't sold the selling agent gets nothing.

Comment: The situation where "if the property isn't sold the selling agent gets nothing" immediately places the real estate agent in a position of conflicting interests.

From "Mastering The Art Of Selling Real Estate" by Tom Hopkins (Portfolio New York pp 29-31):

Chapter 4 - Why You Should Become a Listing Champion

"...Everyone who has enough intelligence and discipline to acquire a license can be successful in real estate...one of the unique features of the resale housing business is that we have to create our own stock in trade. That's where about half the income lies, in the inventory-creating activity known as listing...As a listing agent, you can list the home and let every other real estate agent in the world work on selling - without having to be present. There's nothing sweeter than having your vacation paid for by a listing that sold when you were skiing down a mountain or wiggling your toes in the sand thousands of miles from home."

Comment: The author is teaching real estate agents that the efforts of the real estate agent should be directed to the selling of his or her service as an estate agent to the vendor client. The problem of getting rid of the property can be left to one of the junior estate agents. Even where the real estate agent lists and sells the property, more emphasis is placed on "getting the vendor signed up" than in finding a buyer or achieving the best price. A client would also have to wonder about a business relationship that allows the agent to be skiing or lying on a beach at a time when careful negotiations should be taking place.

From "Bugger The Real Estate Agents" by R.J. (Bob) Semple (Melrose Sydney pp.48-49):

"Most training in the (real estate) industry revolves around obtaining the listing, and salespeople will pay hundreds, if not thousands, of dollars to attend motivational seminars - where the psychology of vendors is dissected and various ploys suggested to counter any argument the vendor may produce...The owner generally believes the property is worth more than it actually is...It is a sad state of affairs but people almost like being lied to, if they can clutch at the thought of possibly achieving a 'dream' price. Smart agents play on this human frailty and generally offer to achieve a much higher price than could reasonably be expected. Sadly, the vendor will often list with the agent who suggests they can procure the highest price. As a result there is almost a bidding frenzy by several agents to obtain the listing. This is known as 'buying the listing'.

...So, once they have the signed Listing Agreement in their briefcase, they can heave a sigh of relief. Because then, when all their skills come into play, they can expect you to accept, after appropriate conditioning, the 'price which the market is prepared to pay'. This will be considerably lower than the list price!"

...They want you to think of them as professional and trustworthy. The change in relationship occurs after you have refused the obligatory, ridiculously low offer that they present. They now see you as an obstacle to their achieving a quick and easy commission."

Comment: The struggle to win the listing and then to win the commission by making a sale, any sale at any price, is a major distraction for the real estate agent. It can also lead to commission rage and the use of deceptive practices.

Achieving the best price involves working with a client's instructions, negotiating on the client's behalf in accordance with the law, and striving for the best result possible. The real estate agent's need to compete for listings and to bring about a sale at all costs, and to do this within the currency of the listing agreement, as well as covering the cost of the commission, makes the task of achieving the best price virtually impossible.

Important facts about sale negotiations

The myth of the estate agent negotiator

Our first comment on negotiation is that, contrary to popular belief, estate agents do not possess negotiation skills comparable to those of lawyers. In fact, estate agents are not negotiators at all. Estate agents are simply facilitators. They bring two parties together and thereby facilitate the sale, but they cannot negotiate the sale.

Why can’t estate agents negotiate? First, the estate agent is commission-driven on a needs-to-win basis. If there is no sale, there is no commission for the estate agent. This, in turn, means that the estate agent cannot include a “No sale” in his or her set of possible outcomes. According to the authors of the leading book on negotiation "Getting to Yes: Negotiating Agreement without Giving In" knowing and developing alternatives to reaching an agreement with the other party in a negotiation is an important source of power.

Every sale through an estate agent trumpets to the purchaser, “Vendor MUST sell!”

Given that the estate agent must bring about a sale in order to have been “successful”, there is a high potential for one party to emerge as a “winner” and the other as a “loser”. For example, if the estate agent talks the vendor into accepting a low price, in order to satisfy the purchaser and to bring about a sale, the vendor may be the “loser”.

