| Introduction | | | | are typically involved with, it could be beneficial for |
| For the Real Estate Investor that has purchased | | | | you to have a memorized script that you can use |
| or sold an outstanding investment opportunity, | | | | in each of your negotiation sessions. Having a |
| nothing can bring on more excitement than to | | | | "canned" approach can help when you are working |
| know you did a great job with negotiating the | | | | repeatedly on a specific business model and will |
| price and terms of the deal. Although there may | | | | help to ensure you are maintain consistency from |
| be instances when you will be "handed" or | | | | session to session. This script will develop over |
| "give-away" a fantastic opportunity based upon | | | | time and should be modified based on the lessons |
| extreme motivational factors like a divorce, | | | | learned from prior negotiating sessions. |
| foreclosures, illness, etc. The majority of deals will | | | | The Letter of Intent |
| require some level of give and take effort from | | | | At some point during the offer development and |
| both sides. Although all negotiations should have an | | | | the negotiation process you may need to develop |
| objective of a win/win strategy and outcome, it is | | | | a document called the Letter of Intent (LOI). The |
| usually the side that has prepared the most | | | | LOI is not the official contract. However, it may |
| effectively that may come away from the table | | | | identify the terms and conditions that are being |
| with a bigger piece of the pie. | | | | offered. In addition, the LOI can serve as a |
| This guideline has been written to provide an | | | | foundation in the creation of a Sales Agreement |
| overview of basic negotiation techniques that you | | | | or Contract. When face-to-face or phone |
| may want to apply. The following text is broken | | | | negotiations are not appropriate or allowable, the |
| down into sections starting with some background | | | | LOI may be the only vehicle to present the deal. |
| information and leading into the three stages of | | | | Present More Than One Option |
| the negotiation cycle. | | | | In order to maximize your chances for your deal |
| Section I Background Information | | | | to fly, you may want to consider providing |
| Practicing Negotiations by Role Playing | | | | multiple solutions or offers that are equally |
| All successful negotiators have established their | | | | beneficial to you. This situation will allow the other |
| own style of approaching a negotiation. During | | | | side to observe your flexibility and set the stage |
| your training as a negotiator, it will be critical for | | | | for more deals to close. |
| you to work on your approach and modify it as | | | | Protecting the Deal |
| you see how things work out. One popular training | | | | There may be instances the topics or material |
| method that will help you to establishing more | | | | that will be discussed during an offering and |
| confidence in your negotiations is to do role | | | | negotiations are confidential and should not be |
| playing. Role playing will allow you to experiment | | | | disclosed to anyone outside of the deal. This type |
| with your approach and to develop more | | | | of situation is very common on bigger deals or if |
| confidence without the fear of losing a deal. If | | | | the terms are disclosed to the general public could |
| possible, conduct the role playing session with | | | | cause some concerns. An example of this could |
| someone who has experience in negotiating so | | | | be an owner who is selling a shopping center and |
| they could provide constructive feedback on the | | | | does not want the Tenants to know. When this |
| session. | | | | type of situation is necessary, usually a |
| One technique that will provide you with great | | | | Non-Disclosure Agreement (NDA) is executed. |
| input as you conduct your role playing sessions is | | | | The NDA is a legally binding document that will |
| to record them or even better, do a video | | | | indicate that any details of this deal or offering will |
| recording. Having the ability to review these | | | | not be shared with anyone outside of the |
| sessions will be extremely beneficial in your | | | | transaction. In addition, it will spell out your |
| development of your negotiation skills. By having | | | | intensions with receiving this confidential |
| recordings, you can "see" the progress you are | | | | information. If any information is shared |
| making over time. | | | | inappropriately, this could result in a legal action. |
| Reasons for Rejection | | | | Section III Conducting the Negotiations |
| There are many reasons why your offers may | | | | You're Appearance |
| not be considered or you can't even get them to | | | | When you are preparing for your negotiation |
| agree to meet with you. During your real estate | | | | meeting, it is critical to look appropriate based on |
| investing career you will come across many | | | | whom you are meeting with and what the |
| people who are in difficult, sometimes life changing | | | | situation is. If for example you are meeting with |
| situations. The successful negotiator will try to | | | | very successful business people for dinner, you |
