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The Pro Real Estate Investor’s Guide to Expert Negotiation

by Editor | ezLandlordForms

As home prices, rise sellers have gained more confidence in the market and are less willing to take the first offer that comes their way. New investors will need to sharpen their negotiating skills to quickly snatch up the best deals while mortgage interest rates remain low.

Knowing how to negotiate excellent bargains is a skill that requires much practice to perfect The more practice one gets negotiating, the better (and often bigger) the portfolio. When most new investors think of negotiating, they automatically think of price, but investors who think only in terms of price are only seeing one angle of the negotiation. Expert negotiators say that everything is negotiable and everything counts in the negotiations. For instance, a seller, who is steadfast on price, may be willing to change his mind if you can offer a ten-day closing, or cash, or no contingencies.

The following are some tried-and-true principles for effective negotiating. Once you’ve mastered these principles, your portfolio will contain nothing but pick-of-the-litter deals.

Begin with the end in mind. Knowing your bottom line is crucial when negotiating to win. You should always know your numbers and what constitutes a good deal for you. Keeping that in mind, have a range that you’re willing to work within. If you’ve worked the numbers, you will know the maximum amount you can spend without sacrificing your minimal profit. Don’t be afraid to ask for exactly what you want in terms of price as well as other aspects of the deal, and don’t go beyond your maximum unless some other compensation makes up for it. For example, an investor in Buffalo, NY paid a little more than his bottom line for a duplex he had been eyeing for some time. After some hardball negotiating, he was able to get the property complete with two long-term tenants Even after paying a slightly higher price than originally planned, he was still several hundred dollars ahead of the mortgage payment and the neighborhood was on an upswing.

Leave your emotions at the front door. An emotional negotiator is a losing negotiator. Never allow your emotions to take over the negotiations. Go into the negotiations prepared for a fight, but one based on the facts and the numbers, not emotions Practice keeping your cool and anticipating what some of the sellers’ objections to your offer might be ahead of time. Avoid taking things personally and expect that the seller might get emotional, but never allow yourself to lose complete composure, even if it means walking away from the deal temporarily.

Identify all negotiating parties. Establish up front all parties with whom you will be negotiating. This will quickly eliminate the age old ‘I-have-to-check-with-so-and-so’ routine. If there are other parties involved who will be making decisions, they should be identified before the negotiations begin, not afterwards. Likewise, whenever possible, they should be present during all negotiations. This is also referred to as the ‘higher authority’ tactic Inman.

Always think win-win. This may seem counterintuitive, but keeping the seller’s interests in mind can help you get what you want more often than not. A seller who clearly sees that you are not ‘out to get him’ may be willing to give you more of what you want simply because he sees you as a reasonable human being. His guard is now down and he is ready to listen rather than be on the defensive and prepared for the fight of his life A classic example in real estate transactions is the cash offer, with a fast (10-14 day) settlement: the buyer shows they’re serious and ready to move immediately, and in return can often negotiate a far lower price Unless you’re planning a hostile takeover of the property, a more charismatic, win-win approach is best.

Keep your options open. Great negotiators know to keep their options open. Knowing that a particular property would be great to have but having a backup property in mind can help an investor maintain his cool when negotiations get heated. Desperate people will always do desperate things and an investor with no options will frequently find himself paying too much for a property or purchasing a property he shouldn’t be considering in the first place.

Never show all of your cards. Never let the other side know just how much you know. You may be an expert real estate investor in reality, but at the negotiating table, you’re a student willing to listen and learn. As the saying goes, ‘We’ve been given two ears and one mouth for a reason’. Take heed; sellers are often on the defensive when dealing with a ‘know-it-all’. On the contrary, when sellers deal with someone who they feel knows less than they do, they tend to let their guard down and become a bit more agreeable. Leave your ego on a shelf at home. You can always pick it back up when the deal is done and you’re laughing all the way to the bank.

Employ creative math. Roger Dawson, author of Secrets of Power Negotiating, says “Power negotiators think in real money terms, but talk in funny money terms.” Investors who breakdown the numbers to mere pennies might just win. Hearing the numbers for large ticket items broken down in terms of cents per day makes it seem ‘ridiculous’ not to consider purchasing it Salespeople use this tactic all of the time. An unsuspecting seller could definitely be caught off guard. For example, if you are the seller, consider explaining just how much lower the buyer’s principal and interest payments will be than the rent payments, even though seasoned investors know that landlords should keep in mind far more figures than this simple calculus.

Practice silence. There is an old saying among negotiators that the side more comfortable with silence always wins a negotiation. Always pause at least three to five seconds, while looking directly into your opponent’s eyes, before responding in the conversation; this achieves several goals:

  1. It breaks the “amygdala loop”, by which your reptilian brain merely reacts emotionally,
  2. It gives you a chance to think and consider all the implications of what the other party has said, and
  3. It makes the other person subtly uncomfortable and establishes your utter composure and confidence.

Silence is uncomfortable because it is unnatural in our everyday conversations, and it does require literal practice. Practice this pause on your friends and family first, you’ll be surprised how difficult it is to implement, but it is incredibly effective.

Walk away. After you’ve expertly employed all of these tried-and-true negotiating principles and still have no deal, the only thing left to do is walk away Remember that you can always come back at a later time when circumstances change for either you or your opposite. If you’ve followed all of the rules, especially in remaining unemotional and attempting the win-win deal, the other party will often welcome you back with open arms.

How practiced are you at negotiating? Do you have additional tactics you’ve used or have seen used that others may benefit from?

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