Thursday, December 10, 2009

The Three Cardinal Rules of Negotiating Real Estate Transactions

You can find hundreds of books on the art of real estate negotiation . . . but pardon my frankness, many of these books offer stale strategies and tactics that just do not work.

For example, in many books you can find the ABC rule – “always be closing.” That is, you want to have a bunch of deals in the works and you want to get to “yes” as quickly as possible in order to close that deal.
However, getting to “yes” ASAP means you leave out a bunch of steps in the middle, such as carefully pre-qualifying your prospect by asking lots of questions. (I call this process “Getting to ‘no’ first – meaning, you weed out those who aren’t serious about a deal).  

It’s also why I’ve simplified negotiation down to three cardinal rules: the person who mentions price first loses, get to know your opponent before meeting with him or her, and always get your agreement in writing.

Negotiation Cardinal Rule #1: The person who mentions price first loses
When I first started doing lease options, I had a woman call me to see if I had a specific type of property that she could then lease to own.  She had $8K put aside but unfortunately at the time, I didn’t have anything in inventory that met her requirements. A few weeks later I found a property and called her about it and said that if she liked what she saw after doing a drive by, we could do business that very day.
She ended up loving the property. We did the walk through and as she and I talked, I knew that $8K was sure money in my pocket.
“Jim,” she said. “I have a problem. Remember how I said I had $8K? The problem is I don’t have $8K.”
My heart fell clear to my stomach and my knees went soft. “Uh oh,” I thought.
She then went on to say, “I don’t have $8K, I have $10K. Is that ok?”
Now, I if had opened my big mouth and had said at the beginning of our negotiation talk, “I’ll need a check for $8K,” I would have never learned she had an additional $2K in her pocket. The moral being – never be the first person to talk about price.
Instead, ask lots of open-ended questions that will give you solid information in order to determine where people stand. For example, when I’m talking to a person who is looking for a house or a lease option, I ask questions such as, “It sounds like you’re living in a great place. Why do you want to move?” (What I’m really asking is, “Are you a deadbeat?”)
Or, if I’m sitting at someone’s kitchen table and he’s spilling his guts to me about his house going into foreclosure, I ask, “If you’re able to sell the property, what you would you be comfortable asking for it?” Having the property owner tell me first what he wants for the property is akin to him showing me his cards before he makes a bet. In other words, it gives me the advantage.

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