The Role of Power in Negotiation
This contrasts sharply with real estate. As I alluded to in Part One of this book, property is unique in that you can include just about anything you want in the negotiations. And people often do The seller countered the offer by stipulating that the canvas awning over the front door would remain his property at the end of the lease. So here we are negotiating a 170,000 property, and part of the negotiations concern a canvas awning that will probably need to be replaced several times during the twelve-year lease period. As part of my negotiations with the seller of a property, I usually incorporate the following four concepts. They are not always mandatory or even appropriate, but I use them often.
Never lose sight of that fact that your two main objectives when negotiating with property owners are to buy a real estate option at a price that is 5 percent or less of the property's current market value and to purchase the property at a price of at least 20 percent or more below its fair market value. And as a negotiator, I know what I want, and I know what I am willing to give to get it before negotiations ever begin. For example, before I ever sit down at the negotiating table, I already know
Assuming that your seller either accepts the offer immediately or engages in negotiations that result in a deal, a contract of sale then is prepared. Exactly who prepares the contract varies by state and region. In many places, however, the seller's real estate agent prepares the contract, sometimes filling in the blanks of a preprinted contract form, but in other places, only attorneys prepare the contract. After the contract is signed, the conditions within the contract are triggered. (For more about sales contracts, see Chapter 11.)
Agency by ratification An agency by ratification is created by accepting circumstances that created the agency after the fact. Suppose a real estate agent, without authorization and without ever speaking to the seller, negotiates a deal for a house that's for sale by the seller. One day the agent arrives with a completed contract simply awaiting the seller's signature and acceptance of the deal. An agency by ratification probably has been created when the seller ratified what the agent had been doing by accepting the deal. I say probably, because the agent wants a fee for his services and may have to sue the seller to collect. When that's the case, the courts determine whether an agency relationship existed from the beginning of the negotiations based on the fact that the seller accepted or ratified the agent's behavior by accepting the deal.
Normally, as you will see in the chapter on negotiations, I offer less than the asking price (what have you got to lose ). On this occasion, partially because it seemed such a good deal and I didn't want anyone else to beat me to it, and largely in deference to the health of the seller (who seemed to have factored that into the price in the first place), I agreed to pay the asking price.
When you know this critical item, you are in a strong negotiating position to meet the seller's real needs. Notice that you ask him if he wants the property handled in six to twelve months or longer. Most sellers will immediately come back and tell you that they want the property handled much sooner. (The most common answer our students hear is this month. )
TIP Dont worry too much about appearing weak because you have taken the initiative to settle Only a fool would not want
Nevertheless, I started negotiations with the lawyer on the other side for my client to make a cash payment to the condo association in exchange for dropping its opposition to the variances. The association finally agreed to accept 150,000 to drop the case. My client refused, even though this case could sabotage his 100 million hotel project if he lost. He was also infuriated with me for wasting time and showing weakness by negotiating with his enemies. He told me to stop dealing with them and just wait for the judge's favorable decision. I got the judge to postpone his decision and continued to negotiate a reduced amount with the association. The client also rejected that offer and threatened to fire me. I continued to negotiate. Finally, the association agreed to accept 55,000 to settle the case. My client was very angry with me, but I kept calling and recommending that he accept the offer. I pointed out how small the amount was and how much was at stake. He told me never to call...
Before you talk specific numbers in your preforeclosure negotiations, identify who holds legal claims against the property and in what amounts. As a starting point, ask the property owners for this information. However, before you irrevocably commit yourself to a deal, verify the owners' figures through a title report issued by a lawyer or title insurer. Also verify claims through direct contact with claimants. Your investigation may turn up claimants in the following categories Obviously, in this situation, the deal is not workable. The potential profit margin of 5,000 is much too low. But what if you could persuade the first mortgage lender to extinguish its old 78,000 balance and write you a new loan on the property in the amount of 88,000 (80 percent loan-to-value ratio) and waive all closing costs You then work out discount deals with the other creditors. After negotiations, your total payoff looks like this
Remember the very beginning of this chapter, where I described negotiating as a dance Well, here's where that analogy really comes into play. In most negotiations, it always seems as if buyers and sellers compromise toward each other's positions to some extent, but there remains a sticking point of a few thousand dollars at the end. At this point, some lesser skilled agents will cut their commission to put the contract together. Here's a technique to handle this issue.
Stating or implying to an owner of real property during the listing negotiations that the licensee is precluded by law, by regulation, or by the rules of any organization, other than the broker firm seeking the listing, from charging less than the commission or fee quoted to the owner by the licensee.
