Raise your hand if you remember the first person who won the million-dollar grand prize on “Who Wants To Be A Millionaire?”
I sort of do.
It was a man. Middle-aged, white, nerdy, cocky, and certainly with a flair for the dramatics.
I believe the question was about which United States president appeared on a comedy show from the 70’s or 80’s.
The contestant asked to use his “lifeline” and phone a friend, and he called his father. Except once his father picked up, he didn’t ask his father for help, but rather said, “Dad, I don’t really need your help, I’m just calling to tell you that I”m going to win the million dollars because the answer is Richard Nixon and that’s my final answer.”
(cue the lights and balloons)
Despite Regis Philbin religiously asking every contestant, for every question, “Is that your final answer?” Regis didn’t ask the contestant this time.
It would have ruined the moment. And oh, what a moment!
Alright, I found the video:
I think I did pretty well, going from memory.
I didn’t remember that long pause when the audience clapped, but this is definitely a man who is both “nerdy” and “cocky,” so I was right about a couple of things!
This was twenty-three years ago, for those who want to feel old today.
I remember watching this live, with my Dad, and he was screaming, “It’s Nixon!! Nixon!”
Then when the contestant, John Carpenter, said to his own father on the phone, “I don’t need your help and I’m going to win the million-dollars because it’s Richard Nixon,” my dad said, “Oh, look at this cocky bugger.”
After the music played, the lights shone down, and the buzz subsided, my dad said, “Regis didn’t confirm it was his final answer. Boy, I wonder how this would have gone down if he was wrong.”
Some of you reading this today weren’t even born when this show came out, but I can tell you from experience that of all the shows that captured a nation, this is near the top of the list. Just as the original “Survivor” show captivated everybody, in every country, where it was played, so too did “Who Wants To Be A Millionaire.”
Survivor changed reality television forever.
Who Wants To Be A Millionaire changed game shows forever.
Both shows, together, helped change television forever too.
And if “Who Wants To Be A Millionaire” was remembered for one thing, it would be the quote, “Is that your final answer?”
In real estate, we hear the words “final offer” very often. In fact, a majority of negotiations (in this case, a market where the list price is negotiated down and not up), there is a “final offer” of some sort.
But what is a final offer? What does it mean? And does it have any legal backing?
First, consider when and why a person makes a final offer, whether that’s a buyer or a seller.
Chris was telling me this morning, “The listing agent and I both know that we’re going to get a deal done at $1,400,000, but I can’t offer that to start.”
Why?
As Chris put it, “Because to walk the road and to know the road are two different things.”
If a property is listed at $1,550,000 and you offer $1,400,000, “final offer,” it’s not nearly as likely to culminate in an agreement as if you were to offer $1,300,000, sign back a few times, and land at $1,400,000.
It seems unnecessary, right?
But the “take it or leave it” right off the hop is often the wrong approach.
For starters, you want to avoid eliciting emotions in a negotiation, unless you can use it to your advantage. In a hot market, with multiple offers and the proverbial “bidding war” breaking out, a listing agent can assume that the buyers’ tensions are high, as are emotions, and use this to his or her advantage. But in a market that’s balanced, where the buyer is actually offering under the list price, the buyer and buyer agent want to avoid getting the seller hot and bothered, which might result in that seller responding with emotion, rather than logic.
Offer $1,400,000 on that $1,550,000 listing, tell the listing agent, “This is our first, best, and final offer,” and most sellers will take that personally.
Offer $1,300,000, tell them, “This is our starting offer, we’ve got room here,” and you can make the seller and the listing agent feel empowered, and use that to lead them to where you want to go.
The second reason why you might not want to open with your “take it or leave it” offer is because nobody ever believes that.
An overwhelming number of negotiations end up meeting in the middle, simply because this is deemed to be “fair,” regardless of the circumstances.
So offering $1,400,000 on that $1,550,000 listing, with a “take it or leave it” attitude, is going get the seller emotional, it’s going to be deemed unfair, and you’re going to have a seller that doesn’t believe it’s actually your final offer.