| embrace the possible reasons for rejection and | | | | want to dress to impress and should include |
| adjust their approach based upon the particular | | | | business formal attire. As a contrast to this, if you |
| situation with that person. The following section | | | | are meeting with a homeowner who is about to |
| will highlight the most common reasons for | | | | lose their home, you do not want to dress too |
| rejection and will provide recommendations on | | | | flashy. Coming in with your custom-designed suit |
| how you may alter your approach to counter | | | | may impact this negotiation based on their implied |
| their pushback. | | | | conclusions that you are doing very well financially |
| Illustrate Why This Deal Is Good For the Other | | | | so why should they give up more. In addition, |
| Side | | | | under-dressing in this situation could also send |
| As part of your negotiating strategy, you should | | | | incorrect messages. |
| include a discussion on how the offer you are | | | | Negotiate With Everyone There |
| making will benefit them. In many situations, the | | | | When presenting or negotiating an offer, you |
| other side may be very familiar and | | | | should always make sure all parties responsible for |
| knowledgeable with their potential benefits. | | | | making a decision are present. Nothing can |
| However, you will come across opportunities | | | | undermine your well planned negotiating more |
| when that will not be the case. As an example, | | | | than critical people not present. If you rely solely |
| let's say you are trying to convince a property | | | | on the person who you met with to relay the |
| owner to hold a mortgage and they are | | | | details of your offer, you may be at a |
| inexperienced in this area. If you provide an | | | | disadvantage. There may be circumstances that |
| overview of the anticipated principal and interest | | | | may prevent everyone from being there but it is |
| payment verses them taking a lump sum at | | | | a desired goal you should strive for. |
| closing, you may be able to convince them that | | | | Always Negotiate and Present Offers Directly to |
| this option may be better than counting on typical | | | | the Decision Makers When Possible |
| investment instruments like CD's, mutual funds, | | | | You may come across situations where you are |
| etc. | | | | negotiating and presenting offers to someone |
| Educate "The Other Side" | | | | who is working officially on behalf of the decision |
| As part of your negotiation strategy, you may | | | | makers. This relationship is very common with |
| need to provide some education to the people on | | | | traditional Seller/Broker listing contracts. Normally a |
| the other side of the table. Throwing out an | | | | buyer will present their offer in writing and it may |
| improperly staged offer that in the eyes of the | | | | go through one or several real estate |
| other parties is a ridiculous offer will only make | | | | professionals before it ultimately gets to the seller |
| them push back even further or perhaps discount | | | | for consideration. If the seller does not accept the |
| the deal and maybe you completely. However, if | | | | offer and perhaps presents a counter-offer, it will |
| you know that the other side's position is perhaps | | | | have to return to the buyer through the same |
| based on inaccurate data, than you should take | | | | communication chain. Although this situation is |
| advantage of the opportunity and offer any data | | | | tolerable on a "straight and clean" deal, it could be |
| that may be helpful to them seeing things | | | | an extreme disadvantage when creative offers |
| accurately. Of course in their eyes you may have | | | | are being presented that requires a higher level of |
| a direct benefit and they feel they must ignore | | | | dialogue. |
| your data. However, it can certainly be worth | | | | The Setting of the Negotiations |
| your while to give it a try. An example of this | | | | All of your preparation time and well-planned |
| could be let's say they are providing a Pro forma | | | | negotiating strategies may not provide the desired |
| that is indicating a proposed vacancy rate and you | | | | results if you are not given the appropriate time |
| know it is understated, perhaps if you were to | | | | in the appropriate setting to adequately discuss |
| compile data from the local property | | | | and negotiate the deal. You need to be mindful |
| management company's stating the actual | | | | when planning on meeting with the other parties |
| vacancy rates of similar buildings, you could be in | | | | that it is conducive to your negotiation success. |
| a position to further negotiate. One way to | | | | The following will highlight situations you should |
| establish credibility on this type of situation is for | | | | avoid when scheduling a meeting:o Noisy meeting |
| you to disclose the source of your data and | | | | locationo Restaurantso Cocktail loungeso Work |
| suggest that they confirm the information you | | | | siteso Having young children around distracting |
| have provided to them using a third party. | | | | from the discussiono Meeting with them when |
| Find a Connection with the Other Side | | | | you know a party has a time constraint less than |
