A while back I discussed how you could save some cash by cutting just one cup of coffee a week and by brownbagging it just one day a week. That’s when, in chatting with Paid Twice, she joking said “yeah… all these years of home brew coffee and packing lunches - explains why we’re broke. :)” She said it tongue in cheek but it’s a legitimate concern. So many people budget to a penny, diligently track their expenses, yet find themselves behind the eight ball and I suspect it has to do with expenses on the other side of the spectrum - the big ticket items. (I suspect this because that’s what happened to me!)

With respect to frugality, I see the world in two different categories. The first category is for those big ticket items where savings can be significant. Big ticket items are marked by lower frequency but high savings potential, such as a car. The second category are those smaller day to day expenses where there is a much higher frequency of expenses but lower potential for savings. Many times we focus on the small items because we deal with them every day but get panicky or pressured when we start talking major expenses, but those big expenses are the ones where the big savings are too.

Unfortunately, big ticket items aren’t things you can change overnight and they also tend to be more stressful. I recognize that. The two big ticket items most individuals have to pay for are housing, either renting or buying, and a mode of transportation, usually a car. The two are generally marked with higher levels of stress (what’s more stressful, buying a house or making your own detergent? duh!) in part because of the higher dollar values but also because of time constraints. With housing, you’re usually under the gun because you have to move by a certain date according to your lease or some other agreement. With a car, you’re usually under the gun because you need a car ASAP and the whole car sales business is a pressure cooker anyway.

So, how do you counter it? Remove the pressure and reduce those expenses as best as possible.

Remove the Pressure

Sales Pressure: With either a car or a house, there will always be a measure of sales pressure on the part of the agent or the salesperson. It’ll be far worse with a car dealership salesperson because they know they might not get you the next time in so they want you to buy now. Combat this by doing one thing… never sign anything the first time you walk into a place. If you meant to go test drive a bunch of cars, don’t buy that day. Always sleep on a decision and always get a second and third opinion from people you believe are both trustworthy and knowledgeable. You can save yourself from making plenty of bad decisions if you sleep on it and ask for second-party opinions.

Housing: You know when your lease will expire, so start your housing search as early as possible. If you’re buying, start it several months in advance of your move. If you’re going to rent again from another place, start a couple months in advance of your move. Chances are, if you’re renting, even if you can’t find another place to live, you can always go month-to-month on your lease and pay a small premium. Paying an extra hundred dollars a month for one month is far better than rushing into another lease or even a 30 year mortgage!

Car: What’s the worst thing that can happen if you don’t buy a car and your car is kaput? At best, you’re inconveniencing yourself and perhaps friends and family that agree to drive you around. At worst, you rent a car at about thirty or forty bucks a day until you settle on a car. What’s worse, overpaying a few thousand on a car or shelling out for a rental? There is no pressure to buy a car as soon as possible.

Reduce the Costs

The topic of how to reduce the costs of housing and a car, at the tactical level, is way too complex to go into in a few paragraphs here. If you want to know the best tactics for negotiating down the price of a car or a home/rental, you can find plenty of information online . I will however say a few words about how I view homes and cars from a philosophical level and I’m interested in hearing your opinion as well.

Housing: When I rented, I saw my apartment as a temporary location for, at most, a few years. Since it was temporary and I wasn’t building a long term solution, I tried to spend as little as possible on my housing. My end game was to buy a house, not rent a swank apartment, so I never painted or put up pictures. The point was to pay as little as possible so that I could put as much as possible towards a down-payment. To this end, I spent two years renting, always had the same roommate, and we tried to keep costs down as low as possible - I never paid more than $600 a month for rent. I’ve know people who have spent $1200 to $1500 on single bedroom or studio apartments because they wanted someplace nice. That’s $600 to $900 a month that person can’t put towards something else (which is perfectly alright, we all have our own tastes). However, if you are looking to save money, you have to make a lot of detergent to recover $600-$900 a month.

Car: My car gets me from A-to-B and I want it to be affordable, reliable, and fuel efficient. I know some people like to buy cars because it projects a certain image, they want to be able to drive their co-workers or bosses around in a nice ride, but luckily I never worked in industries where that mattered or could affect my future job growth.