Now, what is a “final offer?”
Is there any legalese attached here?
If you submit a “final offer,” is it carved in stone? Does it have to actually represent your final offer?
Last week, many of the readers took me to task for explaining how some negotiations work, before they’ve even started. The truth is: top real estate agents aren’t just good at negotiating when they have an offer in hand, but rather it’s how they converse with other agents at all times that elevates them
Last year, I had clients interested in a midtown listing, and the listing agent is one of top in the country. I called her to talk, and before I could really say much of anything, she said, “David, just to let you know, there is zero flexibility on the price here. I have way too much interest, so honestly, they won’t come down a penny.”
That’s called “anchoring.” She got her price in there first.
Before I could say, “We were thinking about bringing you $2,500,000,” she ensured that her price was the one anchoring the negotiation.
What negotiation, you might ask?
We hadn’t produced an offer yet! But the negotiation begins from the moment any buyer agent contacts any seller agent. Even when you’re making small talk about your workout this morning, your darling children, or your Thanksgiving turkey, trust me when I say that you’re negotiating.
We ended up bringing her an offer of $2,500,000 and she signed it back to us $30,000 under the list price.
So I would ask the readers from last week: was she being unethical when she said that the sellers wouldn’t take less than the list price? She wasn’t being “honest,” was she? And what about the other interest that she had? Where were those people?
This is all part of negotiating, and most agents understand that so-called “line” that the readers were mentioning last week. Where is the line? Where does it become unethical and where is it simply part of the job?
Here’s something I saw on Instagram on the weekend:
I thought this was hilarious.
But I get it.
I fear that some people don’t get it, and don’t ever want to.
An apple and an orange are both fruit, but they’re different.
Last week, clients of mine made an offer on a house for $120,000 below the list price. The sellers signed back $35,000 under the list price.
Their sign-back to us expired at 11:00am the next day.
The listing agent texted me at 9:30am and said, “Just to let you know, there was an 8:00am showing and it was their second showing. They’re literally waiting to see what you guys do with that sign-back.”
She’s insinuating that if we let the offer expire, and/or sign the offer back, that the door is open for this other agent to submit a competing offer. She’s hoping that I’ll take her little nugget of info to heart, and my buyers will accept her sellers’ counter-offer.
Was she telling the truth? Was there a showing at 8:00am? Was it a second showing? Were the buyers interested? Were they waiting for us to open the door so they could compete?
Who knows?
And who cares?
We didn’t let it phase us.
We signed the offer back to them and provided a 50-minute irrevocable.
They accepted the offer and we bought the house.
So I go back to my initial question about a “final offer.”
What the heck is a final offer?
My cynical side believes that the words “final offer” are the same as the words “good faith.”
People say things like, “We’re negotiating here in good faith.”
Or they say, “We made our offer last night in good faith.”
As opposed to what? Bad faith?
Do we need to specify the type of faith in which an offer is made? To specify that the offer is in “good faith” would mean that a large enough percentage of offers are made in bad faith, such that a distinction simply must be made.
But then when is a person negotiating in “bad faith?” What the heck does that mean?
I laugh when I hear “good faith” because the words are meaningless, but so too are the words “final offer.”
No offer is truly final because it’s not legally-binding.
Let’s say a property is listed at $500,000.
My buyers offer $450,000.
The sellers sign back at $495,000.
My buyers sign back at $461,500.
The sellers sign back at $490,000
My buyers sign back at $471,000 and I tell the other agent, “This is our final offer.”
What does that mean?
Legally speaking, it means nothing.
Practically speaking, it means nothing.
It’s supposed to mean, “take it or leave it.”
It’s supposed to mean, “If you don’t accept our offer, we are walking away and never coming back.”
But there are individuals out there that believe there’s some sort of ethical precedent attached here. You can’t say it’s your final offer if it’s not.
In this situation, what if the buyer would, in fact, come up to $475,000, and I tell the other agent, “This counter-offer of $471,000 is our final offer.”
Is that unethical?
I mean, I’m lying.
