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How NOT To Negotiate an REO Property

J Scott
5 min read

This week, I’m going to depart from my usual attempt to be informative and insightful, and instead use this space to share an interesting email exchange I had with a particular non-professional REO listing agent (and yes, I ended up taking a very non-professional tact as well). Actually, I think this post will be informative and insightful, but only as an example of what you probably shouldn’t do as a listing agent or an investor/buyer.

To set the stage, we made an offer on an REO last week. Before submitting the offer, my wife (my agent) called the listing agent to verify that the property was still available. He told us that the property had received multiple offers and that we should submit our “highest and best” offer to the seller.

So we did. The property was listed at $35,000, and we offered $28,500, with $5000 in EM, no due diligence and a quick close.

A couple days later, we received the following response from the listing agent:

The seller has countered your counter offer. Here are the details:

Purchase Price: $35,000 (cash)
Earnest Money: $5,000(certified funds to [LISTING AGENT FIRM] – money orders not accepted)
Inspection Period: 10 days from seller’s verbal acknowledgement date.
Other: Deed Restriction – Buyer may not resell or refinance for greater than 120% of the purchase price within 3 months of purchase.

Please let me know what your buyer wishes to do.

Hmmm…we submitted our highest and best, and the seller came back with a full-priced counter-offer. Okay, the seller has every right to do that, but since I had already submitted my “highest and best,” I wasn’t going to change my offer.

My wife responded on my behalf (*our* behalf actually, as she is 50% owner of the company) with the following:

Buyer will keep his highest and best offer as it was originally submitted. Please note, this includes NO deed restriction, as seller has countered with…

Seemed like a reasonable response. We figured that we might as well mention no deed restriction now, so that we could potentially use that as a negotiating concession at some point in the future.

I fully expected the agent to come back with an indication that the seller had rejected our offer, which would have been fine — we would have waited for another price drop to resubmit.

But, instead, this is the response my wife received in return:

That is a non-negotiable item by the seller. Is buyer really thinking they can fix it and flip it at a value greater than 120% of their purchase price, within 3 months of sale. My bet would be no. The restriction is a small intrusion on the buyer’s rights. I see no good reason for their objection. If you hope that the seller will concede to your offer price, then you should be a bit more flexible towards other terms. Buyer has made no concessions to this point.

WOW! Never expected that!

The listing agent — who we had never worked with in the past — apparently felt it was appropriate to lecture my wife and myself about how we should negotiate our offers, how we should run our business, how we should react to a particular contract restriction and how unrealistic it is that we might be able to rehab and resell a property in under 90 days (despite our doing it many times in the past). In addition, telling us that a particular term is non-negotiable (when we know it *IS* negotiable) doesn’t seem like the best representation of his client.

My wife was livid, as was I. We put together the following response:

First, I don’t know why you are taking such a tone in your response; it is uncalled for, unprofessional and unappreciated. It’s not your place to question my buyer’s ability, intentions or objections and if you’re going to take business negotiations personally, perhaps you’ve chosen the wrong profession.

Second, when you say that my buyer has made no concessions so far, keep in mind that it was your seller who cut off my buyer’s ability to negotiate by asking for highest and best. If your seller wanted to keep negotiations open and continue to expect concessions from my buyer, he shouldn’t have asked for highest and best as our first offer. My buyer is a professional investor and isn’t going to be swayed by emotion – when he was asked for highest and best, he factored in all the concessions he was willing to make into that offer. Your seller has every right to request highest and best if he wishes, but you and he shouldn’t be so surprised when a buyer is unwilling to increase their offer or make additional concessions after that point.

Third, while my buyer appreciates your investment advice, if you are so convinced that it would be impossible for him to rehab and resell in less than three months, perhaps you should just advise your client that this deed restriction is unnecessary. For reference, my buyer has purchased a dozen properties from this seller, and has negotiated out the deed restrictions on many occasions; so we’re quite certain this is negotiable if the asset manager chooses.

After going back and forth a few times, we decided it probably wasn’t appropriate to send that response…

So, instead, we sent this one, which was much more satisfying :):

Thank you so much for your helpful response, particularly regarding the deed restriction! My buyer is relatively new to investing and has only rehabbed/resold 23 properties in the past two years, so he didn’t realize how difficult it might be to rehab and resell in less than 90 days (he’s only been able to accomplish that about a dozen times so far, and admits he may have just gotten lucky in those cases).

I’ve spoken to my buyer about your advice, and now that he realizes how difficult it would be to rehab and resell in the time frame he’s accustomed to, he re-analyzed the investment given the additional holding costs he faces and realized that he probably offered too much.

So, here is his revised offer:

– $23,000 Purchase Price
– $5,000 Earnest Money
– No Due Diligence
– 90 Day Deed Restriction In-Place
– Close as Soon as Seller Would Like

If your seller questions why we reduced our offer price, please let him/her know that it was based on your excellent feedback and advice to my buyer.

As you can expect, the response from the agent wasn’t pleasant and he actually tried to get us to retract the new offer (my guess is that if he had submitted it, he would have had to explain to the seller why our offer was lower, and that would have made him look bad). But, we had calmed down by that point, so we took the time to politely explain to him that his initial email giving his “advice” was inappropriate for someone representing the seller.

In the end, we ended up having a civil discussion with the agent, and ultimately we’re still on good enough terms that I don’t imagine it would hinder our working together in the future. In fact, in his last email, he said he was going to re-submit one of our bids again to the seller (no idea which one, though).

I’m sure there are those out there who will agree that this agent acted inappropriately. And I’m sure there will be those who agree that I acted just as inappropriately. Most will probably agree that we both acted inappropriately. So, post your comments…I’m curious what those here have to say!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.