Total Cost Considerations: This post is getting a little long winded but I wanted to throw in one last point about total cost. When you sign up for a house or a car, you’re signing up for years and years. A lease is often for twelve months minimum. When you make these purchases, remember to consider the monthly costs as well as the initial costs.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not your enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” - From translation of Sun Tzu’s Art of War

In this article, I’m going to try to identify a salesperson’s tools, why they work, and hopefully what you can do to defend against them whenever you’re going to make a purchase. These aren’t tricks or scams, these are just solid sales techniques that have been proven to work. I won’t go over things that are outright scams, like baiting and switching or “the one you want is out of stock, how about this one” or “whoops I added this up wrong and it’s way too high, lemme see how you react,” just the ones that are generally honest and just good tactics.

Throughout reading all this, remember one truism: Salespeople need to eat. They will try their hardest to sell you something and they will persist if you give them any reason to believe a sale can be made. Being polite is one thing, but being honest and forthright is better because it allows a salesperson to work on a customer willing to buy. If you’ve made a decision not to buy, make it very very clear and the salesperson should understand. If they don’t, they won’t be in sales for long! If they do, they’ll be thankful to be able to get a good excuse and move onto someone who will turn into a commission check.

Becoming Your Friend

All salespeople worth their suit will try to build up a rapport, try to get into the comfort zone with you, and ultimately try to become your friend. I’ve seen it in a car dealership, I’ve seen it with real estate agents, and I’ve seen it in Chinese restaurants. The key to business has always been about building relationships and building networks. Business owners build relationships with customers, customers come back for more and are more trusting, right? Would you buy from a random store or one in which the owner has shown an interest in your well being? Certainly the latter. This practice extends to salespeople, by building a relationship, you might not buy right now, but you when you do buy, you’re more likely to return.

Here’s what you need to do - become their friend but don’t drop your guard. The goal of any business person, even if they are becoming your friend, is to close on a sale and earn another dollar. You can take advantage of this by asking for discounts today in return for promises of future business and using word of mouth. “If you help me out and knock off a few bucks, I’ll be sure to tell all my friends to shop here.”

Yes leads to more Yes

Psychology studies have shown that people who are in a “yes” frame of mine are more agreeable. I know it sounds ridiculous and I can’t find the study (maybe it was in Tipping Point or something) but it’s true. What this means is that a salesperson will ask you a bunch of yes questions in the hopes that it primes you to agree to a sale. Sometimes the questions are ridiculously obvious, “do you want something that lasts? something with a brand name?” and sometimes they’re not so obvious. Don’t confuse these primer questions with legitimate questions about your needs, but still keep on your guard.

What you should do it answer everything truthfully because some of those questions are information seeking, but just remember in the back of your mind there’s some salesperson psychology work going on here.

Making You Wait

This always happens at a car dealership. You test drive a car, you start talking numbers with the salesperson, then they have to get their manager to review the numbers. He or she leaves for what seems like a while, comes back and says the manager is on the phone, hold on a minute. Then they start up a, usually, unrelated conversation about weather, what you like to do, their kids, etc. Then the manager might show up or they disappear for a while. Sometimes the manager is honestly busy, sometimes they’re trying to tire you out by making you wait. People make mistakes when they’re tired, they’re hoping your guard lowers a little more with every passing minute. (Note that this doesn’t happen when you first show up, only when you start talking numbers!) This is also another opportunity for the relationship building to continue, maybe you learn about his kid who needs braces or is starting up school, maybe you find our she has a son that broke his arm, who knows.

If they make you wait more than five minutes for a manager, get up and leave. If you feel tired and drained, get up and tell them you want to sleep on it because you are tired. If they say hold on, don’t hold on. Firmly shake their hand, ask for their business card, thank them, and walk away. You should never make a large capital purchase, such as a car, without reviewing the paperwork with at least two people you trust and certainly never do it if you’re not 100% clearheaded.

Special Offer, Today Only, Building Urgency! Now!

I talked about this when I got a quote on windows (and again when I got a quote on carpet), but it’s “special offer” price that’s good only for the next four hours. Or the next day. Or a week. Whatever the case, they cut a few percentage points off the price in order to get you to sign up right now. It’s creating a sense of urgency where none exists. If you had a hole in your roof, they wouldn’t need to drop the price to entice you - you already have that sense of urgency.