Or, maybe, just maybe, I’m negotiating.
So let’s say that the seller receives our “final offer” of $471,000 and doesn’t want to accept.
That’s it, right?
The seller can’t legally sign back our offer of $471,000 at, say, $485,000, because it was our “final offer?”
No.
That would be ridiculous.
They can sign back at $485,000.
But we can’t accept, right? Because we provided our “final offer” of $471,000 already?
No.
That too would be ridiculous.
The words “final offer” are meaningless. They are merely words used in a negotiation, sometimes they hold true, and sometimes they don’t.
I mentioned in a previous blog post that we made a “bona fide,” um, “good faith” offer on a property that had been on the market for three months, re-listed multiple times at the same price, and the sellers gave us an unrealistic sign-back. In that case, we told them our “final offer” was $1,600,000, and we meant it. In fact, we demonstrated that we meant it when we walked away from that negotiation and bought a different house on week later!
It’s up to both the buyer and the seller in any negotiation to decide what a “final offer” truly means when they’re presented with it.
On the flip side, if a seller provides a “final offer” to a buyer, that buyer can still reject the offer and provide a counter-offer. The seller could say, “I’m not interested anymore,” and refuse to negotiate. The seller can do whatever he or she damn well pleases! And if the buyer wants to re-offer the same price that the seller last countered at, the seller is under no obligation to accept it.
There’s a reason that Regis Philbin asked every contestant on Who Wants To Be A Millionaire, “Is that your final answer?”
For one thing, it was catchy. It was dramatic. It allowed the camera to zoom in as the music played.
But more importantly, they needed some sort of agreement and understanding, since the whole interaction was verbal.
Not only that, the $100 question was always something silly like, “A magnet would most likely attract the following,” and the options would be metal, plastic, wood, and the wrong man. So because the contestants goofed around and laughed at the initial questions, often musing, “Oh, yeah, the wrong man,” when there was serious money on the line, Regis needed to double or triple-check by confirming, “Is that your final answer?”
What could have also worked, but made for far worse television? The contestant signing a document under seal.
But that’s not nearly as fun, and that wouldn’t have been as punchy as, “Is that your final answer?”
My analogy isn’t perfect, but it’s meant to prove a point.
“Paper talks,” in real estate. A signed offer is the only guarantee, and the rest is just rhetoric…
Derek
at 9:58 am
“So I would ask the readers from last week: was she being unethical when she said that the sellers wouldn’t take less than the list price? She wasn’t being “honest,” was she? And what about the other interest that she had? Where were those people?”
We asked 100 people if lying is unethical. Survey says!
We asked the same 100 people if lying in real estate negotiations is unethical. Survey says!
Are they getting different results to the surveys? (probably.)
Regarding the top agent and whether she was “unethical” or “honest”, I’d be curious to hear her elaborate on her statements. Maybe she had seen a lot of interest, maybe not. Maybe she talked her clients into a lower list price than they wanted, and they said, fine, but we are absolutely not going any lower, so she relayed her instructions to David (everyone has a plan until they get punched in the mouth, with only one offer to consider). It is conceivable that this top agent did not lie at all. Call her and tell her you used her as an example of behaviour that could be equated with that in last week’s blog and see if she thinks they fall in the same place on the spectrum.
In any event, if we (maybe it is just me) need to accept that it is fair game to (volunteer untrue statements?) about a bunch of things (how many showings have occurred, how many phone calls), can David elaborate on the sacrosanct aspects of an agent’s relationship with other agents. What are the things or some of the things that an agent can never ever distort the truth on? What are examples that are over the line? Someone mentioned having a firm offer or the number of firm offers. Is it okay to tell an agent you have 2 offers when you have 1, or 1 when you have none? What else?
Derek
at 10:14 am
I also should state, I do not have intentions of becoming a full patch David troll, truly. David, I love you, your blog, and think you’re great! My opinions are just that, and worth exactly what you’re paying for them.
