The Art And Science Of Real Estate Negotiation

Skills, Strategies, Tactics

Gabrielle Dahms

• Publisher: PublishDrive
• Year: 2020
• ISBN:
  9781733147354
• Topic: Business
• Subtopic: Real Estate
• Index: Business

The Sky's the Limit!

The Art and Science of Real Estate Negotiation addresses a practice that is indispensable to real estate success: negotiation. Negotiation principles and fundamentals affect real estate buyers', sellers', and investors' results.

Read this book and be(come) a powerful real estate investor who nets results and dollars. You may also find that your everyday communications improve.

The Art and Science of Real Estate Negotiation is the third volume in The Real Estate Investor Manuals.

It draws upon the author's knowledge base and her 20-year experience as a real estate professional and a real estate investor.

So why not hone your skills with knowledge and experience captured in this book written by an industry veteran?

Topics include:

Real estate-specific negotiating.

Negotiation principles.

The real estate negotiation process.

How to establish rapport.

Discerning the other party's motivation.

Solve problems. Get results.

Negotiation strategies and tactics.

Avoiding negotiation traps and pitfalls.

And much, much more...

Whether you want to be a better negotiator, close more real estate deals, or increase your bottom line, this book is for you!

Read it now!

CHAPTER I

The charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different. - Aldous Huxley

A Quick Perspective

All of us negotiate every day. We have done so since the beginning of humankind. Negotiating in its simplest form is communication, even if business and politics define the term negotiation as we understand it. Negotiations span multiple parties that seek to find common ground to reach agreement, all communications with the aim to reach an agreement, and diplomatic communication between nations. Any negotiation is multidimensional, which is why power, leverage and creativity play big roles in negotiations.

Naturally, real estate negotiation refers to business deals, and business deals appear to concern themselves with money. The word appears as a conscious choice in the preceding sentence. Most negotiations are about much more than money, even if money is their quantifiable measure.

Higher stakes distinguish any business negotiation from say, negotiating which movie to see or what to have for dinner. In business negotiations considerable amounts of money or other assets exchange hands. One or both parties benefit once they reach acceptable solutions and agree to them. However, on some occasions the outcome of a negotiation might be to arrive at no agreement.

Contrary to popular belief, reaching acceptable agreements is not all about dollars. Some property sellers want to ensure they are selling the property to the right party. Naturally, those sellers define the “right party” by what they believe that party must be. Even those who do not have this goal are influenced by the other party’s conduct, e.g. their treatment of them.

Subconscious and unconscious biases exist. This is true for property buyers and investors. Clearly, these are highly personal undertones. One important parts of the art of negotiation is psychological. Another is reading between the lines. Yet another is putting all available information, including facts and figures, observations, and notations into their proper context. You get the idea.

Buying or selling real estate is no exception to the classic definition of negotiation. Either are business transactions. Either demand a wide range of skills, some of which are life skills. What sets real estate negotiations apart are the complexities of the negotiation process. To start, real estate negotiation most often involves more than two parties: the buyer, the seller, their representatives, inspectors, appraisers, title officers, mortgage professionals and banks, and the list goes on. This is often true even when no real estate professionals or attorneys represent sellers and buyers.

Real estate negotiations often are complex. Managing this complexity is part and parcel of negotiations. The items underlying all property negotiations are outstanding communication, understanding timelines, contractual obligations, legal implications, and the large financial investment real estate requires.

Successful real estate negotiations follow certain sequences, timelines, requirements, preparations, economic or political leverage, back and forth, reviews, signing, and completions. They also have aftermaths in which buyers of sellers are happy with results, believe the other party fleeced, or would proceed differently, if given the chance.

Therefore, many negotiations have their own “half-lives.” The parties’ memories of the negotiation live on and influence future decisions. One consequence of negotiations is that parties may do business again or stay away from doing business with the other party.

Next, studies show that negotiating parties have biases either toward agreement or toward impasses, which are stalled and/or aborted negotiations. If an impasse occurs, it most often equals failure in the parties’ minds. Further, whether the parties have a bias toward agreement or impasse often depends on how the offer is presented. Language plays a huge role. So does mindset. But I am getting ahead to myself…

As already mentioned, negotiating real estate implies identifying the right property or the right buyer for a property. Moreover, this requires a strategy, a plan, tactical know-how, asset and market knowledge, expertise, and other skills.

As in all fields, you can become a passable or even excellent negotiator by either learning from an accomplished negotiator, by reading books and taking courses, or by sheer experience. The latter option is less easy than it appears. Your time commitment and effort stand in direct proportion to which type of negotiator you will be. Sorry, there is no shortcut.

My master’s in history proves an incredible tool in negotiating because history is full of brilliant strategists and negotiators. A few examples of them are part of the chapters. I hope you enjoy reading about them. Maybe they inspire you to immerse yourself in more reading or in learning from all people who cross your path. Consider including your children and those you do not (yet) see as negotiators.

While only some famous people who appear in these pages had any interest in real estate, this chapter describes two men who became wealthy through real estate. Some of you might immediately think of The Art of the Deal. Although I read it, the book’s ghostwriter labeled it fiction, and it appears Mr. Trump implemented little the book presents. The book is a shining example of mistaken identity. It is also a public relations gig that looms large in the imagination. No other discussion of it follows.

John Jacob Astor (1763-1848) is synonymous with New York City. He immigrated to New York, then a small town, right after the American Revolution in 1784. Astor was a German immigrant whose family in Germany was poor. He was one of ten children. His family’s poverty meant that the Astor children had to fend for themselves at an early age. John Jacob was no exception. At fifteen, he joined his brothers in London, became a musical instrument maker, anglicized his name, and learned English. His next voyage took him to New York, where he would join one of his brothers.