The deal is not a special offer and will be valid for at least a week if you ask. The fact of the matter is that once they recognize you aren’t going to bite on a “deal that expires in 10 seconds,” they aren’t going to insult your intellect by insisting on it. Just ask them if they’ll extend it a week and if they won’t, walk away because it won’t be the best offer out there. I think it’s unreasonable to ask for a month because prices of raw materials fluctuate but it can’t hurt to ask!

The Sample Close

I forgot about this great tactic until SavingFreak reminded me (thanks!) in the comments below, but this is where they something along the lines of “if we were able to do this, this and this, would we have a deal?” A close cousin of this would be if the salesperson said “what would I have to win your business today?” or something similar. With the first version, they try to guess what roadblocks you may have and overcome them right off the bat. If they guessed wrong, they’re hoping you reveal what it is preventing you from signing and try to address that if they can. The second one gets right to the point and asks you.

When they ask, tell them what you want and tell them everything you want. If it sounds unreasonable, that’s okay, tell them anyway because that’s what it would take! Don’t ever give up something without them asking for it first. For example, if you need $500 knocked off the price, 12 months of 0% same as cash financing, and for it to be leather and not cloth - demand it. You never know until you ask and you don’t want to just say $250 off and then feel compelled to sign when they make it happen.

The Hand Off

Some people are good at buttering people up, some people are good at explaining technical details, and some people are good at closing deals. The Hand Off occurs when it appears that you, the prospect, aren’t going to buy. This is a last ditch effort where they bring in the big guns, a VP or a sales manager or something similarly titled, to come in and “solve your problems.”

The salesperson will usually tell you that they want to get their manager to speak with you, don’t bother arguing because chances are he or she will get fired if they never employ this tactic. Just say “Ok, but I need to leave in five minutes for [insert something].” At the very least, you can give the salesperson an excuse they can give to their boss if needed.

Conclusion

The few tactics I outlined above are tried and true methods that have sold a lot of things to people. There is much more to sales than those ideas, such as identifying the benefits of products, being persistent, working hard, etc., and you can find a plethora of books about it, but those are the tactics that can turn an otherwise level-headed buyer into a foolish one. I suspect that you’ve encountered one, if not all, of the tactics above, so please share your experience! I’d be interested to see if there were any other ones that I missed.

(Photo by Mr.mt)

MusingMoney keyed me in on this little story about how two different home selling strategies yielded two different results and is the topic of the third chapter of my Home Buying Autopsy. When you go to buy a house, keep your eye on the prize and your hand on your wallet. This is the same as when you’re buying your next trinket on Ebay, always avoid a bidding war - the seller’s best friend.

In the story, one seller listed a $400k home at $450k while their neighbors listed it at $395k. The $395k yielded more foot traffic and eventually created a bidding war with the sale price resting at $425k. The $400k languished and eventually sold for $410k. Moral? Bidding wars only benefit the seller.

I almost fell prey to this twice in my home buying process. At the time, and even now, the housing market in the Baltimore-Washington area is piping hot as supply has yet to catch up with demand. I had always planned to spend between $250k and $300k for a home, that’s all my wallet could bear. When the time came to put down an offer on a home listed at $290k, I submitted an offer for $290k with an escalation up to $300k, my limit. The seller countered and I escalated up to $310k, a full ten thousand bucks over my limit! I was in a bidding war! The seller came back and said that the other offer was for more but by then my girlfriend had talked some sense into me and I backed out.

The second time was in the house I ultimately purchased. Listed at $270k, (a lowball listing to generate foot traffic into the house, comparables were selling for $300+ in the area) we offered $280k with an escalation up to $295k. The seller’s agent told us the competition had $350k in cash and she wanted to know if we wanted to increase our offer. The key point we used was the knowledge that the seller’s wanted to stay another two months, something competition wasn’t willing to agree to (and probably why the price was lower). I was tempted (briefly) to jack up our offer but thought better of it… turns out that the other buyer offered $330k! The biggest mistake their agent made was telling me I had no chance.

Therefore, the next time you’re buying something, including a house, remember not to go beyond your preset limits for the sake of winning. There is an infinite supply of homes and with time and diligence; you will find the right one in the right price range. There is no such thing as a perfect house if it will cost you more than you want to spend.

In this second installment of my home buying autopsy series, I’ll take a look back at my dealings with my lender, Equitable Trust Mortgage. I knew that I could negotiate some of the fees with my lender but I felt pressure from the sellers to close the sale within two weeks, which by all accounts is very difficult to do. Since my only benchmark at the time were the closing costs associated with a loan from LendingTree and Equitable Trust’s closing costs were significantly lower ($500 vs. $995), I had no reason to think about shopping around.

