Planning is a big word that most people fail to appreciate. Negotiation planning begins as soon as your goals are set. For instance, if I were to decide to become financially independent by the time I were 40, the very next activity I'd engage in would be negotiation – with myself!
Suppose we were to outline the process of getting rich. We'd have to start with an allocation of our time, effort, priorities, money, career choices, family choices, etc. We'd have to assess our strengths and our weaknesses and design a remedial program of education and experience to shore up those in which we were deficient. That process would require us to make trade-offs, sacrifices, etc. That's what negotiation does.
Some of the things we'd take a hard look at would be our long and short term goals, Strategies to achieve them and tactics to implement our strategies. We'd have to acquire the ‘tools of the trade' – negotiation techniques and the ability/desire to use them. We'd surely need to be able to evaluate property as to its value, cost, pricing and utilization.
If we specialized in houses, that wouldn't be too difficult, but when we expand our field of operations to include a wide variety of real estate, the knowledge we must command in turn becomes much more critical.
Given that we've learned our craft insofar as the product is concerned, then we have to acquire real estate investing negotiating skills and experience. We do this at every opportunity from selecting the summer vacation schedule and destination, kids' allowances, size, shape and cost of our house to asking for an automatic 2% discount for cash. We try to develop a philosophy which is the underpinning of our ethical and moral foundations. And we build this into both our long and short range plans.
We evaluate our relationships with potential customers, vendors, vendees, tenants and people we put on our negotiating team. That might include legal, accounting, and specialists from the professional ranks. We have to be sure that they also share our philosophical base and our values. Then we have to dismantle what we are willing to spend in our program.
Price includes our time, integrity, credibility, peace of mind, and ego satisfaction as well as financial cost. By carefully structuring this framework within which we'll choose to operate, we eliminate temptations that could lead us astray and deprive us of the realization of our goals.
People hate to plan. Given a choice, they won't do it. This is a gift to those who will plan. It automatically gives them the advantage in most dynamic situations including negotiation. Planners are prepared when engaging in negotiation tactics, their opponents aren't. It's as simple as that. Think of the people you know who are successful. Aren't they setting goals years, decades and generations ahead? Planners. The next class exercise will illustrate this point, hopefully.
REI Planning is a Mental Game
Planning consists of ‘walking through' your negotiation mentally to spot errors and to devise tactics that will implement your strategy. It's designed to prevent mistakes and to prepare one for the give and take of actual negotiation. Before a new rifleman is given any ammunition, he's required to practice using it without any ammunition. In this way he can find how it operates before he shoots himself in the foot. Planning does this for you.
Mentally walk with me through a deal. You spot a house that's in need of a new roof. The car in the drive looks bad. The windows are open when air conditioning would normally be called for. You knock on the door and find a baby sitter who tells you that the people are experiencing some financial distress. The man of the house has been laid off. The woman of the house is employed with a temporary help agency to make ends meet. They may need to relocate if things don't get better soon.
At this point, most people start to make assumptions? What would your assumptions be? Who does the car belong to? What's the relationship of the baby sitter to the family? What's their true financial condition? What are the liens against the property? What's their income tax position? Health? Family/marital relationship? Urgency? Would they need cash or income the most? What other needs might they have? Do they want to move, or will it become a necessity that they endure reluctantly? What support group(s) can they call upon? What is their current credit rating/position? What will the property do for any buyer? Benefits? How should it be purchased? Are you interested in the property? Under what circumstances? Bottom Line?
In the planning mode, you have to get verification/validation of your assumptions before you proceed. All we have to do is to verify that the answers to our questions were true – not just some story. And we must separate the various issues which will become the subject of our negotiations – setting targets for both MAJOR and MINOR issues.
Our targets must represent the position we take on each one – and we should challenge ourselves to obtain the most favorable overall result from these target positions. Within reason, the more we expect, the more we're apt to get. We rarely exceed our own expectations.
Real Estate Investing Negotiations
Negotiation is the highest paid skill that anyone can learn. A good real estate investor who negotiates can add tens of thousands or more to the bottom line of any transaction. A good negotiator can also convert the cash offer a seller wants in to a win-win offer with low down and reasonable terms. There are many ways to negotiate. Negotiating is something that needs to be planned and practiced often. The more you learn about how to effectively negotiate, the better you will get.