If you’re active in the real estate industry, negotiations are likely an integral part of your day. Whether you’re working with a contractor, seller, buyer, lender, or broker, negotiation skills are needed to make your business run profitably and efficiently (otherwise you may not be in business very long.)
The art and psychology of negotiation can be studied and refined to the Nth degree. One can read countless books and blogs about finely tuned negotiation tactics but, at the end of the day, the party with the most leverage is likely to benefit the most from any given negotiation.
If you’re looking for a way to instantly improve your position at the negotiating table, try this:
Demonstrate, as much as you can, that you can easily walk away from a deal.
If you do this, no matter how creative the other party tries to be, you’ve gained a considerable amount of leverage and can dictate terms closer to your favor.
Consider this: Real estate sellers LOVE competition when corralling potential buyers. Competition = tremendous leverage for them. As a real estate buyer, you instantly have less leverage because the seller has the power to create a market for their asset. A buyer doesn’t have this. But, by clearly and ethically demonstrating that you can walk away from a deal, you reveal that you have an equal market for your efforts, time, and money—leverage tipped back in your favor.
To demonstrate this point in action, here’s quick small-scale (non-real estate) example that I tested very recently.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!
How to Negotiate For Anything
Several months ago I had my golf clubs stolen out of my garage. It was tragic! It was heinous! How could someone do this?! After fuming for 20 to 30 minutes, I remembered the fact that I bought my clubs 14 years ago at a secondhand sale and got plenty of good use out of them. So I quickly moved on.
My next step of the process: acquiring a new set. Similar to the real estate market, golf clubs can be bought at retail (expensive) or secondhand (not so expensive). Based on the notion that my stolen clubs were 14 years old, you’d be right in thinking I don’t value golf clubs very highly—secondhand market it is.
I decided to take my time with my acquisition and wait for a deal to present itself because I didn’t need a set until the spring season. After several months of research, offers, and rejections, I finally found a motivated seller willing to let a decent set go at a great price.
Here’s what happened next:
I reached out and said I could offer roughly 25% below the stated price and could complete the transaction quickly and hassle-free. The seller replied back saying he could meet me in the middle (common tactic). My natural instinct thought “This is reasonable—agree and get this thing done.” But I wanted to test out a few negotiation tactics and learn from the process—especially because I didn’t need the set right away. So I responded again with “Sorry, I know you came down in price, but I told myself I could only spend what I offered. My offer is still available though.”
The seller responded back with a simple “Thanks for your offer. I’ll let you know when I hear from a few other potential buyers.”
Here’s the crux of the negotiation. I didn’t want to enter into a bidding war and needed to demonstrate that I wasn’t going to play by those terms. So here’s what I replied back with: “Thanks, my offer stands. Keep me posted.”
It is likely that other buyers could have been interested and would pay full price. If so, I’d lose the deal. But, since I decided I could walk away from the transaction, I wouldn’t fret if my offer got rejected.
Two days later I got an email saying my offer was accepted. The deal, and my three month saga, was over.
Here are a few take-aways from the process:
- Avoid bidding wars as a buyer. They considerably reduce your negotiating leverage.
- Show a willingness to walk away if the terms are not to your liking—doing so immediately improves your leverage.
- Don’t give in to emotion (like I almost did when “other buyers” came into the picture).
Good luck and happy negotiating!
Photo:Jamie in Bytown