April 16, 2013 by Dymphna

Deal Negotiation 101

Today I want to talk about the art and science of negotiation. Both are very important to know and master. After all, your negotiation skills are an integral part of your real estate investing success. Whether you are involved in your first deal or your fortieth, these techniques will help you get the deal done in the best way possible.

They will also help you to control the biggest factor in any negotiation, which is you. You need to keep your creative mind open as well as your own feelings and emotions under control. I’m sure that sounds quite familiar to many of you!

Avoid defeatist and negative attitudes

For instance, say you get an initial “no” to your offer on a property. What’s your initial reaction? For many people, it’s often a negative one.

Negative impressions and defeatist attitudes lead only to the blame game. This is detrimental to your mental outlook, to the deal and to yourself as well as your relationships. That’s why it’s so important that you prepare yourself mentally when you approach a deal.

You want to avoid coming across as arrogant or an ‘I know everything’ kind of person. No one likes to do business with people with that attitude. And quite frankly, it isn’t even helpful. On the contrary, down the track, it can come back to haunt you.

Do your research

But actually, you do want to know everything you can about the deal before you ever get to the personal meeting. So, before you even get to the negotiation stage, which is typically more art than science, you want to focus on the science part of negotiation. That is, know as many of the facts surrounding the property as you can. This begins with research.

You need to know everything you can find out about what the needs of the seller might be, his ways of doing business, and any other style or methods of negotiating that the other side uses. Know facts like when they bought the property, how much they paid for it, and how many other properties they may own or what other mortgages they may be paying for. Find out what their equity position is and how long they have been trying to sell the property.

Preparation is this area is paramount to getting your desired outcome in a deal. By doing this you’re creating the structure that will lead you to success. And really, this applies to any scenario, whether it’s a real estate deal or you’re negotiating with your spouse, your children or anyone else.

Put your yourself in the other person’s shoes

To negotiate effectively, you need to find out what is truly important to the other side in the deal. The best way to do this is to meet with the seller in person. I know I’ve said maybe once or twice before, (okay, at least a thousand times!) but’s really important that you do this if at all possible.

That’s because when you sit down with a seller, many things become possible that wouldn’t have been otherwise. When you personally talk with the seller, you have the opportunity to get to know him or her. You have the opportunity to read that person’s body language. For instance, is there any hesitation in the other person’s voice over any particular part of the deal? Is there a twitch of the eye when you ask why the property is being sold?

Also, when you are asking these questions, you have the chance to establish a relationship with the seller. When speaking, don’t go into a negotiation in a direct way. Find out what pushes the other person’s buttons. Exchange details about why you’re interested in the property, talk about your family, how the property would be a nice place to raise kids, and so forth. That way, you build a foundation of trust between you and the seller. You will get an understanding of the person and their motivations, their fears and their true needs.

You can’t do this if you go through a realtor or any other third party. Not that realtors are bad or that you’re going to go around them. It’s just that you can’t really get a true picture of the needs of the seller without a personal meeting.

And you know what? Many times money doesn’t come into the discussion until the very end, if at all. It really depends on what the motivation is for the sale. Also, always view the person on the other side of the deal as a partner in the deal, not as an adversary. Remember, the other side is reading you, too.

Keep a “How can I?” attitude

Now what if, when you make an offer on a deal, you get a ‘no’ straightaway. What should you do? Don’t get offended.

Rather, ask the seller, “How can I make this deal work for you?” Or, “What are the benchmarks you need to hit in order to make you happy?”

This approach changes the direction of the negotiation from looking at obstacles to focusing on ways that the deal can be made. If you ask the seller how you can make the deal work, he or she will tell you. This process works best when you have built trust between you; a deal is much more likely to happen when a relationship has been established.

The open door

There are times when the seller still says ‘no’ even after a solid relationship has been established. What can you do? You’ve offered everything you think you can at that point.

This is when you need to take a break. If nothing is working, walk away from the deal…but leave the door open. You may not know why you’re getting a ‘no’ at that point. Be pleasant and simply say, “Can I call you in a couple of weeks?”

More than likely that will be okay with the seller. This allows several things to happen. It let’s you re-examine the deal and let’s the other side consider your offer. The seller may figure out that your offer is better than no offer.

Or, you may get a call from another member of the family. This person might just be the real decision maker in the deal. It could the seller’s spouse or son or daughter, for example. In any case, you lose nothing by leaving the door open. In some cases, the way you handle that rejection may lead the seller to warm to you and actually want you to have the property.

Find the golden mean

The best way to do well in your negotiation is to know what your bottom line position is. Know what you would like to have versus what you must have for the deal to work for you.

The key for a successful negotiation is to match your needs with those of the seller. Be prepared to give up something here and there, in order to get the seller to do the same. Again, this is most effective when you’ve prepared yourself. You’ve done your research on the property and just as important, you’ve developed a relationship with the seller.

When there’s a basic level of trust between both parties, a climate where honest compromise can and does come about. This lets you and the seller find “the golden mean”, where both of you get your core needs met in the deal and both of you are better off because of the deal.

Write the deal down!

When you finally get agreement on the deal, repeat the specifics of the deal back to the seller. I always write it down on a pad of paper, but that’s just me. (You can use an iPad if you’re a techie.) Be sure to give a copy to the seller and review it with them.

Doing this has several advantages. When you write down the aspects of the deal, it slows the process down, it gives you the opportunity to further bond with the seller, and they can clarify their points as you write them down. This saves a lot of headaches down the road!