When I first started as a real estate entrepreneur, I thought I must either be a hard or soft negotiator. As a hard negotiator, I had to be strong, intimidating, and never give in until my goal was reached. As a soft negotiator, I prioritized relationships and used a gentle, appeasing approach.
Unfortunately, neither negotiating style worked well.
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The Problem With Strong and Soft Negotiations
As the strong negotiator, I often accomplished my objective but left a wreckage of relationships and my reputation along the way. I lived and worked in a small town, so a bad reputation could quickly derail any future business and personal plans.
When I switched to the other extreme as a soft negotiator, I was often disappointed because I got dominated by stronger negotiators and did not accomplish my goals. And even when I happened to meet another soft negotiator, neither of us got what we wanted.
This lose-lose result of soft negotiations is best demonstrated by the story of an impoverished couple who loved each other so much that they’d sacrifice their individual interests for those of their spouse. The wife cut her long beautiful hair, sold it, and used the money to buy a beautiful chain for her husband’s favorite possession, his gold watch. Meanwhile, the husband sold his gold watch to buy a valuable comb for his wife’s beautiful long hair.
This is a sweet story, but was the “negotiation” successful? The couple obviously loved each other and prioritized the relationship above their personal interests, but the specific needs of neither side were met.
Unsatisfied with soft and hard negotiation approaches, I started looking for alternatives. I was very excited to find a great little book called Getting to Yes by Roger Fisher and William Ury. The book was part of the Harvard Negotiation Project, and it provided some powerful alternatives to standard hard or soft tactics that also worked in real estate investing.
The subtle but powerful idea from this book is to shift the initial focus of the negotiation from the final outcome to the process itself.
Process First, Outcome Second
“The game of negotiation takes place at two levels. At one level, negotiation addresses the substance; at another, it focuses – usually implicitly – on the procedure for dealing with the substance. The first negotiation may concern your salary, the terms of a lease, or a price to be paid. The second negotiation concerns how you will negotiate the substantive question: by soft positional bargaining, by hard positional bargaining, or by some other method.”
Fisher & Ury, Getting To Yes
Shifting the initial focus from the outcome to the process does not mean we are not interested in the outcome as well. Of course we are. But the approach goes beyond the typical hard-soft dilemma and beyond the process of haggling, where two parties go back and forth and meet somewhere in the middle.
For example, when I start a negotiation with a seller to buy their house, the most important part of the conversation is to get them to agree to a different negotiation game. The seller usually expects to play the haggle game, so understandably they are very defensive, guarded, and skeptical of me.
Early on I might suggest something like this:
“It’s a given that you want the most you can for the house and that I want to pay as little as possible. But I’ve found in the past that sometimes we can come up with alternative solutions that we both like if we’re both willing to be open and to engage in deeper discussions than just on price. It may or may not work, but would you be willing to try that?”
If they say yes to that, they’ve agreed to change the game. Stephen Covey in his classic book The 7 Habits of Highly Effective People likes to describe this alternative game as “win-win or no deal.” It defuses tension and competitiveness so that together the possibility of a win-win deal can be explored.
If I “win” that first negotiation about the process, it’s now my job to introduce and guide us both through a more effective process.
“The answer to the question of whether to use soft positional bargaining or hard is neither. Change the game. At the Harvard Negotiation Project we have been developing an alternative to positional bargaining, a method of negotiation explicitly designed to produce wise outcomes efficiently and amicably.”
Fisher & Ury, Getting To Yes
The book Getting to Yes basically teaches this alternative negotiating process that they call “Principled Negotiation.” I highly recommend that you read the book to get more details, but for now, here is a summary of their four main principles.
1. Separate the people from the problem
The process of negotiating must disentangle the emotional baggage that people bring with them from the actual problem that’s being negotiated. When I asked the seller above to engage in a different type of negotiation, I was essentially asking both of us to detach from our particular problems, put those problems on the table, and then sit side-by-side in an attempt to solve the problems.
We humans are emotional beings and not computers. Fear, in particular, is the typical emotion that dominates negotiations. We are afraid of losing face, afraid of losing money, afraid of making a big mistake, or afraid of missing an opportunity.
Being in a state of fear does not encourage creativity or best thinking from us or the other person in a negotiation. The more we allow our negotiating objectives to become wrapped up with our identities and our emotions, the more we resort back to strong or soft tactics.
So separating the people from the problem attempts to dissipate some of the inherent fear and to replace it with a relaxed spirit of collaboration.
2. Focus on interests, not positions
Like entrenched armies, positions tend to produce stalemates and damaged relations. A better principle might be to focus instead on the interests and human needs that led to the positions in the first place. A focus on interests instead of positions says that we should defer specific discussions of price (position) until the interests of both sides are clearly understood.
As a real estate investor, our core interests are usually maximum profit and safety. A position is just a particular price that we think will satisfy our interests and give us maximum profit and safety. But a savvy investor knows that we possess many different tools to produce a combination of profits and safety. For example, given the right seller financing terms, it can be safer and more profitable to pay a higher price. You can also use options, leases, joint ventures, and other techniques to control risk while still making a profit.
Avoiding the stalemate of positional haggling sessions can provide the space for your professional creativity and problem solving skills to shine.
3. Generate a variety of options
This principle is also called brainstorming. If both sides can agree to temporarily set aside their positions and if both sides understand the interests of the other, then the power of imagination can be brought into the negotiation. I like to make lists or mindmaps on a scratch piece of a paper or a whiteboard.
When you are the more experienced professional, you will usually be the one offering the options to the other party. But, I have used this same principle with private lenders and more experienced sellers of properties, and our combined experience and knowledge amazingly produced options that neither of us could have imagined before.
4. Insist on results from objective standards
Arbitrary or misunderstood reasons for a result do not lead to goodwill from the other party. You can use third party studies, appraisals, data, opinions, or customs as an objective mediator in a negotiation.
Examples that come to mind in real estate investing include market data for resale prices, rental prices, and rehab prices. I also like to use objective data for the real costs associated with a resale or a rental. Many sellers don’t realize the commissions and other sales costs that affect their true net price. Many amateur landlords don’t properly account for operating costs like management, capital expense reserves, and vacancy reserves.
This step is the final one for a reason — because you must use the other principles and develop trust and a collaborative spirit before the objective data really matters. If you are each entrenched and defending your positions, throwing out objective data will only cause the other side to dig in even further.
Professional Students of Negotiation
I once read that ideals are more like guiding stars than a destination to be reached. That is certainly the case for me and these negotiating principles. I consider myself a professional student who has many successes but also many failures.
Even so, I find this negotiating concept extremely refreshing because it gives me the opportunity to meet my traditional business objectives (make a profit, avoid risk) while also building stronger relationships. As I alluded to in my point about creativity and professional problem solving, it also makes the negotiating process a whole lot more fun because it allows me to use my education and skills to help solve problems.
Do you have any stories of successful or failed negotiations that fall into the categories of strong, soft, or principled? What negotiation strategies do you use in your own business?
I’d love to hear from you.