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Dealing with distressed sellers (II) … and a note about Bargain Killers

Just a few weeks ago a Spanish distressed seller contacted us in order to sell a good 3 bedroom property, an apartment, in Valencia city: newly renovated, with lovely transport links (underground and bus), on a fourth floor with views and a lift, fully furnished, and just 5 minutes walking to the old Turia’s riverbed gardens that cross the city.

The asking price was €95K.  The selling price could be dropped to €90K, which was the seller’s limit in order to repay the mortgage and walk away saying, “See you never bank!!”  So, the selling price was €90K in order to repay the debt. Good property and good price!

The seller really wanted to get rid of the flat as quickly as possible. There are quite a lot of sellers in that situation now. They want to sell despite the fact that they end up with zero equity (or negative). They assume that no profit will be made from the liability but they want to sell. They cannot handle the pressure of the debt itself in a hard economic climate. It happens.

Local Agents

The seller went to two local agents in order to start searching for a buyer. The agents knew that the seller’s asking price was 95K, and the agreement with Agent A was a 3% commission while Agent B’s margin was 5%.

We must mention that Agent A is the classic one who will try to charge to the buyer another 3%, so his total commission comes up to 6%. That is frequent, especially with rentals in Valencia where agents do this out of habit and people accept it.

Soon after, the seller saw that Agent A’s advertised price was 100K and that Agent B advertised an asking price of 106K. “What is happening?” asked the seller to himself.

What was happening is that the agents decided to make themselves an extra profit of a few thousand apart from the commission that was charged to the seller. They may thought: “The property itself was a bargain, so why not get more commission instead of launching such a juicy bargain into the market?”

Only after the seller put pressure on the agents to reduce the asking price did Agent A decide to put the price back to 95K, whereas Agent B preferred to stick with the 106K.

At that point Agent B was a real bargain killer because the difference from the advertised price and the seller’s asking price was 11K, whereas the margin regarding the selling price (90K) was 16K. Agent B really picked the numbers very well… very well for himself of course! A BARGAIN KILLER

The Spanish Brick launched the deal to our buyer clients in Valencia as soon as the owner contacted us after the events with the local agents. We decided to put the deal on the market with €90K as the selling price. There were 5 showings scheduled in March with clients from 3 different countries and currently a committed buyer.

CONCLUSIONS: What can we learn from this?

It is common for sellers to leave a margin between the asking and selling prices to give some room to negotiate with the buyer: this is what we call the negotiation “margen de cortesia”, or courtesy margin. But not always is like that… and real bargains do not really need that margin because the price itself is so good.

Distressed sellers are clear about their lowest price given the circumstances of the economy. So the market price is really reaching rock-bottom, because there is a certain low price which is the one at which the seller has to commit to the sale.

Agents can really become bargain killers in order to secure a profit. Not all of them, but when prices are low, the commission to be earned is also low and they do not like it specially when in 2005-06 ,at the pick of the market, the commissions were awesome compare with nowadays.

Other articles of interest:
Tips when buying directly from particulars
Dealing with distressed sellers (I)

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