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 you can read the first part of this training series where I share the “four tips to becoming a more successful negotiator” in my previous blog training article. 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.
Six Keys to Negotiating in Real Estate Investing
#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?
#2 – 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.
#3 – 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.
#4 – 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.
#5 – 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.
#6 – 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.
Real Estates Negotiation Success
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.