It can happen so easily... you can analyze a property so easily when it's from a distance. You can see clearly what price makes sense for you, and what makes a great deal.
Then, the second you decide to put in an offer your competitive instincts tend to kick in.
As a real estate investor looking at property, it's so easy to be objective about a property until you are in the middle of negotiating the deal.
Most people say they'd rather be rich than right but they act like they'd rather be right than rich.
They draw a line in the sand and require the other party to step over that line in order to do the deal. They pretend to seek the 'win - win' scenario but are only really thinking about winning.
You want to beat the seller into giving you the lowest price possible. At least you feel that way until you find out that there's a competing bid and then suddenly you find yourself offering way more than you planned to offer just because you have to win the deal.
Well I am not going to pretend to be able to negotiate everything expertly - but years of working in sales (from packaged goods to real estate information), training sales staff, and negotiating real estate deals has taught me a lot about what works, and what doesn't.
Keeping it simple... here's my 10 Commandments for Negotiations Great Real Estate Deals:
1. Keith Cunningham, author of Keys to the Vault says that the only reason you are in a negotiation is to do better than your alternatives - so, make that your focus instead of 'winning'. I see this happen all the time on the Canadian television show 'Dragon's Den' (the American equivalent is Shark Tank). Just last week a fellow selling a rice alternative initially turned down an offer for 50% of his business in exchange for expertise and cash that he badly needed. He had no other alternatives. His other alternative was to move on from his product. He almost said no because he felt 50% was too high. But really, right now, he has 100% of a $100,000 loss and this deal would give him the chance to have 50% of a $5,000,000 a year business... He'd lost site of the fact that he was there to do better than his alternatives not look like the king of negotiations on Canadian national television.
2. Be a problem solver. Why is the person selling? Ask lots of questions to try and understand the motivation of the seller. Then figure out how you can offer the best solution to their problem. Maybe the seller needs a fast close more than they need their full purchase price. You won't know what kind of a deal you can create unless you focus on solving the problem of the seller.
3. To steal the line from the BC Lottery Corporation: Know your limit, play within it. In other words, BEFORE you set foot into a negotiation, determine what is a good deal for you. And this will be a range, not a specific number. If you get any number within your range take the deal. Resist the urge to squeeze for that last $2,000.
4. Remember, it's not just about price when negotiating a great real estate deal. I encourage you to have a limit to what you'll pay, but I also encourage you to find other ways to make the deal work for you and for the vendor. For example, you'll often find that you can get the deal done with less hassle and fewer expenses if the vendor will finance the property. In that case, it may be worth it to pay more than you were originally willing to pay. Alternatively, the vendor might throw in furniture, vehicles, art work or even some services they might offer (dentistry, massage therapy, auto mechanics... etc) just to get a higher price on the property.
5. Be flexible without being emotional. Similar to the above, there may be ways to make the deal even better. The purchase price range is a good thing to have, but you may choose to bend it if you find other ways to make the deal work for everyone. The trick is to be able to analyze the deal without getting emotional. If at any time you start to feel yourself getting too emotional take a step back. Review the numbers and the facts of the deal. What makes this a good deal for you?
6. Options = power. When you start to feel like you're getting backed into a corner, think about your options. Even better, before you even begin think about your the best option you have if you don't do this deal. Jim Collins, author of Good to Great, calls it a BATNA - a best alternative to a negotiated agreement. When you think about what your options are you realize that there WILL be other deals and no matter how much you like this property it's never worthwhile to overpay for a property just to get it.
7. Options = power for the seller too! Rather than be a hard nosed negotiator pushing the seller to agree to your deal, try giving the seller choices. You have a better chance of understanding their problem and getting the deal you want if you make the seller feel like they have some power and control over the deal. For example, to avoid having the seller say "no" to my offer, I would say something like this: "The best I can do is $200,000 if I have to go to a bank for financing. They're going to require me to prove the rental income, pay for an appraisal, and do a ton of paperwork to qualify for that loan. So if you'll accept my $200,000 offer, I will close on the date you want. But if you are willing to provide at least 70 percent of the financing, I can offer you $210,000. And I would still be willing to close on the date you want." By giving my seller these two options, I make him feel like he is in control of the outcome of our negotiation... even though either one would be a great deal for me.
8. A confused mind says no. I don't know who originally said this, but it's always true. When have you ever been confused and agreed to do something? It just doesn't happen. Explain your offer so simply that your 8 year old niece would understand it. And, if you're relying on your realtor to tell the seller's realtor and then the seller's realtor to explain it to the seller consider writing a letter to be presented with the offer. In that letter explain what you're offering and why. Keep it simple and specific.
9. Explain WHY. In Robert Cialdini's book called Influence, he explains the details of an interesting study he did on the power of WHY. He determined that even a poor reason why is far more influential than no reason at all. He studied this in a line up of people waiting to make copies. When someone asked to go to the front of the line most people turned them down but when they asked and included "because I am in a hurry" or "because I have to make several copies quickly" - which is really no reason at all, most people let that person ahead of them in line! So when you're making an offer be sure to provide a reason for the offer. Explain the rationale behind why you're offering less than market value and why you need a certain time frame. You don't have to show all your cards but you should give the seller every opportunity to accept your deal.
10. Negotiating is not a game nor is it a sport. A negotiation is not something to be won. In fact, I would argue that it's more of a science or an art. It's something that is very individual but it's also something with principals that are fundamental to every negotiation. And it's something that cannot be judged by win or lose but it can be judged by the results. Do not let your negotiating become a game or a sport and you'll find that you are less likely to try to be right, which means you are much more likely to be rich!
In every real estate deal you'll find you have a desired outcome. If you keep these commandments in mind you'll always remember that you have choices and you only do deals that make sense for you and your goals. Negotiating is not about win - win. It's a means to an end. A negotiation is simply an opportunity to do better than your alternatives. If you have really good alternatives then you'll make a great deal because you have options, and options give you power!
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