LucasJ
at 10:52 am
Agree with a lot of what Derek is saying here. Key point is – where is the line drawn? The agent saying that her clients wouldn’t take a penny less than list price, or David and his client saying $471k was their final offer when it really wasn’t is really a gray area, as, how are you supposed to prove something like this?
From last week’s post –
“We’re barely four days on the market and I’ve had a slew of showings. Three agents have called and asked or a copy of the condominium’s status certificate and two have told me they think they could have an offer by the weekend.”
The first and 3rd points (about a slew of showings and agents thinking they could have an offer) I think are fine, again gray areas that are hard to prove. But for the second point, if the system was more transparent then all buyers/buyer agents could see whether this point was true (ie. you could verify with the condo corporation that 3 agents actually did request the status certificate). I feel like the second point is similar to saying “we’ve received 3 offers from other agents already” with the difference being that agents submitting offers are actually able to verify if other registered offers were sent in, vs having no way to verify if agents requested status certificates or not.
R
at 3:13 pm
Don’t forget “number of offers” is as meaningless as “sold over ask”. There’s nothing to stop a selling agent (and all all their friends) from submitting a $1 offer just to pump the numbers.
Would anyone be surprised if that was happening?
Nobody
at 5:21 pm
There are public order books in (some) stock markets. Sophisticated traders can see how much demand there is at current price and what demand is like a bit outside of that.
The idea is that it’s more transparent.
Of course there are lots of orders that aren’t posted to the market, they’re in the computers of people connected to the market depending on what happens. Back in the day they’d be in people’s heads, when markets were slow enough that you could actually have humans trading live successfully.
Experience demonstrated that it just created new ways for the market to behave “oddly” and needed new rules on what was legitimate and illegitimate behaviour (people would put up buy and sell orders off market price that they would cancel before they could be traded on, using computers). A bank even got in trouble for clearing out a part of a bond market so they could then reset the price somewhat far away from the then current price and, of course, make a bunch of money..
This led to creation of “dark pools” where you can trade blocks of stock without people being able to see all the order book information. This made it easier, cheaper, and more predictable to trade large volumes of a stock at once. Different people, or different situations, benefit from different levels of information and those directly involved are generally large and sophisticated enough to figure out what is the right tool.
So more information isn’t always a good thing, even for the people it’s designed to help.
Not to mention that condo boards/managers already don’t love the sales and rental process and requiring them to tabulate and give out even more information to even more random people would make them unhappy and demand to be paid by somebody.
Housing is a fraught and infrequent transaction for most people. An agent smooths things over and makes it easier for the parties. Like traffic court – even a bad paralegal really helps people out vs how many totally screw up representing themselves. A good real estate agent is very helpful but a bad agent is still better than almost anyone could do themselves.
Jimbo
at 7:18 pm
The line is emotional. Every bit of information you are given in life is to benefit the purveyor of that information. Knowing the were 40 showings should never affect the offer you are going to make unless you are emotional about it. How many offer nights have you lost, how close are you to bring homeless etc.
As a seller, I want the desperate to bid and they will eat the information they are given during the bidding war, this was even better because 20 offers on paper drives the price more than any offer given.
Ace Goodheart
at 1:30 pm
Things that can go wrong:
“we’re showing the house at 3pm today, and they have already seen it twice. They are going to buy it, so you’d better improve your offer before then” (this actually happened to me up in Barrie, back in 2007, when I was shopping for my first home (a 10 year old townhouse in one of Barrie’s many cookie cutter new build neighbourhoods).
Our offer was $185,000 on a $195,000 townhouse (yes, I know, 2007 prices were a bit lower than now).
So being a person with some time on my hands, and having a curious streak in me, I ignored the request for a better offer, and instead drove over to the townhouse around 2:45pm, parked across the street, and waited.
No showing. They were making it up. The townhouse’s backyard was landlocked, and you could only get inside by walking up the driveway.
I waited an entire hour, just to be sure. There was no 3pm showing.
We ended up buying that townhouse by simply sitting around and waiting for the seller to realize that we were not going to offer any more money.
From knowing a bit about teranet, I had already discovered that she had three mortgages on it, I knew she was a waitress at a local bar that had just closed down, and I knew she had almost no equity. She needed to sell.