He met his wife Sarah Cox Todd when he rented a room from her mother. He would stay in New York. His wife was an astute businesswoman with a network of social connections. Both benefitted him throughout his life.

For a while he worked in his brother’s butcher shop. Eventually, his interest shifted to the fur-trading business, a business for which he eventually established a monopoly. The Jay Treaty between the United States and Britain in 1794 opened fur trading markets in the Great Lakes region and in Canada. He took advantage of that treaty and established the American Fur Company in 1808.

Although the American Fur Company has a colorful history, I can only hint here, it became a monopoly in 1817 due to absorbing its competitors. Yet, he foresaw the fur trading business’ eventual decline long before it happened.

As a man who always hedged his bets, Astor bought real estate in Manhattan as early as 1799. New York was then a small town, but his assessment was that it would experience a boom and become one of the world’s great cities. His thinking went like this:

From a fort you get a trading post, and from a trading post you will get a city.

His net worth was $20 million—over $600 million in today’s dollars - when he died.

Astor was a shrewd negotiator who knew what he wanted. He excelled in establishing and maintaining relationships. His vision, creativity, business skills, negotiation skills, communication skills propelled him to riches. Note however, that he did not do so alone. His wife was an excellent business partner, and he relied on her regarding business details and running his affairs when he was away.

Some characteristics that made him a successful negotiator were that he was not afraid of change, and able to identify opportunities and act on them. He leveraged connections and relationships and believed in honesty and fairness in all his dealings.

Astor’s characteristics in building a real estate empire are instructive. They map across to anyone wishing to do the same today. Keep them in mind.

The other man who made his fortune in real estate is Ray Kroc (1902-1984). I know you may immediately associate Ray Kroc with McDonald’s, the ubiquitous American hamburger chain. You would be partially right.

McDonald’s is its own business, a public company traded on the New York Stock exchange. The part you may not yet know is that Mr. Kroc viewed McDonald’s as something other than hamburgers, fries, and milkshakes. Rather, he stated, “my business is real estate.” This stemmed from his belief that the real estate where McDonald’s franchises stand is much more valuable than either the structures on it or the hamburgers those franchise operations sell.

Mr. Kroc’s business model therefore depended (it still does) on acquiring cheap property, usually along highways with many travelers traversing them. In 1956, Mr. Kroc therefore established The McDonald's Franchise Realty Corporation with that goal. The franchising model that followed was a natural outgrowth of this approach.

But the McDonald’s story begins with Mr. Kroc’s visit to the McDonald brothers who owned a thriving restaurant in San Bernardino, California. They sold fast food and milkshakes. Kroc, then a milkshake mixer salesman, had sold them several mixers. They impressed him with their ideas and business sense, and with their successful restaurant operation.

Kroc purchased the McDonald’s franchise system and made them partners. The franchise model and the business had innumerable problems that ranged from franchise location, to cleanliness, to product consistency, to pricing. Although the partnership with Kroc made the McDonald brothers rich, strains appeared in the relationship.

McDonald’s franchises lease the land and the buildings to franchisees on a long-term basis. Franchisees pay rent, franchise fees, and royalty fees. The sales of burgers and fries predicate the rent franchisees pay. In theory, all this landlord needs to do is collect those proceeds per contractual agreement.

It is easy to see that this long-term lease business depends on contracts that cover all bases. Note that this is a different model than being a landlord of, say, a 6-unit apartment building.

McDonald’s makes money no matter if the franchisee generates sales. In contrast, the 6-unit apartment building landlord only makes money when tenants occupy the apartments. Mr. Kroc and now the McDonald’s Corporation are masters of this business model.

Talk about creating cashflow!

Ray Kroc built his real estate empire observing, identifying opportunities, leveraging relationships, having a vision, and knowing what he wanted. He treated business associates, suppliers, and his customers fairly and had an aversion of gauging customers. He believed in and advocated the pioneer spirit. Integrity, high standards and rigor were top of mind for Kroc. This quote from him is most instructive for all real estate buyers and sellers:

If you work just for money, you'll never make it, but if you love what you're doing and you always put the customer first, success will be yours.

Something important to note before we jump into the content is that you will see fewer acclaimed and known women negotiators in all fields of human endeavor. Cultural and social norms are the primary reasons for this lopsided picture. Excellent women negotiators clutter the field of history, but few ever received acknowledgement. If they were, it was often as martyrs or saints. These labels remove their abilities and ascribe them to a nefarious source. More common is the view that brilliant women negotiators are self-serving, power hungry, dragon ladies, and even “nasty” women. Such views, often subtle and subconscious, persist today.

Of course, this begs whether they behaved differently than their male counterparts. Possibly so, but unlikely. They stood out as brilliant negotiators, something considered the purview of men.

The assumption and accusation are that something is wrong with them, meaning they do not abide by the cultural precept of the subservient woman of their times. The expectation of many cultures continues to be even today for women to serve others, especially their husbands. Thus, many women’s negotiating skills ignored or discounted. Instead, women mask their accomplishments and watch men co-opt them as their own.

Dolores Huerta, co-founder of the United Farm Workers and an accomplished and tough contract negotiator, the puts this phenomenon like this:

I started really noticing, more and more, how men will plagiarize and take credit for women's work... I have noticed that it just happens a lot.

Keep this interesting and persistent disparity in mind as you read this book, especially if you are—like me—a woman. If you are a man, notice the phenomenon and resist it in your next negotiation.

You may already see that negotiating is an art and a science. Excellent negotiators are aware of this and hone their craft in both arenas. You may well be an excellent negotiator—in real estate or in another field. Or you may be a complete negotiation newbie. In either case, I imagine you appreciate the importance of negotiating well.

Perhaps you know t...