Negotiation (Part 2)

The other day, I posted about negotiation tactics, both for real estate investing, and in general. I got a lot of great feedback from that post, so I’m going to add some additional basic negotiating tactics that I’ve found very useful over the past several months while jumping into RE investing…

• Friction is Your Friend: On the surface, a negotiation that ends quickly and smoothly without too much back-and-forth appears to be a good one. But this isn’t necessarily the case. Can you remember the last time you went into a negotiation, and the other person quickly accepted your offer without too much protest or countering? How did it make you feel? If you’re like most people, you probably felt like you didn’t get as good a deal as you could have. You probably felt that, because the other party didn’t put up too much resistance, they were likely very happy with the deal, and therefore, you got the worse end. Oftentimes, though, the other party feels the same way! There wasn’t enough friction in the negotiation to make both parties feel like they earned a great deal. And because of this, what you will often find in negotiations that go quickly and smoothly is that one or both parties will want to back out of the deal. So, if you really want to ensure that the other side doesn’t back out after the negotiation is finished, make them work hard to get to a common agreement; this hard work will often translate into feelings of successful outcome for the other side. This is especially important in Real Estate Investing, when the other party often has several days (if not weeks) to back out of an agreed-upon deal.
• Always Get the Last Concession: Part of being a good negotiator is “training” the other party to do what you want, without them even realizing it. Here is one way to do that with someone you will be negotiating with multiple times: Always make sure you ask for and get the last concession in the negotiation (a concession is something the other party gives in a negotiation — a price drop, better terms, etc). By always asking for — and getting — the final concession, the other party will, over time, learn to stop asking for things once he has essentially what he wants/needs from the negotiation. If the other party realizes that every time he asks for something, he will need to give something, he will naturally shy away from asking for more than what he needs in fear that he will be asked to give up something important in return for additional (non-essential) demands on his part. For example, when negotiating with a contractor, let’s say that he throws out a final price that you both agree on. Well, instead of saying, “I agree with that price, we have a deal,” instead try, “I agree with that price, can you start tomorrow?” Maybe he’ll come back with, “I can’t start tomorrow, how about the following day?” Your response could be, “That works, but I’ll need you to finish in three days instead of four.” As long as he counters your request, continue to ask for additional concessions. Eventually, you will train the other party that by “resisting,” they are encouraging you to ask for more and more; they also learn that by just giving in, they end up giving up less in the end. It should be obvious how this will help in future negotiations with this person.
• Implement a Penalty for Asking for Concessions: Have you ever been on the phone with a customer services representative from some company negotiating some point (for example, your on the phone with your cable company trying to get your monthly fee reduced by $20), and find that every time you ask for something, the rep puts you on hold for 10 minutes while they “check to see if they can do that.” You can bet that it doesn’t really take them 10 minutes to determine whether they can give you $20 off your bill. But, they realize that when you ask for $20 off, then wait for 10 minutes, and then they come back and counter-offer you $5 off your bill, you’re going to be less likely to go another negotiating round (“How about $15 off?) if it means you’ll have to wait another 10 minutes to get the response. What they’ve done is implemented a “penalty” for each time you ask for a concession — while you’re sitting on hold, you’re powerless. You have the option to wait for some unknown amount of time, or hang up and get nothing. If you want to discourage others from asking for concessions in your negotiations, do the same thing — implement a penalty each time they ask (though don’t let them know you’re doing it on purpose). And the penalty doesn’t need to be same for each “offense.” Making them wait (like the example above) is a great example of a penalty — perhaps you say, “I’ll have to think about that, I’ll give you a call tomorrow and we can discuss further.” Or perhaps the penalty is that they have to fill out a bunch of forms to get their desired concession. Or perhaps they’ll have to drive somewhere to pick up that extra thing that they want. If you make the penalty for asking more cumbersome than what they asked for, it’s quite possible they’ll decide it’s not worth the effort — like having to wait 10 minutes to find out if you can save $10 extra.
• Check Your Ego at the Door: Oftentimes, we assume that the other side is looking for something tangible in the outcome of a negotiation: more money, better terms, etc. But, a lot of people who pride themselves on their negotiating skills are more interested in having their ego stroked than they are in any real tangible outcome. While some people are going to be all about getting every extra penny in the deal, there are those who will happily give a discounted price (assuming they are still above their minimum threshold) in return for some solid ego stroking. In Real Estate negotiation, this might mean telling a contractor how highly recommended he comes; it might mean reminding a potential investor/buyer how good he is at rehabbing on a shoestring budget; or it might mean “confessing” to your wholesaler how much you hate buying from him because he is such a good negotiator. You’d be very surprised how far some sincere flattery will go in getting you a better negotiating outcome. Not only will it encourage the other party to put their defenses down, but they will feel an obligation to “return the favor” in some way — make sure you give them a way to return it right then in terms of a lower price (or whatever else you might want). Remember the last time you negotiated with someone who was really nice? How about the last time you negotiated with a complete a**hole? Which one did you feel better about “sticking it to them?” And which one were you happy to give a break to?