| It can really be beneficial to break the ice on a | | | | what you need. |
| new relationship or negotiation by discussing | | | | Other Communication Options |
| non-business and non-confrontational topics. Using | | | | Negotiate Over the Phone |
| this technique, you can gently ease into the | | | | When phone negotiations cannot be avoided, it is |
| discussions of conducting business. In addition, | | | | suggested that any reference material that would |
| these social discussions can provide some clues to | | | | be beneficial to have at the time of the |
| you on who you are dealing with and if you | | | | negotiations be exchanged with all critical parties. |
| potentially need to modify your approach. | | | | This information should not include data that could |
| An example of this technique occurred during one | | | | compromise your negotiating position. |
| of my meetings with a homeowner to discuss | | | | Some things to keep in mind using the phone |
| purchasing their home. Based on the horrible | | | | techniques:o Have a pre-arranged time slot when |
| conditions of the property that existed for many | | | | everyone is available.o You may not know if |
| years, I did not know what to expect during our | | | | anyone else may be listening in on the |
| meeting. My first goal was to spend some time | | | | conversation. It is suggested that you request to |
| with them so we can get to know each other. As | | | | know who is present.o They could be recording |
| I'm approaching their door on the day of my | | | | the discussiono Discourage cell phone discussions |
| appointment I'm thinking what on earth will I | | | | because of the possibility of dropped calls and |
| discuss to break the ice with these people who | | | | poor connections. |
| are being portrayed as the slobs of the | | | | WEBINAR |
| neighborhood. As I entered the home and | | | | Another method you may want to consider to |
| introduced myself, I quickly observed that the | | | | present your offer is to have a webinar. A |
| entire living room was filled with fishing poles. I | | | | webinar combines the use of the phone to have |
| thought to myself Bingo! I struck gold because I | | | | verbal communications while using a computer to |
| was an avid fisherman. After spending the next | | | | display the presentation material. There are |
| half hour discussing the local fishing scene, we got | | | | services available that will provide these |
| down to discussing business. | | | | capabilities. |
| Other examples of creating ice breakers based on | | | | Try To Be In Their Face |
| your initial observations could include the following:o | | | | If you are fortunate enough to be able to present |
| Family pictures displayedo Interesting | | | | an offer or negotiate directly with the decision |
| décor of the homeo Art and trophies | | | | makers is a great advantage. To take this |
| displayedo Collector car in the drivewayo A | | | | advantage to the next level, it is strongly |
| mutual acquaintance | | | | recommended that you do your negotiations face |
| Section II Preparing For the Negotiation Session | | | | to face. Other methods of presenting your offer |
| Creating the Package | | | | including over the phone or through the mail |
| Depending upon the type of negotiations you will | | | | should be used on an exception basis only. There |
| be involved with, you may want to give your | | | | may be a situation that will prevent you from |
| offer some punch by creating a professionally | | | | meeting them face to face. An example of this |
| looking package you can give out at the meeting. | | | | would be an out of town owner or buyer. |
| This package can include various pieces of | | | | Walking Away From a Deal |
| information that will help you drive your offer to a | | | | Despite all feudal negotiation efforts from both |
| close and can include the following highlights:o An | | | | sides, there may be times you just have to walk |
| overview of your backgroundo Your company | | | | away from the deal because critical issues and |
| overviewo Highlights of your offero Background | | | | terms could not be worked out. It is important to |
| data to support your offero Expected benefits | | | | leave the negotiations respectfully and on good |
| the other side will realize | | | | terms. When all parties do this, it could set the |
| The use of charts, graphs, and pictures will make | | | | stage for either future business together or |
| the presentation more interesting and convincing. | | | | perhaps a reconsideration of the original deal at a |
| The only concern I have with this approach is that | | | | later point in time. |
| once you hand out your package, it could be | | | | Once you have determined that this deal is not |
| difficult to keep all of the players on the same | | | | right for you, it could be a great opportunity for |
| page (literally); it will be a natural tendency for | | | | you to indicate that you may have other investor |
| them to browse the document while you are | | | | associates that may be interested in this project. |
| talking. | | | | This could turn an otherwise wasted effort into a |
| Creating a Visual Presentation | | | | potential referral fee or help to establish a new |
| Another option in presenting your offer is to utilize | | | | relationship. |
