Real Estate

How To Successfully Negotiate Your Next Real Estate Deal

One of the keys to a successful life is your ability to negotiate and convey your “side of the story” to others.  I learned this vital lesson from my six children.  It appears that the younger they are, the better or more successful they are at negotiating.  I am not sure if it has to do with their relentless personalities, or their willingness to take “NO” for an answer.   It seems as if the older the get, the less effective they become at negotiating ice cream.  We can learn a great deal from our children.

This article will explore the six keys to negotiating and the four tips to becoming a more successful negotiator.  Once you begin to apply these strategies in your life, you will be amazed at the results you will experience.  You will also realize when others are trying to negotiate a better deal, especially your kids.

Here are the four tips to becoming a better negotiator:

    1. Create a win-win.
    2. Learn to listen and talk less.
    3. Negotiate with the decision maker.
    4. EVERYTHING is negotiable.

Create a win-win:

To most investors, this statement is just a cheap cliché.  But to the master negotiator, they will not enter into a negotiation unless both parties gain from the transaction.  The key is to discover how your opponent will gain from performing this transaction.

Jake and I have a story that illustrates the power of win-win.  We were locked in an extended negotiation with one of our first deals and we were rather close in closing the deal.  The seller was adamant in not dropping the price any further, and our group was reluctant to increase the price to meet his demand.  Jake and I decided to pay part of the broker’s commission to satisfy the seller’s request.  Why did we elect to do that?  The deal was too good to lose for a relatively small sum of money.  Result: We satisfied the owner’s price and we closed on the deal.

The seller was content to receive his price and we were thrilled to have landed an awesome deal.  The property was repositioned (fixed up) in eighteen months and we were able to refinance the mortgage and extract $1,600,000!  That wasn’t even the best part. We developed rapport with the seller and the broker.  Our broker subsequently brought us our next couple of deals.  His level of confidence in us soared and he felt comfortable that we would perform on these deals.  He was not disappointed.

The seller sold us another property around eighteen months later.  He called us and negotiated the deal in a matter of a few days, and we were able to purchase the asset at a substantial reduction in market value.  How was this possible?  We created the win-win atmosphere from the first deal and the seller knew we would be true to our word.

Most business owners live by the mantra: “I win, and if the other party wins, that’s O.K.  But as long as I win, that’s all that matters!”  This mentality is shortsighted and will not allow you to secure repeat business.   Always consider the other side’s position and demands and see if you can solve their problem while crafting a deal.

Learn to listen and talk less:

Salesmen need to qualify their prospects if they want to satisfy their demands, offer them the correct product and close the deal.  How do they succeed?  By asking empowering questions and allowing the prospect to answer the question.  It’s not about the salesman or the product; it’s about solving the prospect’s problem.  The only path to success is by asking open ended, thought provoking and challenging questions (empowering) for the answer.

One of my favorite motivational speakers Zig Ziglar noted that people should speak 20% of the time, and listen the other 80%.  This came as a shock to me.  I thought you needed to dominate a conversation and have people like and admire you.  The quickest way to admiration is to listen attentively to people’s concerns, and show interest in their problems.

When you are negotiating a deal, the less information you divulge the better it is for you.  Conversely, it is your duty to gather as much information on your rival to understand his motivation for entering into a deal.  Allow the seller to convey why he is entering into this transaction.

Negotiate with the decision maker

The goal is to negotiate with the person making the decisions, not his brother-in-law or his broker.  We like to utilize one broker in a transaction if at all possible.  It is so much easier to negotiate with the seller’s broker directly, and have the seller’s broker go straight to the seller.  It becomes cumbersome when your instructions are passed from your broker to their broker and to the seller.  Many minute but important details get lost in translation. 

Everything is negotiable

Why is it that kids ask for three scoops of ice cream?  Because they know they can always go down to two scoops.  You stood your ground and they ended up getting two scoops.  WIN-WIN!  Jake and I learned this the hard way on our third deal.  We were negotiating origination fees with the bank.  Jake casually asked if the banker would drop the fees by .25%.  The banker didn’t even hesitate and said yes.  Jake ended up scratching his head and wondered why he hadn’t asked for a larger reduction. 

