To me, real estate negotiations are about two things and two things only: Price and terms. And that’s why your objective during negotiations, should always be to obtain a purchase or sale price and terms, which will give you the best possible deal. By “best possible deal,” I mean a price and terms that an investor can realistically expect a seller or buyer to agree to, which will allow them to earn, what they consider to be a reasonable profit, from the property.
For example, when I am negotiating to buy a small mismanaged residential rental property, the best possible deal that I can realistically expect to receive, is a purchase price that’s twenty percent below market value and owner financing In this business, knowing how to negotiate the best possible deal when buying and selling property, is second only in importance, to knowing how to accurately estimate a property’s market value. And the price and terms that you’re able to negotiate, depends entirely upon how good of a negotiator you are. If you’re a shrewd negotiator, you can usually buy a property below market value and resell it for your full asking price. But if you’re a lousy negotiator, the odds are, that you’ll end up overpaying for a property and reselling it for a substantial lose. On the other hand, you must also have the good sense and self discipline to walk away from properties that can’t be bought at a price and terms, which makes financial sense to you.
Knowing the Other Party’s True Needs is the Key Getting the Best Possible Deal
The key to getting the best possible deal, during negotiations, is to determine the other party’s true needs and then meet them in a way, that’s financially feasible to you. And an important part, of your job as a negotiator, is to be able to distinguish between a want and a need. To me, a want is what someone wishes for, while a need is what they’ll accept to fulfill their wish. For example, you may want a brand spanking new Lexus automobile, but if you can’t get it, you’ll settle for a Nissan, instead of being forced to rely on public transportation, to get around town. And if you’re a good listener, you can usually pickup on clues as to what the other party really needs, versus what they claim they want. For example, I once bought a duplex from a guy, who had mentioned something during our initial telephone conversation, about wanting to sell the property, so he could take an Alaskan cruise. He started off negotiations, by telling me that he was flexible on the price, but that he had to have $10,000, as a down payment. I quickly put our earlier telephone conversation and the $10,000 down payment together and realized that what he truly needed, in his mind, at least, was an Alaskan cruise, not $10,000. I told him that I needed a day to think it over. So, I went back to my office and looked up prices for Alaskan cruises on the Internet. And the next day, I came back with a counteroffer, in which I agreed to buy him a seven-day Alaskan cruise of his choice on Princess Cruise Lines, pay his round trip airfare from Tampa to Seattle on Southwest Airlines and give him $1,000 in cash, as the down payment. He accepted my offer on the spot and I ended up shelling out less than $4,000 to buy the duplex.
Don’t Negotiate with People Who Aren’t Motivated to do Business with You
I’ve never been able to understand why investors waste their valuable time, trying to negotiate with sellers and buyers, who really aren’t serious about doing business with them, in the first place. As a matter of policy, I never enter into negotiations with property owners or prospective buyers, who aren’t motivated to do business with me. And that’s because it’s a colossal waste of time, money and energy to try and buy property below market value, from owners, who have no compelling reason to sell you their property at a discounted price. Plus, you have absolutely no leverage, whatsoever, that you can bargain with, when you’re negotiating with an owner or buyer, who has no motivation to close the deal.
You Never Get a Second Chance to Make a First Impression during Negotiations
When you’re involved in negotiations you never get a second chance to make a good first impression. And how you’re perceived, by the party that you’re negotiating with, can have a direct impact on whether or not, you’re able to negotiate the best possible deal for yourself. That’s why, as a negotiator, you want to project the image of a polished professional, but without coming across as some slick talking wheeler-dealer, who missed their true calling selling used cars. By polished professional, I mean an individual who’s sincere, personable, confident, knowledgeable, well spoken, well mannered, well dressed, well groomed, and in control of their emotions. The point that I am making here, is that if you want to be taken seriously, you must look and act like a professional, who knows what they’re doing.
Have Realistic Expectations about the Price and Terms that You Can Negotiate
In order to be a successful real estate negotiator, you must have realistic expectations about the price and terms that you’ll be able to negotiate with the other party. For example, if you enter into negotiations with the expectation that you can get an owner to sell their $250,000 property, for $100,000 below market value, there’s an excellent chance that you’re going to come away from the negotiating table empty handed. And that’s because, it’s unrealistic to expect the owner of a property with a market value of $250,000, to shave $100,000 off their asking price. However, under the right circumstances, it would be realistic to expect the owner of a million dollar property, to lower their asking price by ten percent or $100,000. The point that I am making here, is to be reasonable when negotiating price and terms with sellers and buyers. Fact is, the quickest way that I know for an investor to bring negotiations to a screeching halt, is to begin by making unreasonable demands, which no sane person would ever agree to. I know that I’ll break off negotiations in a New York minute, with anyone, who starts off by making outlandish demands, which are beyond the realm of reason.
Always Insist That Negotiations be Conducted between the Principal Parties
My first rule, of negotiations, is that all negotiations must be conducted between the principal parties in the transaction. In other words, I don’t allow third parties or surrogates to come between me and the seller or buyer during negotiations. They can have a small army of advisors at their beck and call, but the seller or buyer must be sitting across table from me during negotiations. I require principals to be present for all negotiations, for two very important reasons. First off, I flat out refuse to negotiate through intermediaries, who don’t have the authority to say “yes” or “no” to my proposal. And when married couples and partners show up to negotiate, without their spouse or partner, they’re promptly told that the only way that I’ll continue negotiations, is if I can sit down face-to-face, with everyone at the same time. This way, I don’t get stuck in a situation, where the person that I am trying to negotiate with, has to run everything by another person–a higher authority–before a decision can be reached. And by having both parties present during negotiations, the possibility, that an incompetent go-between, who wasn’t paying close attention to what was said during our discussion, could garble or misrepresent my offer, is totally eliminated.
Sixteen Rules to Follow to Negotiate the Best Possible Deal for Yourself
Here are sixteen rules that you should follow to negotiate the best possible deal for yourself:
Rule #1: Establish a negotiating timeline.
Rule #2: Make a checklist of the terms to be negotiated.
Rule #3: Prepare answers to possible objections that may be raised during negotiations.
Rule #4: Maintain a professional and dispassionate demeanor.
Rule #5: Use a negotiating strategy that fits your personality.
Rule #6: Base your decisions on verifiable facts and figures and not on emotions.
Rule #7: Don’t alienate the other party by rude behavior or hardball negotiating tactics.
Rule #8: Never underestimate the party that you’re negotiating with.
Rule #9: Spend more time listening than speaking.
Rule #10: Trust no one, assume nothing, verify everything and be prepared for anything.
Rule #11: Use a liberal amount of mouthwash and deodorant, to protect against bad breath and smelly body odors, which could bring negotiations to a standstill.
Rule #12: Determine the other party’s negotiating timetable and use it to your advantage.
Rule #13: Use the property’s physical and financial condition and the owner’s personal circumstances to negotiate the best possible deal for yourself.
Rule #14: Take the path of least resistance and agree to mundane negotiating points, which don’t affect the price or terms.
Rule #15: Know when it’s time to stop talking.
Rule #16: Make a counteroffer within forty-eight hours of your offer being rejected.
Copyright © Thomas J. Lucier
About the author:
Thomas Lucier has written seven books on real estate investing and property management and, as an author, is proud that hundreds, if not thousdands of real estate investors worldwide have used his advice to earn millions of dollars collectively. His website, AvoidBadRealtors.com, provides, in his Thomas’s own words, “Reliable Information and Practical No-Bullshit Advice form a Seasoned Real Estate Professional and Best Selling Author.”
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