| a computer presentation; this option will allow you | | | | Some Don'ts to Keep In Mind during the |
| to control the information the group is seeing and | | | | Negotiationso Don't admit or display any signs of |
| at what time during the negotiation. This will | | | | weakness. Watch out for any tips your body |
| prevent them "looking ahead". You can always | | | | language can give away. For the experienced |
| present them with a hard copy when you have | | | | negotiator on the other side, this will be a great |
| completed your presentation. | | | | opportunity to benefit from these weaknesses.o |
| Know Your Limits | | | | Don't insult anyone or try to make point more |
| As you construct your negotiating plan, it will be | | | | convincing by making them look stupid. These |
| extremely important for you to pre-determine | | | | tactics will only put the other side on the |
| the boundaries of the deal. You should have limits | | | | defensive and perhaps make the gap between |
| on the significant aspects of the deal. When these | | | | the sides even wider. Always carry yourself as a |
| limits are exceeded, it will raise a red flag that | | | | professional and be respectful.o Don't boast about |
| perhaps you are done negotiating and need to | | | | your past wins; it is ok to use past success |
| walk away. These limits may include the | | | | stories as a way to exhibit that you can get deals |
| following:o Sales priceo Closing dateo Mortgage | | | | done, but be careful on how you present ito Don't |
| termso Repair credits | | | | be so concerned about selling your position that |
| Although during the negotiations you may have to | | | | you do all of the talking. Be a good listener. By |
| make some concessions or decisions on the fly, | | | | doing this, you will be able to absorb the other |
| without having these pre-determined limits can | | | | side's point of view.o Don't think that every |
| make you very vulnerable during the excitement | | | | moment should be filled with talking. Allow time |
| of the negotiation process. | | | | for your comments to sink in. Remember the |
| The level of persistence with holding your ground | | | | saying, "silence can be deafening!" |
| on your offer and terms can be altered based | | | | How to Play a Stale Mate |
| upon the desired future relationship with the other | | | | During the negotiations you may find that you |
| side. If you are trying to establish a long-term | | | | cannot come to any agreement on a particular |
| relationship with them, you may be more open to | | | | point. If this occurs, it is suggested that you park |
| give up more. If you know this is a one-shot deal | | | | this issue temporarily and move on to other |
| with these people, it could mean you will stick to | | | | aspects of the negotiations and go back to this |
| your guns and not make any further concessions. | | | | issue later on; perhaps one of the parties may |
| Submitting a Sealed Bid | | | | make a move off their prior position and break |
| When it comes to submitting a sealed bid, | | | | the deadlock. |
| depending upon the situation, many of the | | | | Change You Style on the Fly |
| negotiation techniques mentioned in this guideline | | | | As the negotiation discussions begin, it will be |
| may not apply because you may not be provided | | | | critical to assess the personalities you are dealing |
| with the opportunity to negotiate at all. This | | | | with and adjust the tone of the meeting |
| situation can be found when there is a third party | | | | accordingly. For example, you may find that the |
| involved who has been assigned the responsibility | | | | other side is really a serious stone faced |
| to liquidate real and personal property. An | | | | negotiator and may not appreciate your humor or |
| example of this is a bankruptcy or estate sale. On | | | | kidding around approach. |
| the day when the sealed bids are opened, the | | | | Bring In Your Team |
| highest offer submitted will typically be in a | | | | Although most common negotiations are |
| position to purchase the property. If you are | | | | conducted one-on-one, there may be instances |
| faced with this dilemma, your only recourse is to | | | | where it would be to your advantage to bring in |
| submit the best offer that still makes business | | | | other members of your team to participate in |
| sense. | | | | specific areas of the negotiations. An example of |
| Don't Go In With Your Best Shot | | | | this could be if you are evaluating financial data, |
| As you develop your negotiating strategy, it will | | | | you may want to have your Accountant involved |
| be critical for you to hold back on disclosing your | | | | during this area of the negotiations. In addition to |
| best offer right out of the gate. If you start with | | | | knowing the strengths and weakness of the |
| something less than your best possible offer, it will | | | | other side, it will be critical for you to know the |
| give you the room to negotiate towards the | | | | same information of your team. You never want |
| other side's position. Think about what would go | | | | to put yourself in a position where you don't |
| through their minds if you just came out and said | | | | know how your team will approach the |
