How to Be a Great Negotiator
Overview of the Negotiation Process
How to negotiate with sellers, buyers, renters, contractors, vendors, banks, and more.
Learning how to negotiate well is a skill you will benefit form in all aspects of life, and this skill is especially important for real estate investors. Negotiation skills are used by sellers, buyers, renters, real estate brokers, property managers, and contractors. Some people think being good at negotiating means always getting what you want, but a truly great negotiator knows how to strike a balance that works for all parties and fosters future business relationships.
We use negotiations almost every day in various ways, from conflict resolution and dealing with customers, vendors, customer service representatives, employers and employees, family, and friends. Sometimes we have to negotiate big issues such as asking for a raise or settling on a price to buy a new house, but often we are negotiating about small things all the time, like who will take the trash out or put the dishes away.
The key to all of these negotiation s, big or small, is to get what you need and want while at the same time not cheating or neglecting the other person’s needs and wants. And, that is the real challenge that requires skilled negotiations. If you don’t strike this balance, you may find personal relationships deteriorating, or contractors quoting you higher prices or deciding not to work with you in the future, or other unforeseen consequences. Let’s look at some negotiation skills that will help you meet your own needs while still recognizing the needs of others at the same time.
Skills for Successful Negotiations:
- Listen, build trust, and allow others to feel secure and comfortable.
- Seek a win-win outcome.
- Look for commonalities.
- Acknowledge counters and objections—do not brush them aside as if they don’t matter.
- Broaden the pie: Meaning that you can be open to other options and avenues than you initially anticipated.
- Be patient.
- Be ethical.
Always be ethical when negotiating!
Everyone should follow this rule, and if you’re a licensed real estate agent, you’re required to follow strict ethical protocol set out by the code of ethics for all negotiations. Not only is this the right thing to do, but if you conduct yourself in an unethical way, not only could you lose your business or face a lawsuit, but your reputation will also be negatively impacted. This will make it harder to find people to work with you in the future, as well as scaring off buyers and real estate brokers if you are rehabbing homes. You know how the saying goes: happy customers tell a few people, but unhappy customers tell everyone!
General Negotiation Tips
It’s OK to Say No.
One of the most effective, but hard to implement, negotiating skills, is learning how to say no. If the deal is not good for you, or your time is being lost doing favors, or you do not have the skill to take on a job you are being offered, it’s often best to say no before you get into a bad situation.
If you accept a deal that’s not good for you, then you will be obligated to complete it. Many times contractors bidding for jobs may present a lower price than they should, and this can either lead to them not having the funds to complete the job, or having a financial loss, or cutting corners, or other undesirable outcomes such as an expensive court battle.
Likewise, if you don’t have the skills or human resources to take on a job you are being offered, such as rehabbing a home for an investor, it’s best to turn it down until you have more experience and a reliable team. It may sound like a big number when talking about home flipping budgets, but money goes fast with these projects. You could end up losing more money than you make, not to mention lost time, if things don’t go as planned—and they almost never do with these projects! You can be sure there will be unexpected issues and expenses, so be sure the budget you agree to reflects that fact.
Your time is a valuable resource, so think carefully about how you want to spend it.
Do Your Research
Do your research and know the true value of what you’re negotiating about before you start.
Before you start negotiating, you need to know the fair value of the item or service you are going to be negotiating. If you’re negotiating with a plumber to put in new plumbing for an entire house you’re flipping, but don’t know what’s involved in this work, or how much materials should cost, or what the going rate is in your region, or how to check the license of the plumber, you will be at a big disadvantage.
For any big project, it’s always good to do preliminary research and get multiple quotes so that you’re in the best position to negotiate a fair price and a timeline that works for all parties.
Know What You Want from the Negotiations
Know what you want before you start negotiating, and know why you want it.
If you’re negotiating to purchase a home as an investment, know exactly what numbers work for that purpose, and be prepared to walk away rather than pay more. If you’re negotiating to purchase a home as a place to raise your children, you may be willing to pay a bit more if it’s in a school district you like, or has features that would make life in the home desirable for your family.
Make a list of items you will and will not compromise about, and use this as a reference when you’re negotiating. You may be able to offer some concessions to get something else that you want in return.
If you’re an investor and are planning to flip properties, make sure you stick to your list so you don’t get emotionally attached or accept an offer that’s much higher than your desired price. If it doesn’t fit your needs, move on to the next property. Competition, especially at auctions, can distract people from their initial requirements and throw off their budget.
Know What the Other Party Wants
Just as you need to know what you want, finding out as much as you can before you start negotiating about what the other party wants or needs to get out of the deal will help foster successful negotiations. If you understand the other party’s point of view, their agenda, and their motivation, then you’ll be in a much better position to negotiate—or in some cases you’ll know before you even start that it’s not worth trying to negotiate. If the other party’s requirements and your requirements are too much at odds, then you can avoid wasting your time.
Ask Questions and Do Your Research
One way you can discover some information about the other party’s requirements is by asking questions and doing a little research, as well as observing non-verbal cues when meeting in person. Learning a little about body language can help you identify when someone is not being completely forthright with you.
If you’re buying a home, it helps when negotiating to know the amount of debt the other party has to pay off. It’s unlikely they’ll agree to go below that number if it doesn’t clear their debt.
Communication Styles Differ
Try to understand cultural styles as well, and how they may affect the communication or negotiation style of the other party. This is especially important when negotiating abroad, such as in a case where you’re buying properties as investments in another country. In addition to knowing differences in how people in another country might approach negotiations, it’s also necessary to understand any differences in how property sales work. For example, some countries require only cash purchases, while other countries may have more subtle differences in property investment strategies and expectations.
