Learning how to negotiate effectively is a critical skill for real estate investing success. It can be the difference between getting a contract or losing it, or making $2K vs. $5K on a wholesale deal you’re working on. When you think about it, we’re negotiating all the time even when we don’t realize it, so learning effective negotiation has far reaching implications for our lives – way beyond real estate investing.
It’s for these reasons that we wanted to read and discuss an oldie but goodie on negotiation — Getting To Yes:
Negotiating Agreement Without Giving In by Roger Fisher and Will Ury .
The authors advocate a technique called principled negotiation which focuses on understanding the other side’s underlying interests and finding mutually beneficial solutions. You may be thinking “Well, isn’t that how most people negotiate?” but the answer is no.
There are two commonly used methods of negotiation — soft negotiation (you end up losing out on a satisfying outcome because you simply want to avoid confrontation and please the other party) and then hard negotiation (you end up in a battle of wills that is exhausting and might give you a reasonable outcome, but harms relationships)
I can’t cover all the points in the book, but thought I’d discuss the 4 steps of principled negotiation and how they can help us as real estate investors.
Separate the people from the problem
An easy to forget fact about negotiation is that you are dealing with human beings who have emotions, deeply held values, and different viewpoints (and egos!). We tend to focus on our own viewpoints and perspectives without consideration for others and that is just asking for disastrous interactions rather than cooperative ones. The authors recommend:
1. Understand the other persons point of view so that you can potentially reduce areas of conflict
2. Allow the other side to let off steam and don’t react to emotional outbursts
3. Listen actively. Acknowledge what is being said (repeat it back to the person).
Focus on interests, not positions
A key to principled negotiations is to explore the true interests underlying the positions of each side, rather than just focusing on superficial positions. I think this is where many people miss the boat when negotiating with private sellers.
For example, a seller may tell you “I won’t take less than $85,000 for my house” and you may be thinking “I won’t buy it for more than $60,000!” Those are superficial positions. What you really want to know from the seller is how he came up with that dollar amount and what he is seeking to accomplish. By asking questions to explore interests and being wiling to talk about your own interests, you’ll be able to come up with possible solutions that will meet both of your objectives.
Invent options for mutual gain
Often times in a negotiation, there is little time (if any) spent on inventing creative options. Rather, it’s more “my way or the highway”. The authors suggest that in order to invent creative options you will have to:
(1) avoid making any judgments when brainstorming on possible solutions,
(2) broaden your options rather than looking for just one single answer by breaking the issue down or even changing the scope of an agreement,
(3) search for mutual gains by identifying shared interests and preferences, and
(4) invent ways of making the other person’s decisions easy such as drafting a few possible agreements to help discussions
An Example From A 30-Year Real Estate Investing Veteran
Extraordinary success with private sellers often lies in our ability to find creative solutions. A local veteran investor shared with me that there have been instances when the thing that closed a deal for him was the fact that he offered to take care of selling a bunch of the seller’s unwanted personal property in the house and split the profits from it. If he didn’t take the time to understand underlying interests and break the issues down while brainstorming with the seller, he would’ve lost that contract and the nice profit he received from wholesaling it.
Insist on using objective criteria
Before making a final agreement, the authors suggest that there should be agreement on standards of objective criteria that should be applied to the decision making. The reason this is powerful is because each standard that the other side proposes can then be used to persuade them. If you present a solution that is presented in terms of their criteria, it makes it difficult for that person to ignore that criteria. For real estate investors that criteria might be something like fair market value and comparable sales in the area.
Getting To Yes has a chapter towards the end that answers questions like “But what if they are more powerful?”, “What if they won’t play?”, and “What if they use dirty tricks?” There are really great insights in there which I won’t go into here. If you haven’t read this book, I definitely recommend it. It’s less than 200 pages and pretty easy to get through.
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(Scott and his lovely wife)
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