At least we learned a valuable lesson early on.  EVERYTHING in real estate is negotiable, from price to terms to fees.  You just need to ask, and make sure to secure a few prices from different vendors to negotiate the most competitive price.  You have nothing to lose from asking.

Six Keys to Negotiating

  1. Knowledge is power:

The first rule of any negotiation is to amass as much information about the person sitting across the table from you.  Remember, the key is to try to create a win-win and solve their problem.  It can’t be all about you.  Discover why this person has entered into a negotiation with you, and what he looks to get out of the deal.

In real estate, we want to identify:
  • Why is the owner selling?
  • Is he motivated by retirement, bad partnership, burned out, new opportunity, personal matters, health?
  • What is more important, price or terms?
  • What is he going to do with the money? (re-invest, 1031 exchange, pay bills, go on vacation, pay off debt.  Each of these problems has a different level of motivation)
  • Is he amenable to creative financing?  Ask this question after you find out what he is going to do with the money and his level of motivation.
  • Does he have other property?
  • Is he self-managing his portfolio?
  • How long has he owned the property?
  • What is the lowest price he is willing to take
  • What type of financing does the property currently have?

Know their story.

Doing deals is pretty simple.  People like doing business with people they like and trust.  Have you ever met someone who connects well with others?  This person has taken the time to build rapport and learn the other person’s story.  Connect with people on a personal level.  Try to find something in common, whether it is a sport’s team, or being a parent.  It is imperative that you build common ground with the person you are negotiating with.

Have a plan B

Often times in life, plan A doesn’t work out and we are unprepared to offer another solution.  This happens often in real estate, and most deals are lost because very little thought went into another course of action.  When Jake and I were negotiating our 281-unit deal, our focus was on price.  Our backup plan was to ask for owner financing.   The seller offered a price a bit higher than what we were willing to pay, but the owner financing locked in the deal for us.  If our only strategy was focused on price, we would have lost the deal.

Employ a contingency clause

Once you complete your due diligence, you may uncover certain aspects of the deal that will “kill” the deal.  We stumble upon this problem often when trying to purchase properties on actual numbers.  If the seller gives us a set of numbers for due diligence, but we uncover discrepancies when we analyze the actual numbers, we want the option to ask for a price concession or the ability to withdraw our offer.  The last thing you want to happen is to be forced into a corner with very few options. 

Shed your ego

This is a tough one for most people.  I used to be driven by wanting to always be right, and this ended up clouding my judgment and my ability to get the things that I wanted.  Check your emotions and ego at the door, and focus on solving the problem, not being right or wrong.  If the deal makes economic sense and the numbers work, then do the deal. 

Know when to walk away

This is the quality of a true master.  It is often said the best deals are the ones that you didn’t buy.  Jake refers to this as “Patience, persistence but willing to walk away.”  On our last deal, we gave our final and best offer to the broker in the month of August.  There were two groups ahead of us, and this was a killer deal.  We were willing to walk away from the deal, but still showed persistence when the seller accepted the higher bid.  It felt as if we let one slip away, but we could not pay the price that the seller accepted.  We then began to email the broker weekly to see if the deal fell through.

In December, the due diligence period ended, and the property was back on the market.  We decided to raise our offer by $100,000 to demonstrate our commitment to closing the deal and the seller accepted the offer.  It took sixty more days, but we finally closed on the deal and both sides were ecstatic with the outcome.

To sum it up, a successful negotiator is one who prepares thoroughly, who creates win-win solutions, who is willing to build rapport and who is there to solve problems.  As Zig Ziglar was famous for saying “ You can have everything in life you want if you help enough people get what they want.” 

In the next article, I am going to describe several powerful negotiating techniques.  Please leave any comments below.  I would love to hear your negotiating tips and incorporate them into this article.  An educated negotiator leads to more win-win situations being created.

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