As with all real estate, the location of office and industrial space is a key consideration in both market and feasibility analysis. However, size can be deceptive. Many landlords will report a building as being physically larger than it actually is. The net rentable area is the reported size of the area available to the tenant the gross square footage is traditionally the actual physical size of the entire building. Originally, when a landlord rented an office space, he would lease only the tenant space (the car-petable area), but also calculated a charge for the rest of the buildings (shared bathrooms, common areas, lobbies, stairways, and elevators, for example). Over time, some landlords discovered that it was advantageous to resize the building and claim that it was bigger than actual measurement. Tenants and their brokers became wise to this strategy, so that negotiations often involve not only rent levels, but also how to calculate the size of the space.
My hope is with the stories and the work load described in this chapter so far that I've convinced you to at least consider the value of having a leasing agent advisor working on your side. If that's the case, then I should also point out that not all leasing agent advisors are created equal. There are leasing agents out there who don't do their homework and say yes to shaky businesses all the time. There are leasing agents who don't know the market, leasing agents who are terrible negotiators, and leasing agents who simply can't sell. If you're going to hire a leasing agent, and I suggest you do, hire a good one, a true advisor. Aside from the obvious qualities like experience, motivation, organization, intelligence, expertise, and integrity, here's what else to look for
Hiring an appraiser for real estate transactions often is a big decision and many reasons merit such a step. Anytime value is an issue, you may want to have an appraisal done. Because an appraisal provides an objective, independent opinion of the value of a piece of real estate, people use appraisals to guide them in negotiations and other business decisions. The list that follows includes reasons why people most often have appraisals done.
In my more than 24 years as a real estate investor, I have seen real estate investors ranging from neophytes just starting out to self-proclaimed seasoned veterans get snookered into overpaying for property, all because they were unable, for whatever reason, to master the fundamentals of negotiations. This hapless group of investors failed to grasp the very basic concept that when it comes to the terms of a real estate transaction, everything, and I do mean everything, is negotiable. They did not understand that, unlike your local Home Depot where every item in the store's inventory has a universal product code or UPC that lists the product's non-negotiable sale price, how much you pay for a real estate option or property really depends on how good a negotiator you are. And if you are a shrewd negotiator, you can buy low-cost real estate options and properties at below-market purchase prices. But, if you are a poor negotiator, you will probably end up paying way too much for your...
I had the opportunity to hone my negotiating skills while haggling with store-owners in Seoul, South Korea, and with flea market vendors throughout Western Europe. And unlike the vast majority of my fellow Americans, I very quickly learned how to master the negotiating game in both places. I was able to do this because I always took the attitude of When in Rome, do as the Romans, and observed how the locals conducted business. I ended up running a thriving antique wall and mantle clock business. I bought old clocks the real estate equivalent of fixer-uppers at flea markets in Germany, Holland, Belgium, France, Italy, and Luxembourg and had them cleaned up and repaired. I then resold them to my fellow Americans for a substantial profit because they were afraid to venture out onto the local economy. As a result of my observations, both here and abroad, I have come to the conclusion that most people in the good old U.S.A. would rather have a root canal performed on them than try to...
As you will soon find out, many property owners are fervent believers in what is rightfully called the greater fool theory. The greater fool theory is based on the inane assumption that so-called investors who make bad buying decisions will eventually be able to pass their blunders on to bigger or greater fools who will unknowingly buy them out at an equal or greater price than what they paid. And believe me, owners with this mindset have an extremely hard time accepting reality-based logic. The greater fool theory is exactly why, initially, many property owners have unrealistic expectations when it comes to what their property is really worth in its current condition. They fail to grasp why people like me are not willing to bail them out of their financial fiasco and simply pay them what they overpaid for their property. So, during the early stages of negotiations, the favorite expression of most reality-challenged property owners is Surely you do not expect me to sell you my...
Rule 1 As the old saying goes, first impressions are lasting impressions, and this is especially true when you begin negotiating with property owners. The image that you want to project is that of a savvy, polished professional investor. Please understand that when I use the term polished professional, I am not referring to the slick-looking bozos and bimbos who make their living by starring in infomercials on television. Polished professionals are individuals who are sincere, personable, confident, knowledgeable, well spoken, well mannered, well groomed, and in control of their emotions and not like the typical real estate investor who often comes across as a confused, uninformed, clueless flake, looking like he or she just came from a Grateful Dead concert. The point I am making here is that if you want to be taken seriously by property owners, you must act like a responsible adult who is ready, willing, and able to negotiate. Rule 2 As a negotiator, do not try to be what you are...
To gain maximum leverage when using real estate options and to avoid having all of your working capital tied up in real estate option fees, I recommend that you never pay more than 5 percent of a property's current market value for a real estate option. For example, on a property with a current market value of 250,000, you should never pay more than 12,500 for a one-year real estate option. In fact, I probably would not offer more than 10,000 for a one-year option on a property worth 250,000. And to reiterate what I told you at the beginning of this chapter, the amount that you wind up paying for a real estate option usually depends more on your skills as a negotiator than on the actual value of the property you are buying the option on. Depending on the condition of the property and the owner's circumstances, I usually start the price for a real estate option at 5,000 and increase it in 500 increments until I buy the option or cease negotiations.