If you wanted to hire someone in Canada to find and flip properties for you, for example, you may not be able to find the kind of deals you are used to in the United States, because there are far less foreclosures in a population that doesn’t embrace debt the same way as Americans have in recent decades. Also, any foreclosures you do find may not be great deals, because lenders usually are required to sell foreclosed properties at fair market value. You will also want to know before getting started investing abroad what to expect for the going rate and availability of labor and materials.
Highlight Items Important to the Buyer
If you’re selling a house, know the key points to mention that may be important to your buyer. For example, if you learn that a potential buyer loves nature and there’s a greenway in the neighborhood, you will want to bring there attention to this feature in your discussions.
Additionally, if a buyer’s their friends or family live in the neighborhood, or there’s a boat dock and they have a boat, these are all useful bits of information for the negotiating process to help you know how much they may want the property. On the other hand, if you learn that they are downsizing, they may be seeking a lower price point.
Note that licensed real estate agents have to be careful with negotiations and marketing materials whenever schools are mentioned, because there are rules regarding any discussion of nearby schools. Best practice is to not mention schools outside of simply providing a list of all nearby schools of all types. Likewise, licensed real estate agents should avoid phrases in negotiations and marketing materials such as “walk to nearby restaurants,” because the word walk excludes handicapped buyers. These requirements are strictly enforced in many states for licensed real estate agents.
Use Data to Negotiate
Come to the negotiating table with data, and be ready to provide that data to back up your argument. Solid numbers and specific lists of requirements should make it easier to negotiate.
It’s harder to reach an agreement and please the other party without laying out the specific terms, and appearing ill-informed will undermine your ability to negotiate a good deal and be taken seriously by the other party.
Keep Your Internal Dialogue Positive
It’s easy to let self-doubt creep in, but this can have a negative effect on the outcome of your negotiations.
Try to channel any anxiety you have into enthusiasm instead of letting it be a liability that could impact your decision making.
If you know you have the skills to take on a project, or you have researched the price point you need for a purchase, sale, or service, then have confidence in yourself. Some people will try to undermine your confidence to get what they want, but you can counter this with a positive inner dialogue and sufficient research before you start negotiating.
Ask The Other Party to Submit the First Proposal When Possible
Some research suggests that you should try to get the other party to submit the first proposal to start the negotiation process, especially if they have more information available to them at the time that negotiations begin. Their offer will provide a place to start your negotiations.
However, if you’re confident and in a strong position during the negotiations, then it can be advantageous to you to make the first offer instead. This is because if you submit the first offer you will be the one who determines the starting point.
If you submit the first offer, then be sure to submit your most aggressive, yet still reasonable offer, because first offers tend to have an anchoring effect. This means the negotiations might not ever veer too far from that first offer point, so this can be to your advantage.
Listing prices serve as an anchor, for example, even if they do not reflect an appropriate price for the property.
Be aware of this psychological phenomenon when negotiating so that you don’t let the anchoring effect of someone else’s first offer pull your negotiations away from fair market value.
Negotiations Between More than Two Parties
Handling negotiations between more than two parties can be more complicated, and can often result in an impasse.
Be sure that anyone who’s negotiating on your behalf, (such as a lawyer or real estate broker), fully and completely understands your position, the parameters of your desired outcomes, and your specified limitations.
Taking a Dominating Attitude When Negotiating is a Big Risk
Refusing to take into consideration the viewpoint and needed outcome for the other party can make negotiations harder and produce a less desirable outcome. This style of negotiating is referred to as a “win-lose” negotiation style, but your attitude should always reflect your desire for a “win-win” outcome instead. Listening to the needs of the other party leads to more successful negations because it will in turn promote an openness in them to also listen to your needs. This will help you both find a good point of compromise.
Even though you should not be dominate and you will want to try to achieve a fair and positive outcome for both parties, you still must not sacrifice your own requirements for a successful outcome. Remember not to bend and compromise too much. Stick to your minimum requirements or walk away. It’s a process that takes some practice, and you’ll get better and better with time.
Practice Your Negotiation Skills
Practice negotiation on a small scale before you have to negotiate an important, big ticket item. Often purchasing a home is the biggest monetary transaction of a person’s life, so make sure that you’re not a novice negotiator—or if you are, bring more experienced help to the negotiating table with you.
Don’t be shy about haggling at yard sales or antique stores to practice the process, and take time to learn more about the psychology behind negotiating a successful deal.
Encourage Open Dialogue
Encouraging open dialogue and having a cordial attitude will help the other party want to compromise and work through a solution with you.
As we already discussed, the art of persuasion works better if you are kind and fair, not dominating or trying to take advantage of another person solely for your own benefit. Persuasion is not a bad thing though. We must use persuasion in all of our interpersonal relationships to be able to work together, convince other people to work toward mutually beneficial goals, and to help us achieve our own goals.
Healthy personal relationships require persuasion skills on both sides, just like business relationships, so that each partner can feel both fulfilled and supported while being willing to spend their energy, time, and money helping the other partner achieve theirs goals as well. Bullying or dominating another person into helping you achieve your own objectives, in any type of business or personal relationship, most likely will eventually backfire.
Remember, for negotiations to be successful, each party must be willing to compromise so that the outcome is a win for both sides.
Lastly, never rush to make a decision. It’s easy to feel pressured to finalize an agreement or set a price when other people are waiting, but be sure you don’t rush into a situation that you’ll regret. Take the time you need before finalizing any negotiations.