Stupid Negotiating Tricks: Appeal to Pity (or Falling for Appeal to Pity)

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A few days ago, another agent in my office got an offer and brought it to me for feedback. The listing was range priced over a $30k range, and priced correctly, so there was a lot of activity on it. The offer was for $30k beneath the bottom of the range, with a note saying that this was for a single dad with three kids, and that was all they could afford, but they really loved the property, and were so excited that that they were each going to get their own room, and so on, gushing for several paragraphs.

In logic circles, this is called the appeal to pity. "Please take pity on me." However, we had every reason to believe that we would be seeing better offers on the property very soon - it hadn't even hit its first weekend on the market, and there had been roughly 15 viewings and six phone calls from agents whose clients had seen the property.

I advised them to counter hard at the high end of the range pricing. It's no concern of current owners what that buyer can and cannot afford. The first two things that ran through my mind were the large amount of activity at an early date, and the likelihood that this was a low-ball flipper's offer. It's not like there's any criminal penalties for creative fiction accompanying an offer. The next two thoughts were if they like the property that much, come talk to me about ways to stretch what you can afford. Two ideas: Mortgage Credit Certificate and Municipality based assistance programs, and both could have been applied to this property, as in it was eligible, there was available money in the program budgets, and each of them stretched the buyer's ability to pay by at least enough, let alone if applied for together. If both were already accounted for, bid on something less expensive; it's not like there is any shortage of properties for sale. Maybe somebody has to share a room; maybe there are fewer amenities, maybe they just don't love it quite as much. None of these is the owner's problem.

Yes, I'm always looking for hidden bargains, but this time I was on the side of the owner, or rather, the owner's agent, and furthermore, the property was correctly priced and seeing strong activity. Neither of those are characteristic of hidden bargains. Furthermore, appeal to pity is a bad negotiating tool.

So here's the situation: Somebody comes up to you and asks you to sell your property for far less than you can get, because they are so deserving, and you want this underdog to succeed against the odds. "Help me, I'm really in need." The appeal is no different at the root than a pan-handler's pitch.

I've given money to panhandlers in my time, too, and doubtless will again. I'm a complete sucker for the ones with kids. But that's maybe $5 or $10, possibly even $20 at the most. Panhandlers are not effectively asking for $40,000 or so out of my pocket, much less my client's pocket. My client has neither a Red Cross nor a Salvation Army Shield on their door. They are not obligated to settle for much less than they could get for a valuable property. In this case, the difference was for something like 70% of their actual net equity, and it is a violation of the fiduciary trust that my client has placed in me, and I have accepted, not to point this out. If it were several months on, and this was looking like it might be the best offer the property would get, that would be one thing. But it was a brand new listing with strong enough activity that there was even hope of a little bit of a bidding war. It's not like the prospective buyer was homeless, and even if they were, there are more logical things to do first than buy a four bedroom detached home, not to mention it would be tough getting verification of rent, which all lenders are going to want.

But I also counseled the other agent not to reject the offer completely, and not to counter until the third day. The high counter signals, in no uncertain terms, that the owner's bargaining position is very strong. It's even a good idea to explain why it's very strong. But in this market, especially, you get buyers looking for a bargain because they might be able to get one. My buyers do it. Why not others? By the third day, there might be another offer on the table. Not that the absence of other offers stops some agents from pretending that there are other offers, but I've always found that the best policy is not to lie when the truth will do, and the truth will always do, because you should tailor your response to what the truth is. This may sound strange coming from a member of the profession that describes condemned buildings as "needing a little TLC", but if you want to do well in negotiations, never overplay your hand (and tell the buyer that the building is condemned. Condemnation is a recorded instrument, so it's not like you can plead ignorance). Real estate is almost entirely public information. If there is a dissonance between how you act, what you say, and what the public information says, good agents will pick up on it. This is not poker. The other side can see most of your cards, and has the option of getting up and walking away from the table at any time, and good agents will counsel their clients to do exactly that if the situation calls for it. The idea is a willing buyer and a willing seller coming to a mutually beneficial arrangement.

So the other agent took the offer to the client, and jointly they decided to mostly follow my advice. The prospective buyer walked away, they got two more offers before the third day. And a couple days later, well, remember that first group of two thoughts I had? Well, we found out that that particular prospective buyer was buying with intent to flip; he had flipped at least four properties in the previous year or so. His low offer and all the histrionics surrounding it was simply a ploy for more profit.

Caveat Emptor

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This page contains a single entry by Dan Melson published on June 29, 2008 7:00 AM.

The High Cost of Waiting To Buy A Home was the previous entry in this blog.

The Lure and the Trap of Debt Consolidation - and the Possible Benefits is the next entry in this blog.

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