The Top 3 Tips For Effective Negotiation

Negotiation can be uncomfortable and difficult....but not if you are armed with the right tools and the right mentality.

1.) Always try to get the other person to offer first.

Speaking first is the easiest way to ensure that your offer is more likely to be way off…either too low or, even worse, too high. Sellers usually do have a number in mind even when they tell you they just want to listen to offers. 

There are subtle ways to suggest sharing this information. Most often I ask if the owners have number in mind for the deal. If we are speaking specifically about real estate, there could be entire books written on the subject of determining value and offer pricing, so I won’t address it in this article. Given that we can determine the offer price, the best thing we can do is try to have the owner disclose their price.

If the other party is reluctant to disclose the number, it's always best to start low. You can always increase the offer, but very rarely can you decrease your offer.  By starting low, the seller will sometimes come out and say what they were hoping to get as their bottom dollar.

2.) Very often it is about money, but not always.

Many times in a negotiation money is the biggest factor, but not always; rarely is money the only factor either. It is true that the final price plays a large role in a negotiation, but it would be foolish to discount the weight of other factors, such as sale terms, speed of closing, business plan for the asset, general moral character, personality, or reasons why the owner is selling.

Just as an example, I recently closed a package of multifamily units from an owner that turned down other higher offers in favor of ours because he liked that we are working to get a VA housing voucher for one of our tenants, rather than kick him out. The seller of the property said he believed the other investor would have kicked his tenants out after closing on the properties, and so he sold to us instead.

Finding out why the owner wants to sell can help in crafting a deal as well. Maybe he or she wants a quick closing to pay for an upcoming expense, or maybe he or she wants a long closing because of estate issues, or a 1031 exchange.

There are many things that go into someone accepting an offer, and the price isn’t always the biggest factor.

3.) A win-win situation is the best thing you can hope for.

My favorite thing about real estate is the possibility to make a win-win. This has a lot to do with the last point, but it is unique in and of itself. All parties want to benefit from a transaction, meaning that one-sided deals are not likely to close. Your offers will get accepted much more often when it is clearly beneficial to the seller, and you will have a much stronger counter when a seller asks something that is not beneficial to you. It is as easy as letting the seller know during negotiations that what has been proposed is not mutually beneficial, and proposing an alternative that is. For example:

Seller – “I need you to pay closing costs, transfer tax, and my asking price.”

You – “Well, if needed to I could pay closing costs and transfer tax, however, I wouldn’t be able to pay the full asking price if I did so. Besides, if you hadn’t thought about it, paying transfer tax can reduce the amount of capital gains tax you will pay by increasing your cost basis, whereas the increased sales price would only increase your tax burden. I propose that you pay the transfer tax, I will pay you what we agreed on, and we can both get what we really want at the end of the day!”

There is usually a way to work out negotiations so that everyone wins! Negotiation is an art and takes practice. The most important thing is to first and foremost LISTEN to the other party and try to meet their needs!

Hope that helps you win your next negotiation!

Reach out if I can help you in any way!