Negotiators typically adopt one of three negotiating styles (1) adversarial, (2) accommodating, and (3) win-win. Most lawyers rely on the adversarial style. They make outrageous demands. Then they push, pull, or threaten to move you as close as possible to their position. Adversarial negotiators don't care whether their opponents end up satisfied. All they care about is winning for themselves. In pursuing a win-win method, negotiators adopt a little of the adversarial style and a little of the accommodating style. Most importantly, though, they adopt a more complex perspective. Win-win negotiators recognize that every negotiation brings forth multiple issues, priorities, and possibilities. They also recognize and respect the other party's (not opponent's) concerns, feelings, and needs. Win-win negotiators don't think along a single line of contention especially that of price. Win-win negotiators work to secure a strong, mutually beneficial agreement that everyone is committed to...
Establishing a good rapport with someone is not in and of itself a negotiating strategy. It is merely one component of your overall approach. Compromise is what negotiations are all about. If you enter negotiations with an open mind, the seller is more likely to have an open mind, too. This mind-set allows both of you to create a win-win situation. During negotiations, both parties must give something to get something therefore, good negotiators always use nonessential, but purposeful, contingencies as negotiating tools. In other words, when you use a nonessential contingency such as requesting that the seller include some, or all, of the furniture you ask for concessions that you do not necessarily need or even want (concessions you are willing to negotiate away ). In return, the seller concedes on a point that is important to you. with any type of offer you are making). A letter of intent is a letter stating a buyer's intent to make an offer to acquire a certain property. It is not...
The best negotiators are the ones who do not need the deal. They can walk away from the deal with no regrets. The worst ones are the ones who must have this deal, the ones who are desperate or fell in love with the deal. If you are ready to walk away from the deal if you do not get what you want, and the other side feels it, you will do much better. On the other hand, if you have already decided that you must have this deal you are easy pickings.
During negotiations and prior to the closing, you must explain to the optionor that he or she will have to sign the title transfer documents for the property real estate purchase agreement and warranty or grant deed at the same time the option agreement is signed. I have found that if you make it clear from the very beginning of negotiations that signing all the property title transfer documents is part of the transaction, this will not become a deal-killer later on. And it has been my experience that if you act in a competent professional manner and do everything exactly as you say you are going to do it, you will gain the trust of most reasonable property owners. The investors who have the most problems with optionors are the ones who come across as slick wheeler-dealer types and have a hard time giving people a straight answer. However, when an optionor does change his or her mind and refuses to sign the real estate option agreement, addendum real estate purchase agreement, and a...
It is recommended that you use a corporation or limited liability company rather than yourself to be the master tenant in a lease option transaction. This will limit your liability (see Chapter 10) and put you in a better negotiating position. If a tenant asks, you work for the property management company.
I no longer let the fear of no overpower me. Instead, I make a game of negotiations. Here's how I play it, and you can do it, too. At every opportunity, I ask for, negotiate, and almost always get something above and beyond where I started. To me anytime I save a few dollars or get an extra something thrown in whatever that something may be that I am asking for I have created additional value. And here's a universal truth Creating value is what business is all about The same holds true if a seller gives you a quote that you find completely thrilling. Don't accept the proposal as is. Go through the exercise of back-and-forth negotiation. Even after the back-and-forth seems to be over, ask him to do a bit better just so he feels he got the most out of you. It's how the game is played, and it will ensure the deal closes. There will be time for exuberance, but it is not when you are at the table. Practice restraint so the other person feels they got the best of you, not the other way...
Lease Negotiations Management shall handle all negotiations with tenants with respect to leases and or options. All such agreements are subject to the approval of Owner. However, Owner may provide Management with authorization to lease and or option and or sell the Property under certain specified terms and conditions, which are subject to change by Owner prior to any marketing of the Property.
Some Millionaire Real Estate Agents may opt to make the buyer specialist a graduated hire and begin with a licensed showing assistant. This allows them the option of being directly involved in initial consultations, negotiations, and preparing offers and contracts, while avoiding potentially long afternoons escorting buyers around town. By getting help in the selling side, you can increasingly devote your attention to the two most important sales activities in your model, leads and listings. As we have discussed, the more listings you have and market properly, the more buyers you will have. As you increasingly devote your energies to listings, you may need more than one person on the buyer side to handle the selling side of your business. In the end, you will need a talented lead buyer
Here's another one for you You list your house for sale at 250,000. I offer you 180,000. You don't think I'm really serious, but you're willing to try and negotiate. You counteroffer 230,000, but I respond with a counteroffer of only 185,000. At that point, you get annoyed and issue a counteroffer back up to 250,000. Can you do that even though you've already lowered your price once Absolutely. After I counteroffered the 185,000, you effectively refused my offer and it disappeared. It was as if we were starting negotiations from scratch. A binder, or offer to purchase, may be the first step toward solidifying a deal in some parts of the country, in different parts of the same state, and, in recent years, among different brokers in the same market area. A binder is used for residential real estate. A similar agreement, called a letter of intent, is used in commercial real estate transactions. A binder is used primarily to signify that a deal has been made and an agreement has been...