Everything in life is negotiable, including the closing costs related to a mortgage. All the 800-level fees are negotiable because the lender gets to set them at whatever they believe the market will bear. The following is a list of the 800-level items:
800. Items Payable In Connection with Loan
801. Loan Origination Fee
802. Loan Discount
803. Appraisal Fee
804. Credit Report
805. Tax Service Fee
806. Document Preparation Fee
807. Flood Certification Fee to FDSI
808. Doc Prep to Equitable Trust Mortgage Corp

On both my first and second mortgages, the document prep fee to Equitable Trust was in the $250 range. In hindsight, I bet I could have negotiated this downward because there’s no reason why the preparation for the second mortgage would take as much time as the first one. It’s sort of like a quantity discount. None of the first six 800-level fees appeared on the second HUD, I would’ve immediately contested those because there’s no reason why you would need to appraise the house twice or get two credit reports.

As for the rates themselves, 5.75% and 7.5%, could’ve been negotiated downward I bet. I think I was hamstrung by the demands of the sellers (two week closing) and so I didn’t feel I had much to negotiate with especially when the lender knew that I only had two weeks. Even so, perhaps I could have negotiated a quarter point lower on both and saved a few bucks that way.

Ultimately the moral is you should always ask and you should never feel as though you have to go with any particular lender. The money they give you is just as green as the next guy; it’s simply a matter of how much they’ll want to charge you for it. It’s easy to overlook these nickel and dime charges when you’re dropping a few hundred thousand on a home, but these fees come straight out of your pocket. All the saving in the world in anticipation of a home can be wiped out by not paying careful attention to these fees and not contesting or negotiating when you can.

Have you seen the latest Bank of America offer of $100 for opening a checking account? How about Comcast willing to pay you $25 a month to trade in your dish (or one you just bought off Ebay) and get you as a subscriber? Companies try their hardest to get new customers and with the prevailing attitude that it’s cheaper to keep a customer than it is to get a new one, you can get out of almost any penalty or fee if you simply ask. Just ask.

I’ve missed a credit card payment before on several (three times maybe, over the course of seven years) where I thought I did a payment online or, even farther back, I just misplaced the envelope and forgot (out of sight, out of mind). Well, in each case I was obviously dinged with a $10 or a $20 finance charge. Just call up the credit card company and tell them that you simply forgot, you’re a good customer, and could they waive the penalty. If they decline, simply tell them, politely, that you’d like to stay a loyal customer but if the credit card company isn’t willing to waive a small fee then you’ll try to find someone more understanding. In most cases, a CSR (customer service representative) has the authority to waive minor fees. Just give them a good reason.

The other day I discovered that at my credit union that I have overdraft protection on my checking account, if overdrawn money is automatically transferred from my savings account. I had seen it happen a number of times but I figured in the computer age, this service should be completely free. Maybe back in the day when someone had to write something in a ledger, I could understand it costing something. Anyhow, I have two overdraft protections a month and each one after that costs me a whopping $20. Well, that month I had my two and tacked on a third when I made a transfer to my ING Direct account and what walloped with the overdraft fee. I went in and politely talked to the credit union’s reps and told them I didn’t know about the overdraft (I didn’t) and if they could waive that fee. They did. (with a little bit of grumbling)

Moral: Always ask to have a fee refunded. If they say no, politely ask to have the account closed because you don’t understand why they wouldn’t help out a loyal customer (I think the wording of that line is very important), and don’t forget/mess up too often. It wouldn’t be unreasonable if they denied my attempt to have a second overdraft fee waived and I’d be irresponsible to expect them to waive it. Please share experiences you may have doing the same thing because the customer is always right!

After a weeklong hiatus, Bargaineering is back on track and ready to bring you some hearty information on cell phones. Everyone has a cell phone now and the thought of instant contact at anytime is too powerful to dismiss. On the flip side, cell phones are like a life preserver, safety is a mere phone call away in most situations. That being the case, cell phone companies are fighting each other like crazy to steal customers and keep the customers they have. We will explain how to get the best for your buck before, during, and after you sign the contract.

Lifespan of a Cell Phone Relationship: Understanding where you are in the lifespan will dictate what you can demand and successfully receive.