| "this is the best I can do and it's not negotiable." | | | | negotiations or what their limitations are. To |
| Perhaps they would just cave and accept your | | | | re-iterate a prior point, role playing can also be |
| offer or realize that you are not interested in | | | | effective to help develop an overall team |
| "allowing the deal to evolve" and spook them off | | | | negotiation strategy. |
| to another deal. | | | | Don't Retrade |
| Ask For Things You Really Don't Need | | | | Once you have completed the negotiations and |
| A classic negotiation technique is to ask for things | | | | have a meeting of the minds on both sides, avoid |
| or terms that are not really required or desired | | | | re-starting the negotiations by bringing up very |
| with the strategic objective to give them back to | | | | minor issues and expect further concessions. |
| the other side as a way to demonstrate your | | | | Although there may be instances where |
| desire to "work the deal". An example of this | | | | re-negotiations are necessary (like when your due |
| technique is selling a property and requiring a | | | | diligence discovered additional significant repair |
| 30-day closing date even though you are | | | | expenses). Don't let the small stuff stand in the |
| perfectly happy with a 60 or 90 day closing date. | | | | way of this deal happening. The last thing you |
| By allowing the buyer to have "extra time" could | | | | want is the other side to get upset with you and |
| provide the leverage for other side to shift their | | | | perhaps even pull back their prior acceptance of |
| position on other terms that are more critical to | | | | the offer. When you attempt to work the |
| you. | | | | negotiations, when everyone else thinks they are |
| Use Deadlines to Your Advantage | | | | over is called Re-trading. Re-trading can cause |
| As a way to add additional leverage to your offer | | | | frustration among the other side and perhaps any |
| and negotiating approach, you should try to | | | | Brokers involved. Avoid trying to squeeze out |
| understand if there are any critical deadlines that | | | | every dollar from a deal, in the end it could have |
| are approaching that could help your position. If | | | | an impact on any future business relationships you |
| for example, you know that a seller is having a | | | | are trying to develop. |
| balloon payment due in 30 days, it can be | | | | What to Do When the Negotiations Are Over |
| assumed that generally they will become more | | | | Lessons Learned |
| motivated as that date approaches. Therefore, | | | | During the development of your negotiation skills, |
| when possible, try to schedule your negotiations | | | | it will be very important to capture what is |
| at the latest time possible. | | | | working and what is not working with your |
| Performing Your Due Diligence | | | | approach and compile a guideline on all of the |
| As you are preparing for the negotiation session | | | | lessons you have learned. Although it is true that |
| and developing your strategy, you should use this | | | | in most situations you will learn more from the |
| opportunity to perform as much due diligence as | | | | things that went bad than the things that went |
| possible. This due diligence will help support your | | | | well, you need to use all of these lessons to |
| position as well as help to validate any information | | | | fine-tune your methods in preparation for your |
| provided to you from the other side. | | | | next negotiation challenge. Upon completion of a |
| Learn How to Anticipate | | | | negotiating session you should reflect on what |
| A successful negotiator will always spend time | | | | went well and what did not and add them to your |
| thinking about the deal they are trying to "sell" | | | | lessons learned database. |
| from the mindset of the other people in the | | | | Tracking the Status of the Negotiations |
| negotiations. As you construct your deal, you | | | | You may have situations where the negotiations |
| need to identify all questions and concerns that | | | | are not completed during the first session. When |
| would logically be raised and come up with a | | | | this occurs, it is important for you to document |
| response to those issues in advance of your | | | | the status of the negotiations. With complex |
| meeting. One method that will help you identify | | | | deals, there may be many separate aspects and |
| these issues is to imagine you are negotiating this | | | | concessions that have to be agreed to. You |
| deal being on the other side. Using this technique, | | | | should leave the negotiations knowing where both |
| you will minimize the possibility of getting hit | | | | sides stand on all of the issues on the table so |
| broadside with an issue you did not consider. | | | | they become the point of discussion during the |
| Nothing instills more confidence in the person you | | | | next session. |
| are negotiating with than you providing logical | | | | Formalize the Deal |
| solutions to all possible questions and scenarios. | | | | Once all of the negotiations have been completed |
| Having a Script | | | | and agreed upon, it is now time to formalize this |
| Depending upon the type of negotiations that you | | | | deal legally. |