Do you consider yourself a good negotiator? When I decided to teach a new seminar on negotiation, I studied every book on the subject I could find. I consider myself an excellent negotiator, and I still learned many ways to improve.
Whether they were negotiating the purchase of the Empire State Building or the release of hostages, professional negotiators seemed to agree on several strategies. Great negotiators learn their craft from others. Like management, negotiating is more complex than it first appears. It isn’t just haggling over price, as you would for a melon at a roadside stand.
And the best negotiator isn’t the flashy, smooth talker. It’s the one who is best prepared. Negotiating is a learnable craft, one you should set a goal to learn. It pays better than any other skill you can acquire.
Secret 1: Avoid emotional involvement
First, admit that emotions play a big part in your decisions. When you’re angry or scared, you decide differently than when you’re happy and secure. Negotiating with sellers, buyers, note payors and tenants can make you emotional. Imagine how you’d react if, just before closing, a note seller said he wouldn’t go through with the sale unless you threw in a brand-new Mercedes.
You can’t stop yourself from feeling those emotions. But you can recognize when you’re angry or upset and refuse to negotiate further until you’re in full control again. You can even anticipate situations likely to set you off and prepare for them ahead of time.
Secret 2: Research before you begin
When buying or selling notes, research the property, the paperwork, the market and the people involved. If you’re buying, learn all you can about the sellers’ situation, starting with lots of questions.
You can learn a great deal in this informal stage. Once you start making offers, sellers get on guard and reveal little. When I teach my Making It Big on Little Deals seminar, students armed with a long list of questions call property sellers and get them to reveal much more than they should about their situation and the property.
Find out whether the seller must sell, whether they have real or perceived deadlines, and as much as you can about their finances. That helps you craft an offer they can accept and assures you an acceptable profit.
Know everything you can about the note and the property, especially their real market values. Know your market. Do you have an investor for this note, or will one be hard to find? Will you face a lot of competition, or will you be the only one making an offer? At what price can you resell this note quickly? Market conditions dictate how fast you make your offer and how much you offer.
Secret 3: Have a game plan
Whenever possible, negotiate on your terms, at a time and place you choose. As the buyer, you can generally direct how negotiations go. No one can force you to make an offer, although the seller may pressure you by revealing that another offer is coming. I suggest you don’t compete with this other offer. Simply say, “Call me if the other offer doesn’t materialize” (which often happens).
Based on what you’ve gathered, calculate the highest price you’re willing to pay and the lowest price you can imagine the sellers accepting, for both a full purchase and a partial. Write down the terms that matter to you. Know what you’re willing to give away and what you’ll insist on to make the deal.
Write all of this down, then make your first offer, asking for your best deal. Be ready to counter without giving away what’s important to you. Sellers will work hard to get you to pay more, appealing to your sense of fairness, your greed or whatever else works. Have a written game plan before the excitement of the negotiation starts.
Secret 4: Be aware of your power and use it wisely
You’ll often have more power than the other party. As a buyer you always do: you never have to buy, and they often have to sell. That’s why you lock in your profit when you buy. When you sell, the buyer has the power.
It’s possible to overpower a situation. Picture a note seller facing bankruptcy, chased by creditors and maybe harassed by other note buyers. These sellers are close to throwing in the towel and refusing to deal with anyone. Make them a take-it-or-leave-it offer and they’ll probably leave it.
To buy a note in this situation, make an offer that shows you care what happens to them. At the end of the negotiation, both parties should still have their honor intact. If you take it all, you run a very real risk that the other party will refuse to perform as agreed. Write down the best you expect and the worst you’ll accept before you start, and you won’t be tempted to push for more than you should.
Secret 5: Put yourself in their shoes
If you were declaring bankruptcy or losing your house to foreclosure, how would you feel? Would you worry about where to move, what family and friends think of your money management, and whether you’ll ever buy a house or get credit again?
Let the seller know you understand those fears and are willing to help solve some of their problems, and you’ll have a better chance of buying the note. These sellers often put off any decision until the last minute. As I write this, I’m negotiating to buy two houses from two different sellers that are scheduled for foreclosure sale this week. They’ve had months to act and have done nothing. A psychologist might say they’re in denial.
Secret 6: Know your risk and have an alternative
Whatever you’re negotiating for, there’s a risk you won’t prevail. Usually it’s small. Children are fearless negotiators because they know the worst that will happen is being sent to their room for a while. If you don’t get the note you’re after, you haven’t lost the profit; you’ve just postponed it until the next deal. It’s not your last chance to buy a note.
Try to always have at least two potential deals going. If the first seller becomes intractable, shift your effort to the other note and make an offer you like better. The first seller may come around once he realizes there’s real competition for your money.
Identify the worst that can happen. You don’t buy, so you keep your money another month. If you’re a real estate investor, you don’t rent, so the house sits empty a few more weeks; or you don’t sell, so you make another month’s payment. All of these beat paying too much when you buy, renting to the wrong tenant, or selling a note, a house or anything else too cheaply.
Secret 7: Know when to close the deal
A good salesperson knows when to stop talking and start writing. A good negotiator knows when the deal is good enough and stops negotiating. You can negotiate for more than you should, causing the other party to withdraw or even back out of a deal already agreed, even if you have a signed contract.
You can also simply talk too much. Once you’ve reached your goals and the deal is good enough, stop talking and write down the agreement. When buying a note, list every point you want to negotiate before you start and note each point of agreement as you go. At the end, you can draft a formal contract from what you’ve already settled.
