I think negotiation is an important skill in real estate, but I think it’s overrated. If you negotiate too hard, you lose deals to other buyers and you get a reputation that scares people. I would characterize negotiation as important, but only marginally, in the grand scheme of real estate investing—more of an urban myth than a viable strategy. I tried it. I was a real estate agent and I took multiple negotiation seminars and read every negotiating book I could find. More bargains stem from low asking price.
He could be right. I’ve always been interested in becoming a better negotiator, but still feel it’s an area I’m quite bad at. Whenever I learn something, it often just gets me really annoyed when someone else tries it, rather than being something useful that I’m comfortable doing myself. Perhaps it’s useful to know about them and not be affected. We’ve written in the past about: threats, low-balling, another kick at the can, evading inappropriate questions, motivation to do the deal, being stubborn, being nice (and another excellent post on the topic by Thicken My Wallet), incentive, meaningless promises, and negotiations within ongoing relationships.
I’ve read “Getting to YES“, thought the ideas were great, but never really found an opportunity to put them into practice. If any PF bloggers are struggling with ideas for posts in the near future, I’d love to read some ideas on ethical, effective negotiation techniques (or a convincing case that negotiation strategies / skills aren’t necessary).
There are some negotiation strategies that are *SO* overused that I can’t believe anyone has the gall to ever try them (but they must work occasionally!).
Someone Else is Interested
An eternal favourite of the used car salesman. When you’re sitting on the fence about whether or not to buy, you’ll likely get a phone call that someone else is interested in the vehicle you’re looking at. My father wanted to buy a truck and had said he was willing to pay red or black book price for it, but not the much higher asking price (red book and black book provides value for different year models of cars in Canada, like the Kelley blue book in the US – you can find copies at your local library). The dealer REALLY didn’t like this, and offered lame justifications on why his higher price was warranted. My father wouldn’t budge and left. The next night, at dinner, a phone call came in. Apparently the dealer was saying that a couple were looking at “my father’s” truck, and if dad could rush right down and buy it, the dealer would still sell it to my father instead. My father just said “go ahead and sell it to them”, at which point the dealer started protesting and saying that he wanted to sell it to my dad and they could talk about it later.
In my father’s shoes, at that point I’d be livid that someone thought I was stupid enough to be manipulated that easily, but it must work sometimes for the dealer to try it.
In a hot market, real estate agents like this trick too. The selling agent will say “there’s another offer, tell your buyer to ‘put their best foot forward'”. The buyer’s agent is equally motivated to maintain the charade, and often you can get a buyer to bid against themselves and increase an offer before the seller has even considered their first one. One of the most intelligent people I know bought a house recently and she fell for this, which had me scratching my head.
Take It or Leave It
The concept of BATNA, or Best Alternative To a Negotiated Agreement is very powerful. Basically the idea is: what’s your second option if you can’t reach an agreement in the negotiation? If the person won’t beat that, you might as well just go with the other option. Say you have a used car you feel is worth $2,000. You want to give a gift to your niece, who is starting university soon, but really the most you’d want to give her is $1,000 (so you decide to sell the car and give her cash from the sale). Say dealers keep low balling you and offering you $700 or less for the car. If you can’t convince them to give you more than $1,000 than you might as well just make the car a gift to your niece and not bother with haggling.
Deciding what you’d do if you can’t reach agreement, assigning a value to it, then making sure you don’t go below that value is a good way to prepare for any negotiation.
One the other hand, some people will say “take it or leave it” at every step of the way, yet then yield and soften their position (claim they have a BATNA they don’t). They threaten the negotiation (“give me what I want or we’re done”), when they don’t mean it. If the person won’t offer a reasonable deal, I say let them leave the negotiation. If they repeatedly threaten this, and don’t follow through, they can’t be taken seriously.
It has Sentimental Value
It’s a cliché to have someone in a pawn broker’s store sobbing about the sentimental value of a watch he’s trying to hawk. Similarly, sometimes real estate agents will say things like “the seller raised 6 children in this house, she needs to get an offer which takes into account the sentimental value”. I can’t for the life of me understand why someone else should be expected to pay for “sentimental attachment”. If I’m that attached to something, I don’t sell it! Why on Earth would I expect a buyer to compensate me for it???
What are the annoying (and obvious) negotiatation tricks you’re sick of encountering? Alternatively, what have you found to be an effective and ethical approach to negotiation?