We bought it for 185,000. She took all the appliances with her (even the fridge, which is weird). That was the final negotiated thing. If we were only giving her a buck eighty five, she was taking the washer and dryer.
Oh well. Call their bluff I guess.
Hard with a condo, but most Toronto houses, you can actually go and have a look and see if all these showings are really happening.
R
at 2:26 pm
The only reason agents dick around with back and forth fake negotiations is to make people think they are doing something of value….
And agents wonder why people distrust them more than used car salesmen and think the system is broken?
There’s more controls in place to prevent fake bids, verify sellers and protect buyers to buy a $5 vintage mickey mouse tchotchke on eBay that there is to buy a multi million dollar property.
It all comes down to an industry (organized RE) that is trying desperately to validate its very existence when technology, buyer awareness and market forces all point to a future (and present) where agents are not needed.
Marina
at 4:16 pm
Ethics are all tied in to expectations. If both sides know that they are negotiating and nothing is binding til the paper is signed, then whatever, use your best tactics, posturing, etc.
As long as there are clear lines that cannot be crossed. For example, things you have to disclose, even if they are detrimental to the price. But other than that, all’s fair. At least in theory.
But what happens when people are truly morally sleazy? Case in point, a friend was selling her semi-detached to help pay for a huge farm house with her new husband. The semi is downtown in a very popular area, lots of interest. They even got a few letters. One of them was from a family whose kid was receiving cancer treatment at SickKids. She was torn, but eventually sold to someone else for a lot more money. She felt really bad about it for some time.
Until, in one of those coincidences that shows you Toronto is still small, she found out that the couple didn’t even have kids! They made up a sick child for a potentially cheaper house! I’d say that’s sleazy and unethical on any day of the week, but I doubt it’s illegal.
Nobody
at 5:26 pm
Arguably your friend was about to do something illegal because of the letter.
Selling a house to someone because of their family status (having children) violates human rights code. Just as not selling/renting to someone because they’re single, or unmarried living together, or have kids would be.
Sure it happens all the time, ESPECIALLY in rentals, but it is illegal and for good reason.
So the person who is immoral is your friend, not the childless couple trying to avoid discrimination!
Ace Goodheart
at 9:38 pm
That was what happened when we sold one of our Toronto houses.
We painted it, shined up the floors, staged it, and then ran showings for a week. It was a madhouse. We went up north to our summer place in Muskoka, and we got the lowdown from the neighbours as to what was happening. One of them showed us a webcam of the line of cars and people coming and going from our house.
We ended up with over 50 offers on “offer night” and we did three rounds.
That is exactly what people did. Pics of their kids. Pics of dogs. Pics of couples, happy and in love, looking for somewhere to call home. Heartfelt family stories. Little notes and cards.
I thought the whole thing was a bit nuts. We just went for the highest bidder and demanded a large deposit up front.
Anyone who sells their house to someone who sends them a picture of their kids is frankly a little loopy.
Steve
at 10:17 am
I have seen the heartfelt letter thing work, but only in terms of giving one bid that was already (just) the best on paper being accepted versus sending both back. I doubt it’s going to move the needle on a place if you aren’t already in the ballpark of the top offer.
Derek
at 4:58 pm
Cue the eyerolls as I have a thought on “final” offers. They don’t have to be meaningless. If one develops a reputation that when Bob says “final” he means “final”, then it is worth something. Of course, the problem in real estate would be that the agent relaying the “final” is the same, but the person instructing the agent is always different. So the agent would need to get in the habit of informing his clients that he refuses to use the word “final” unless the client is prepared to walk away no matter what. Easier said than done. In other contexts, I know of many (insurance adjusters, for example) who are very protective of their reputation when saying “final” and it means just that. But, many buyers or sellers transacting once in a blue moon won’t have any qualms about having instructed their agent to say “final”, and then throw the agent’s credibility under the bus if there’s further movement.
Nobody
at 5:38 pm
People do change their minds.
Especially about real estate.