The problem is that estate agents act for themselves in a sale transaction, by working to get the two parties to lock into a commission-releasing sale. This is made to look like some kind of favour being done for each of the parties. First, the estate agent acts for the purchaser by acting as the purchaser’s only means of contact with the vendor. The estate agent usually “assists” the purchaser to fill in the contract, and then presents the purchaser’s offer to the vendor. The estate agent will try to get the purchaser’s offer to the point that it looks attractive to the vendor, and then the offer is presented to the vendor for consideration.

Who receives the purchaser’s offer on behalf of the vendor? That’s right, the same estate agent. The estate agent receives the purchaser’s offer, determines whether or not the vendor should accept it, then advises the vendor. If the vendor is reluctant there is a likelihood that conditioning and commission rage will come into the equation. The result is likely to be a sale for the vendor and a commission for the estate agent.

But has the vendor achieved the “best price”?

In most real estate transactions the estate agent achieves not the “best price” but merely an “accepted price”.

Reducing the negotiated agreement to writing

Concluding verbal negotiations is only the first step in negotiating a real estate sale. The crucial stage is having the precise details of the negotiated agreement put into a legally binding document, through the creation of a written contract. Only a qualified lawyer is qualified legally permitted to perform this task, and only a lawyer has the professional indemnity insurance cover to protect the vendor client.

A contract drafted by an estate agent is often simply a standard set of rules that bind both parties. In most cases neither party fully understands the terms and conditions, and they only discover their rights and obligations after the estate agent posts a copy of the document to the solicitors.

Estate agents are not trained to draft contracts. In fact, it is illegal for an estate agent to deviate from the standard form fill-in-the-blanks document.

Standard form documents were introduced in order to bring a degree of uniformity into real estate sales. Unfortunately, the use of standard documentation has resulted in a one-size-fits-all mentality. It is quite common for lawyers to find that a party whose contract has been drafted by an estate agent is stuck with a very standard contract, when the agreement reached verbally was not standard at all!

The contract is not simply a document that dictates terms to the parties. The contract should reflect the final written agreement, as worked out by the two parties.

Negotiating the "best price" in the circumstances

So, when we talk about the "best price" we're really talking about "the best price in the circumstances".

It soon becomes apparent that pricing a property is no easy task, as the circumstances of the sale can change for a variety of reasons:

	Opportunity cost - by holding out for a higher price an opportunity to purchase another property may be missed.
	Same market exchange - selling low and buying low in the same market may be better than selling high and buying high.
	Interest rate increases - fewer purchasers in the market for a particular type of house.
	Personal circumstances - too numerous to list.

The "best price" cannot be determined at the start of the sale; it is a flexible concept, depending on timing and a variety of other factors. The "best price" is actually determined at the time of sale, after open and transparent negotiations have determined a sale price and sale terms which are acceptable to both parties.

How the market affects price

What is "the real estate market"? There is a tendency to assume that the real estate market is the same for all properties, when in fact it differs from time to time, property to property, and area to area.

	The market for a property offered for auction may be confined to the group of bidders standing in front of the property on a Saturday afternoon, or it may be as wide as the reach of internet over a period of months.
	While the market for single room units in the inner city may fall flat, demand for new 3 bedroom brick veneer homes in the growth areas may be booming.
	A property with contamination problems may never sell, even though demand for similar but non-contaminated properties can't be satisfied.
	First home buyers may continue to buy, encouraged by interest rate falls and government incentives, when at the same time there may be little or no interest in high-end properties.

Encouraging the "Knockout bid"

While negotiation is crucial to the achieving of the “best price”, some purchasers want negotiations to take place at the speed of light. They want to secure the property without taking the time to go through a formal negotiation process. This is where the "knockout bid" comes in, and we advise purchasers that a knockout bid is the most attractive type of bid of all.

See what purchasers are told about "Making a knockout bid".

Conclusion

The final selling price of a property is determined by a combination of factors, including a transparent and fair negotiation process, unbiased legal advice, and the legal expertise to conclude with a fair and binding written contract.

Determining the price of a property is not simply a matter of a vendor or real estate agent deciding on a figure at the start of the sale, and a sale should not occur unless and until the vendor is satisfied that the "best price" has been achieved. Our sales always commence with a price range based on current market value, and conclude with the “best price”.

As your legal representative, we will fulfil our fiduciary duty to you as our client by ensuring that your property is sold for nothing less than its best price.

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