Briefly describe how you'll work to represent your clients' interests when it comes to negotiating and closing their transaction. For example, I always used this final discussion to explain that my typical approach was to handle negotiations during an appointment in my office or, as an alternative I would fax copies to each party prior to a phone meeting during which we would review the documents. I found these two approaches to be most convenient for my clients and most time-efficient for me and for them. By explaining my process in advance, my clients knew exactly what to expect. Some agents still travel to the client's home to present the offers and handle negotiations. I found it to be a large investment of time that was quite unnecessary. I couldn't have sold 150 homes a year and met all the clients in their homes to present offers. It would have also created more time away from family in the evenings only to accomplish the task that could be handled well by fax during the...
Your purchase agreement should set dates for settlement and possession. When sellers (or buyers) strongly prefer a quick (or delayed) closing date, that date can play a valuable role in the negotiations. Because of a need for ready cash, the sellers might trade a lower price for a fast settlement. Or for tax reasons, the sellers may prefer to delay settlement for six months or more.
Of course, there are dangers in partnerships. If one partner wants to sell a building and the other partners do not agree, frictions arise. If one partner wants to invest money to fix up a building or invest in additional properties, conflicts can start. Finally, if one partner decides to leave the business, difficult negotiations often take place about how he or she should be compensated.
Even do this with so much uncertainty surrounding the project. She decided to call Mr. Bright, whom she felt she could trust completely, and ask him to help her commence negotiations with Mr. Meaney to attempt to secure an option on the Hall. She knew that the balance of her initial
The term planning gain has no statutory significance and is not found in the Planning Acts In granting planning permission, or in negotiations with developers and other interests that lead to the grant of planning permission, the local planning authority may seek to secure modifications or improvements to the proposals submitted for their approval. They may grant permission subject to conditions, and where appropriate they may seek to enter into planning obligations with a developer regarding the use or development of the land concerned or other land or buildings. Rightly used, planning obligations may enhance development proposals.
If you suspect there is asbestos in a building you are considering, be sure to have a qualified inspector inspect the property before you move along too far into the buying negotiations. Removing asbestos in accordance with environmental guidelines is very expensive removing it from the heating system of just one heating system in a small home can cost thousands of dollars.
To set the stage for effective negotiations, here are 15 principles that should guide you to a win-win agreement 3. Recognize the proper time to stop. Successful negotiators can feel tension building. Pushing the negotiations for that last dollar in purchase price or that last concession has killed many sales. Beware, too, of pushing so hard that you destroy the trust of the relationship. If parties lose trust in each other, negotiations become much more difficult to maintain on a win-win basis. 4. Listen carefully to the objections and arguments of the seller. Try to determine what the seller really wants. Often people seek results indirectly. If what a person actually wants is brought forth, the negotiations will yield a better outcome. Many times, disagreements arise simply because two parties do not communicate what they think they are communicating. Listen far more than you talk. 7. Never quickly say no to a proposition suggested by a seller even when you think the offer...
Include the names of all parties to the transaction. It is especially important that all owners (sellers) are named and are immediately available to sign your offer as soon as you reach an agreement. Be wary of negotiating with a seller whose spouse or partners do not actively join the negotiations. If later they don't sign, you have no deal.
Unfortunately, the only way to prove that supposition was to catch mice, kill them, and check their DNA for a match, thus potentially endangering the endangered species in the process. The department decided that we needed to set aside property within the development to provide habitat, just in case the mouse existed. Moreover, they told us that we had to impose a ban on the ownership of cats by residents since they might hunt and kill the mouse, should it exist. (This is no joke ) Through negotiations, we were able to change the department's requirement from forbidding cats entirely to making it a requirement in the Convenants, Conditions and Restrictions (CC&Rs) of the community that any cats residing in our community would have to remain indoors. We complied, fully realizing that this was the political solution to a problem. Commissioners, developer, residents, and mice were all happy campers.
Always wanted to get a better deal but didn't have the needed negotiation skills? Here are some of the best negotiation theories. The ability to negotiate is a skill which everyone should have. With the ability to negotiate you can take charge of your life, your finances and your destiny. If you feel that others are simply born with the skill to negotiate, you should know that everyone can learn this wonderful skill.