paralyzed by history? another buyer dilemma


information overload?
I am working with a motivated, smart and analytic buyer who wants to know as much as possible about one particular Manhattan loft and its competitors before making a bid. This current experience points up an issue with smart buyers and one particular fact pattern: the loft has had three accepted offers in six months but is still available at roughly its original asking price. (The balance of the discussion is not about That Buyer; it’s just General Stuff That Could Happen To Anyone.)

The problem is that not all interesting information is useful information.

what does it mean that 3 people decided not to buy?
It is easy to be distracted by a listing history that has been dutifully updated each time an offer is accepted, then again when it is back on the market. Some people step up and bid to compete with an accepted offer; others are morephilosophical and remain on the fence to see how it all works out. For those fence-sitters, the news that a deal has not been struck sometimes launches questions about what isknowable or not knowable, relevant or not relevant.

With 3 accepted offers but no contract in six months, one naturally wonders if there is something wrong with the loft or the building that is discovered in due diligence. While one can wonder, one can never know this until actually going to the effort of a negotiation and the expense of lawyerly Due Diligence. (Of course if there were some about-to-be-discovered Bad News, my opinion is that it should be disclosed by the seller’s agent before or during negotiations, but that’s another topic.)

On the other hand, if there had been no offers in six months, one might wonder if The Market perceives that there is something wrong with the loft at the price offered, leading one to question whether a loft that (a) you like and (b) can afford, is really worth it.

what can we know (that is useful or important)?
I tell my buyers that there are limits to what they can know about a loft or building during negotiations, that much more can be revealed during Due Diligence before they sign a contract, but that what other people think about that loft or have done in bidding or negotiating is usually only distracting or irrelevant.

Any buyer should be as knowledgeable about The Market and how a particular loft fits in The Market as the seller is. If a buyer thinks that  a loft is over-priced because another one down the street is better / cheaper / larger, then that buyer will use that information (opinion) in a negotiation with the seller. If the seller is motivated enough — and if there is no competing buyer present — then maybe a deal can be reached. If a recent past sale in the same building implies a lower value than theasking price, the seller will know that and the buyer will too (most often).
 
Of course a buyer would love to know how much of a discount a seller has already agreed once to take, but — unless the seller deems it in his/her interest to reveal it in negotiations — the next buyer will not know.
 
reading tea leaves is hard
The best reason for not worrying about a fact such as prior accepted offers without contracts is that you don’t know what it means and should not expect to find out. While it could indicate problems discovered in Due Diligence, it could just as easily indicate a seller being very negotiable with buyers who turned out not to be motivated or qualified.

If the (potential) problem is one that will come out only in Due Diligence, it will come out. The buyer may be upset with the seller and agent for sitting on something like that (I would be), but at least a buyer can be confident that it will come out before the contract is signed.
 
If the fear is that someone-knows-something-that-I-don’t-know that is other than a Due Diligence fact, the only response is that (a) you can and should know anything that any other buyer could know and (b) no other buyer will have exactly your set of needs, goals and financial resources.

some people just like to sit on fences
Some people get it that there is risk in any loft purchase and move on to buy the most suitable loft. Other folks find a reason not to buy. Some of those other folks eventually figure it out, but some of them never do.

tis a puzzlement.

 

© Sandy Mattingly 2008

 

 

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