By James A. Gage
You can find hundreds of
books on the art of real estate negotiation . . . but pardon
my frankness, many of these books offer stale strategies and
tactics that just do not work.
For example, in many
books you can find the ABC rule – “always be closing.” That
is, you want to have a bunch of deals in the works and you
want to get to “yes” as quickly as possible in order to
close that deal.
However, getting to
“yes” ASAP means you leave out a bunch of steps in the
middle, such as carefully pre-qualifying your prospect by
asking lots of questions. (I call this process “Getting to
‘no’ first – meaning, you weed out those who aren’t serious
about a deal).
It’s also why I’ve
simplified negotiation down to three cardinal rules: the
person who mentions price first loses, get to know your
opponent before meeting with him or her, and always get your
agreement in writing.
Rule #1: The person who mentions price first loses
When I first started
doing lease options, I had a woman call me to see if I had a
specific type of property that she could then lease to own.
She had $8K put aside but unfortunately at the time, I
didn’t have anything in inventory that met her requirements.
A few weeks later I found a property and called her about it
and said that if she liked what she saw after doing a drive
by, we could do business that very day.
She ended up loving the
property. We did the walk through and as she and I talked, I
knew that $8K was sure money in my pocket.
“Jim,” she said. “I have
a problem. Remember how I said I had $8K? The problem is I
don’t have $8K.”
My heart fell clear to
my stomach and my knees went soft. “Uh oh,” I thought.
She then went on to say,
“I don’t have $8K, I have $10K. Is that ok?”
Now, I if had opened my
big mouth and had said at the beginning of our negotiation
talk, “I’ll need a check for $8K,” I would have never
learned she had an additional $2K in her pocket. The moral
being – never be the first person to talk about price.
Instead, ask lots of
open-ended questions that will give you solid information in
order to determine where people stand. For example, when I’m
talking to a person who is looking for a house or a lease
option, I ask questions such as, “It sounds like you’re
living in a great place. Why do you want to move?” (What I’m
really asking is, “Are you a deadbeat?”)
Or, if I’m sitting at
someone’s kitchen table and he’s spilling his guts to me
about his house going into foreclosure, I ask, “If you’re
able to sell the property, what you would you be comfortable
asking for it?” Having the property owner tell me first what
he wants for the property is akin to him showing me his
cards before he makes a bet. In other words, it gives me
Rule #2: Learn about your opponent before meeting
One of the first things
lawyers do when preparing to negotiate is consult a lawyer’s
directory. They want to know which school the opposing
lawyer attended, what firm they work for, if they’ve made
partner, etc. And, if you’re the lawyer who works for a
larger firm, you’ll have the opposing lawyer come to your
office in order to intimidate him or her.
The same principal –
know you opponent -- works in real estate negotiations. For
example, if you’re working with a bank on a short sale,
you’ll want to get to know the bank and its methods of
operating and whether its personnel are “user friendly” or
they’re a bunch of pit bulls. One bank I work with is very
confrontational and negotiating with them is like pulling
teeth. I learned very quickly that I have to have all my
facts, comparables, etc. ready and at hand when dealing with
them because if I screw up, I do not get a second bite at
Knowing your opponent
also means learning what kind person he or she is. For
example, analytical people or number crunchers will want you
to substantiate and document everything. Touchy-feely
people, on the other hand, will want to talk things out.
To learn more about your
opponent, talk to people in your network, do some online
research (i.e. do a Google search), and attend your local
REIA meetings – people love to talk and by asking questions
and being a good listener, you’re sure to pick up some good
“off the record” data.
Rule #3: Always get everything in writing
Although we all want to
believe other people are good and honest, the sad truth is
that disagreements can and do occur in real estate
negotiations, which is why you need to put all agreements in
writing. This is especially important in Massachusetts,
where verbal agreements are not enforceable.
If you do get a verbal
agreement, at the very least follow it up with an email or
letter outlining the conversation and what was agreed to by
each of you. If you’re dealing with a bank regarding a short
sale, send a quick fax to whomever you spoke with stating
something like “These are the parameters of the deal and
this is what we agreed on” and then list everything
discussed in the conversation. Be sure to sign and date it
and call the person to ensure he or she received your fax.
negotiation skills takes time but is well worth the effort.
In order to negotiate your way to better profits, don’t
blurt out a price first, get to know your opponent before
you step into the negotiation arena, and always get
everything in writing!
"You are who you are and where you are because of what you
have put into your mind."
For more information or pricing please do not hesitate to
call or e-mail. I can be reached at (508) 595-9567.