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Part 4: An Effective Buyer's Agent - Builder Takes $6,000 Loss
Introduction
Keith lost $6,000 when he sold his first house in Johnson County. Bill Vanderloo is the buyer's agent who negotiated that deal for his client. Bill came to the negotiations with his own considerable experience in designing and building energy efficient homes. He first entered the real estate market in the early seventies, at the height of the energy crisis. From the start Bill championed the cause of energy efficient homes. He helped construct and market three passive solar homes. He still lives in one of them.
He was marketing the homes, but Bill always felt he had to represent the buyer's viewpoint as homes were built. After all, the buyer was paying for the home. Formally and legally his commission came from the builder and he maintained a close working relationship with his partners, but he realized that his heart was in representing the buyer.
In the early 80's he was one of the first in the Kansas City area to join the new movement towards buyer agent/broker. It was as a buyer's agent that Bill contacted Keith and began negotiations for Keith's house.
Bill's experience in building made him aware of the strengths of Keith's house. His experience also convinced him that the house had design flaws that limited it's appeal, that the marketing of the house was ineffective, and that the real estate market at the time was on the buyer's side. In short, he was in a stong position for the upcoming negotiations.
Keith's House
Here are some of the design flaws Bill saw in Keith's house:
"You cut out that square footage and that's that 2" that sometimes makes the difference of how that piece of furniture fits in there or how that wall system will fit in there and everybody sometimes needs just that little bit of extra space."
In spite of these design flaws, Bill also recognized the positive qualities of the house. One of them was insulation. Keith's house received the highest energy efficiency rating given out by KCPL in Johnson County. Keith's houses use double walled construction; he designs the framing so there are no cold spots where insulation is absent; he insulates the garage and the basement.
"Now he did insulate the basement. Yes, I believe insulation of the basement is really good. 20% of your heat loss is down through the basement. And here we are: your furnace system's down there; your hot water system's down there; your pipes are down there. So, yeah, it's going to have heat loss, or heat gain depending upon if we're talking about sunlight hitting the basement foundation walls."
An 8" concrete wall has an R rating (a measure of insulating ability) of under 2. Even a thermal glass window is a better insulator. It has an R rating of 2:
"So if we had a thermal pane window, and it could be put all around the foundation and somebody looked at the thermal pane window and said:
'Look what you got. You got the snow, you got the ice, you got the ground. What are you going to do about that? All your looking on is glass.' Somebody would say, 'Hey, we've got to insulate it. We've got to take care of it.'"
"And if a thermal pane window has an R value of 2 and a concrete wall has an R value of 1.18 or whatever, right in there, what's the difference and why aren't people insulating their basements."
"What Keith did also is that he put better windows in his house than a lot of builders put in theirs."
The Subdivision
Keith's house was in a subdivision where the quality of his house was substantially above the rest of the houses. Bill's own opinion of subdivisions in southern Johnson County:
"He was also in a subdivision that wasn't calling for quote: 'the higher standards'. In many of those subdivisions down there, down south, they do not have many energy efficient techniques. Big houses that have lots of square footage (anywhere from 3000' to 4500' square feet) and are dinosaurs in what I classify as good energy building techniques. "
"A lot of them build single walled construction. A lot of them will put 5/8" blue board and then they're using the tie back wrap around the house. Okay. So they're using some techniques that are less than what they did 10, 15 years ago."
"Fifteen years ago we put an inch and a half or an inch of thermac. We put the thermacs around there. It was not uncommon for an inch to be standard. Where the subgroups that were following were putting in 5/8" or 1/2", starting the foamboard or the smaller insulated board that had an R value of 5 vs an R value of 7.2 Now you'll see single wall construction still. You see single wall constructon using tie back as a barrier for their outside wall. And I don't see the vapor barriers like they used to put in."
The Marketing
Originally, the developer was to provide the marketing for Keith. Keith had been concerned about this from the beginning, feeling that it might be awkward for the developer's agents to focus on the quality of his house, when that might reflect on the quality of the rest of the houses for sale in the subdivision. Eventually, Keith changed realtors and this was one factor.
Bill believes Keith did have cause to be concerned. In the negotiations, Bill felt marketing, or lack there of, was an important factor:
"I was fortunate that I knew that client. Secondly I had the knowledge to give the details of stuff. Most importantly, a bidding war to get to that house wasn't there. I had researched the builder. I had read the data and the information that he was talking about. And I had also seen the marketing techniques, of which he wasn't, I felt, getting enough of a ... I didn't feel that he was getting a good publicity situation by the broker who he selected."
"So, those were helpful to me because he knocked out the competition for anybody that knew what they were talking about. There wasn't anybody out there pushing his stuff. There wasn't anybody out there beating the drums to give the knowledge to the people. They could do lot better marketing, but they weren't."
The Negotiations
"My particular client had an extreme want to have an all brick house. Boom: listening to your client, you know their expectations. So I knew what that person wanted. I knew that there was that house that exists out there and I could put the two together. Therefor the buyer/brokeraging philosophy came back in."
Bill felt the real estate market favored buyers at the time Keith was trying to sell his home. So Bill went into the negotiations with the market on his side, the poor marketing by Keith's agents working for him, and a good idea of the weaknesses in the design of Keith's house. There was no competition for the house and he could take his time.
Keith's position was the other side of the coin. When Keith first started this house, he believed his most effective marketing could occur during the construction phase. That was the time when any buyer could see what he was doing and compare it to any other house going up. There would be no competition. From the pouring of the foundation, to the framing, to the flooring systems, to the roofing, no other builder, certainly in that subdivision, was coming close to his level of quality. He even gave free, well attended seminars on what to look for when buying a house if you want quality. He gave tours of his house as it was being built to illustrate his ideas in action.
But the construction phase came and went without a sale. As time went on, Keith drew down his construction loan and interest costs mounted. Once the house was built, every passing month without a sale cost Keith thousands in interest expense. Bill was exactly right, time was working against Keith.
The Outcome
Bill bid more than 10% below Keith's asking price and then hardly budged. He played a waiting game and won. Bill was able to do what a buyer's agent is supposed to do: He got his client a fantastic deal on the house his client wanted.
Keith took his loss philosophically - the lessons he learned were worth the cost. One lesson was that the design of the house was at least as important as the quality of its construction.
Another lesson:
Keith needed a sub-division where all the houses met his construction standards.