Negotiation is simply defined as the act or process of having a discussion in order to reach an agreement. An individual is trying to gain the favor of others in order to achieve something. As a parent, I have become accustomed to my children “negotiating” for one more cookie, or to watch ten more minutes of a television show.
In this article, I would like to define the three essential variables and how you need to employ them in order to become a successful negotiator (get what you want). Read my previous article on How to Successfully Negotiate Your Next Deal for keys and tips on negotiating.
Power can be defined as the ability to get things done, to exercise control over a situation. It allows you to get from a certain point to an end result. Power does invoke negative connotations, but it all depends upon how it is wielded. To me, power is not the goal. We use power to drive us to the destination.
Here are a few sources of power and how to use them:
When there is competition for a product or service, the price will rise. The principle of scarcity is an enormous motivator for those considering the purchase of a product. If people feel there is little competition, the price will inevitably fall. I see this in real estate every day. The price for single-family homes in the New York metro market is very expensive in part to this source of power. You have a large pool of investors chasing after a limited supply of inventory. This leads to prices escalating and margins shrinking. Drive two hours north of Manhattan and the opposite is true. If you can create competition for your product or idea, the price will rise.
A person who lacks credibility will find it more difficult to negotiate effectively. Jake and I created a Credibility Book to convey to brokers and other professionals our legitimacy in the multifamily real estate space. There is no other better way to display your credibility than the written word. I would challenge a person’s credibility when it is to my advantage and use the power of credibility when it is to my advantage.
When a person establishes expertise in a field, we will more than likely heed their advice. A person who goes to the dentist will get that “cavity” filled, usually without asking questions. The doctor said I needed to take care of it. That expertise creates a level of power that a professional can utilize in their negotiations. Jake and I began a podcast in real estate and write weekly articles for our blog and for other prominent real estate websites to develop ourselves as experts in the multifamily space. Remember, the written word is powerful.
People like to do business with others who they like and respect. Try to build rapport with your counterpart, and find something that you both have in common. It could be your kids, a sports team, a hobby, anything! This will create a level of comfort between the two of you. If a person can identify with you or your story, and you speak to their needs, hopes or dreams, you will be able to create that win-win relationship. You will also believe more coming from a person you know and respect.
Jake’s motto is patience, persistence, but willing to walk away. Allow me to expand further upon persistence. We are becoming a nation of instant gratification with the Internet and social media. Many people try something, and then quickly abandon ship when they don’t achieve results. This is no different in negotiating.
It took us almost eight months to close a deal that we thought would elevate our portfolio to another level. We began the call to action in August, were rejected in October, reengaged the seller in late November and signed contracts on January 13 the following year. Our persistence kept us engaged with the broker throughout the entire process, and we checked back weekly to see if the deal would fall out of contract. I can guarantee if we were not persistent, the deal would have passed us by and we would have lost out on a tremendous opportunity. Be persistent.
If you’re like me, then becoming disciplined with time is going to be a huge hurdle. I don’t understand the fuss if you want to sell and I want to buy. I had very little patience when it came to negotiating a deal. The New Yorker in me wanted a response now.
It is imperative for you to learn the other side’s deadline, and to keep secret what your deadline is. Most concessions and settlements occur right around the deadline. Think about it. When does your son finish his term paper? When do most people complete that report for the boss? If you know the other side’s deadline, you can delay concessions until the deadline arrives.
In reality, deadlines are usually flexible. Ask yourself what happens if you eclipse the deadline. Will the world end? When you place an artificial date on when something is supposed to happen, you increase the level of stress and tension. Having a flexible deadline offers you more options and more creativity when negotiating. Use time to your advantage by learning your opponent’s deadline and by being more flexible with yours.
The more you know about your opponent, the easier it will be to solve their problem. Begin to gather information early on in the negotiating process. Visit their website, talk to their competitors and even speak to their employees. Jake and I make it a point to speak to tenants who live at the property we are looking to acquire. We ask them questions about the management, the maintenance, the condition of the property and the type of tenants who live on the property. We make sure to speak to the management company also to get their perspective on the issues involved with managing the property. These probing questions are gold.
In the preliminary stage of information gathering, act like a regular Joe. I was taught to act like the detective Columbo, someone who is non-threatening and who needs a bit of help. It always worked for him. People are more willing to open up to someone who is humble and down to earth.
Our next step is to try and gather information from the source. We try to deal with one broker on every real estate deal because it makes it much easier to gather and convey information to and from the seller. We dealt with two brokers on our second deal, and it was a nightmare. The brokers were more concerned with who was smarter and more successful. This is usually not the case, but we find it much easier to deal with one party. Nothing gets lost in translation.
Learn how to ask empowering questions. Here is an article that I wrote on Empowering Questions! That will help you formulate your questions and improve your information gathering skills.
Remind yourself constantly of the three essential variables of negotiation. Use them to your advantage and stay persistent.