Especially in a bidding war/singing offers back and forth.
Say you have a couple. They have their mortgage approval and they are putting every dollar they have into downpayment + closing. Give a “final” offer.
Seller signs back 20k over. Wife, who is pregnant starts crying. They’re going to lose this house, the 8th one on their hunt. One of them calls an aunt, a friend who made $100 million on the IPO of their company, an “old friend from the neighbourhod”.. tells them the story and how sad they are at losing another house. Person on the other line says “don’t worry, I’ll take care of it, buy the house”.
Buyers are now BUYERS. They told the truth about their final offer. But then they suddenly had more money and given everything they REALLY wanted that house. Sure the husband is going to have to “do a favour or two for that guy in the place for this thing of ours” but they have a house for their family.
Who was lying? Who lost credibility?
It’s a transaction between people. Who don’t know what they will really do until the situation gets acute.
Even people who do lots of transactions and are purely numbers focused sometimes get other pressures or have things change. You never know because it’s all people, even at the biggest Hedge Funds, Investment Banks, and Pension Plans.
Sirgruper
at 12:24 am
Fairness, honesty, etc.
3. A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity. O. Reg. 580/05, s. 3.
Future events like a final offer being not final is not an issue. It stating a very specific material fact that is objectively and provable to be false. I have two offers when you have none is an issue much like saying a property was measured by an architect to be a certain square footage but it wasn’t to the knowledge of the representer. Marketing, sales etc are one thing. But there has to be a line.
Appraiser
at 11:42 am
Oh please, I’m dying of naivete poisoning here.
Much like the court system is adversarial, so are professional contract negotiations. It’s the reason that professional athletes have agents representing them too.
It’s not as though defendants counsel would try to present their client in the best light while the prosecution does the opposite – amirite?
Derek
at 3:01 pm
Two different things. I was focusing on lying. Lying would not be an effective part of a sports agents’ strategy and it is not equivalent to emphasizing good facts to portray someone in the best light.
Mxyzptlk
at 3:04 pm
Because it’s a well known fact that lawyers and agents never lie.
Mxyzptlk
at 3:22 pm
To elaborate a little on my rather glib comment, I seriously doubt that any sports agent would, for example, hesitate to state outright (as opposed to simply implying) that his or her client “has received substantial interest from other teams,” whether it’s true or not. And I’d bet my bottom dollar that outright lies along the lines of “Team X is prepared to pony up Y million for Z years” are a more than occasional occurrence in salary negotiations.
But if some folks chose to see sports agents, lawyers, used car salespeople, etc. in a more kindly light, that is their prerogative of course. My point is simply that RE agents are far from alone in exhibiting the types of behaviour we have been discussing.
Derek
at 4:37 pm
Okay sure, but your point is obvious, and goes without saying.
This blog often discusses shoddy practice or behaviour by professionals, in this industry, and contrasts it with best practices, in this industry. Apparently, avoiding untruths in negotiation is not expected by most to be a characteristic of only the former. It’s fine. I’m tired.
Sirgruper
at 11:59 pm
So everything is fair game? I’m not talking David’s situation. David is good at what he does and is clearly an honest guy. And after 35 years of working in the industry I am far from naive. But are you saying any lie is ok? Would you appraise based on false comps? Tell the bank or CRA about a property sale you made up? Of course you wouldn’t. There is selling but lying about certain items in real estate is simply wrong. Eg. I have a certified cheque of my client but you don’t. The property is zoned commercial but it’s not. There are civil laws against fraudulent misrepresentation. You can craft vs. Bald face lying. Life’s too short and reputations are important over the long run. And as for the lawyer comment, this is TV crap. Lawyers work on undertakings and their word. I can’t think of a real estate lawyer that outright lies to another lawyer about a material fact or what they will do. Sure, you negotiate and say you can’t see your client settling for less than x. But an outright lie on something material? Doesn’t happen and the Law Society would at least reprimand or suspend the lawyer. It truly is taken seriously.
Sirgruper
at 11:59 pm
This was a response to Appraiser