Negotiations 101 for Real Estate Investors
The real estate business world is about making deals. Deals require excellent communication skills. The purpose of this article is to help you develop and expand upon your negotiation skills so that your real estate empire grows.
When we think of negotiations, we often assume that there must be a winner and a loser.
When we think of negotiations, we often assume that there must be a winner and a loser. That kind of thinking is not conducive to having a long-term business that anyone wants to work with.
Why? Because sales conversations are negotiations, and you can’t see buyers, sellers, or tenants as “losers” for too long before people catch on.
The winner/loser mentality focuses on being right or not being wrong: “I got him!” or “I made sure that I didn’t give an inch!” This approach completely forgets about helping people solve their problems, and solving problems is why people spend their money on anything.
The word negotiation comes from the Latin term for business. (If you’re a Spanish speaker, this makes sense: negocio). It means to do business, trade, or make a deal. It is further defined as an act done through conference, discussion, and compromise.
Haggling is not negotiating. Haggling annoys and exhausts another by persistently arguing until they are worn out.
Notice that the definition of negotiation fails to include competition, antagonism, or hostility. When you ask a working- or middle-class family how they feel about negotiations, many immediately think about price wars. When you are a real estate investor, you are running a business, so you’ve got to change your mindset. Haggling is not negotiating. Haggling annoys and exhausts another by persistently arguing until they are worn out. When you annoy and exhaust another, how likely are you to be invited back to their office or to their home?
Real estate is one of the few areas in American business where people expect negotiations on pricing, but if you limit negotiations to pricing, you fail to address the other much more important areas that motivate the other side to take action. What else motivates a human being? Time, reputation, relationships, and peace of mind (to name a few). The best performing real estate investors understand those non-monetary motivators and are, therefore, able to create deals that no others thought possible.
The key starting point of negotiations is asking what the other side wants. I am not referring to the surface level “$130,000 for my house” want; I am referring to the underlying desire that is resulting in a person thinking about selling their house, thinking about renting property, thinking about lending money, or thinking about buying real estate. This want is what keeps them up at night. This want is what starts family arguments. This want is what keeps them from making many other important decisions. What is keeping them from what they want is the problem your real estate business solves. Only the other side can tell you what that is. So, you have to ask. Never assume!
Once you have a deeper understanding of the underlying reasons why they’ve reached out to you, you’ll want to ask why the other side doesn’t think they’re getting what they want. These are the objections the other side has been telling themselves for weeks, months, or even years. Asking this question will help you establish criteria for what’s important to them and what they perceive as being an obstacle to the resolution of their problem.
Negotiations are about exchanging value between parties: trading resources, problem solving, and coming to an agreement about a situation or need.
Effective negotiations are about getting both sides to feel like winners. Negotiations are about exchanging value between parties: trading resources, problem solving, and coming to an agreement about a situation or need. Both sides need to feel like they’ve enhanced their position because of the conversation. By asking a person what they want and what they believe is stopping them from getting it, you now understand what outcome will make them feel like a winner.
Next, you need to ask them what happens if nothing changes; in other words, if they stay in the same circumstances, they will reach out to you. It’s not effective to tell people what the consequences of not taking action are, they need to share with you what they believe will happen to them personally, emotionally, financially, and even spiritually. By understanding the pain behind the problem, you can understand how to frame your real estate business services as the relief to their pain.
After you’ve asked the key questions and identified the terms that truly matter to the other side, make sure to summarize the conversation and state it back to them using their language. This step is important for two reasons. First, if they feel that you truly heard them, they develop trust, which is necessary for anyone to do business with you. Second, this is an opportunity to make sure both sides are crystal clear on what terms are non-negotiable and material to both sides. Never sign a contract without ensuring both sides agree that they have the same understanding of those terms.
While you are negotiating with the other person, it’s important to incorporate these habits:
- Don’t disagree with them. Responding with, “Yes, I agree and…” will open many more doors.
- Don’t be a know-it-all. It’s better to be a little “dumb” in your approach. People want to help those with imperfect lives. People want to compete with those who try to be perfect.
- Always have a higher authority, an unidentified entity or partner behind you that has the actual authority to make a decision.
- Start by agreeing on little issues. Do not try to tackle the big issue first. By creating agreement on little items, you create momentum in favor of reaching an agreement.
- If you make a concession, ask for a trade-off right then and there. The power of reciprocity is strongest immediately after giving another person what they want.
- Always be willing to walk away. Do not become emotionally invested in the deal. There will always be more deals.
After ensuring that terms are clearly understood by both sides, you need to get commitment from the other side. Once it’s all out on the table, they must be committed to taking action — committed to changing their present circumstances. Ask, are they committed to getting what they want?
Finally, you need to ask what would stop them. When you know in advance what would stop them from following through on a deal, you will have far fewer surprises at the closing table.
Remember, both parties don’t need to be wealthier in money because of the interaction. But they do need to be wealthier in something. That something can be time, reputation, money, affection, or peace of mind. It’s your duty as the negotiator to find out how to deliver. Now, go make that deal.