Real Estate Investing Adventures

 This post is about negotiation tricks and tactics. Successful real estate development and investing requires you to be a good negotiator. Understanding the common negotiating tactics that may be used by you or on you is essential to becoming skilled at negotiation. Whether or not you choose to use these tactics, it is vital to understand that tactics work. However, once you recognize the tactic, its effects are reduced or eliminated.Here’s a number of negotiation tactics along with how they are used:

Pre-Conditioning:

This tactic begins before you even start your negotiations with the other party. Let’s use an example:

You contact another real estate investor about purchasing some land he owns. He says, “I would be happy to talk to you about the land, but you will be wasting your time if you are not considering a full price offer and can close in less than four weeks.”

He has just “pre-conditioned” you to some terms without you really having a chance to negotiate them at all. The way to counter this pre-conditioning tactic is to use the set aside. You would say, “The purpose of sitting down and talking is to see if we can come to a mutually beneficial agreement on the property. Why don’t we set those items aside and see if we can agree on everything else.”

Anchoring:

Human beings rely heavily or “anchor” on any piece of information when trying to make a decision under uncertainty. There have been a number of experiments proving that people will anchor on completely irrelevant information. In one experiment, people were asked to write down the last two digits of their social security number. At the same time they were asked what they would pay for a bottle of wine and some chocolate. The people with the higher social security numbers said they would pay significantly higher for the wine and chocolate than the people who had written down their lower social security numbers.

In another experiment, people were asked in the first question, “True or false, management bonuses are 65% greater than worker bonuses?” In the second question they were asked, “What is the difference in percentage between management and worker bonuses?” Even the people who answered false to the first question gave estimates close to the 65%. They used the 65% number and adjusted downward even though the 65% may or may not have been relative. People grab an anchor, no matter whether it is relevant or not and adjust from that anchor.

Research has now shown that the person making the first offer in a negotiation gains a big advantage if it is also an aggressive offer. That offer will be the “anchor” from which all subsequent offers are adjusted.

Hot Potato:

This is the tactic of someone taking their problem and making it yours. For example:

You are selling your property for $1,100,000 and the other side says, “I can only qualify for a $1,000,000 property.” The fact that they can only qualify for a $1,000,000 property is their problem and not yours.

One way to counter that tactic is to return the “hot potato” and force them to make a choice or give them one of your “hot potatos”. Your response could be, “If we can find a bank willing to qualify you for a $1,100,000 property, do we have a deal?” or “I have to sell the property for $1,100,000 or I won’t have the money to pay for my child’s college education.”

If they genuinely only qualify for a $1,000,000 property then that is the truth and not a tactic. If it is the truth then you have a problem to solve instead of a tactic to thwart.

The Use Of Higher Authority:

This tactic is an old one but still extremely effective. It is used to postpone resolution on some items while agreeing to items that are favorable to you or to get a last concession. For example in the first instance, “I doubt my partner will agree to that easement. I’ll ask him. Let’s see if we can reach agreement on the detention pond issue.” If the detention pond issue is favorable, the person will agree to it. On all the unfavorable items, he will come back later and state what his partner is willing to accept.

In the second instance, someone reaches agreement with you and then says, “Everything looks good, but I have to run this by my partner, wife, boss, whoever for final approval.” Of course the next part of this tactic is when that person returns and says, “I am really sorry. I thought he/they would go for it. They just think the price is a little too high. If you can cut the price just $5,000, we have a deal.”

A simple way of countering this tactic is to say before the negotiation starts, “Do you have the authority to negotiate a final deal?” If you forget to do this and the other person wants to appeal to the higher authority, appeal to their ego by saying, “They always go along with your recommendations, don’t they? Since you negotiated this, you will be recommending this for approval right?”

The Power Of Legitimacy:

People believe what they see in writing. If it is published somewhere, it must be true. Understanding this bias can gain you an advantage when negotiating. Presenting your offer on a piece of property accompanied by a professional looking financial analysis backed up with some sources documenting your assumptions will force people to question their initial pricing decisions. In this day and age it is easy to find a source somewhere out there on the internet that will substantiate some of the assumptions favorable to you.

You can counter this tactic by providing your own “sources” that substantiate your own favorable assumptions.

Nibbling:

The nibbling tactic is when someone keeps nibbling or negotiating the deal even when it is supposedly done. It works best when there is a lot of time invested and people are ready to close the deal and move on. It also works best with small concessions. However, these small concessions add up.

You have just negotiated the sale of the back half of a piece of property. At the last minute, the other person says, “Now you realize that I will need an easement for the retaining wall footing I am building next to the front half of the property, don’t you?” You are probably not going to kill the deal because of this. The nibbles just keep coming until you blow up. At that time, the person backs down but has already gained a couple of additional concessions.

People using this tactic will keep back certain items they want until the very last minute when you are vulnerable.

The Vice:

This common technique is so simple, but really effective. When you are presented with an offer or proposal, just say, “You will have to do better than that.” You will be amazed at how many times someone will essentially negotiate against themselves and provide a better offer.

The easiest way of dealing with this tactic is to ask them to be more specific. Do not negotiate against yourself and make a concession for free.

Splitting the Difference:

Most humans are hard-wired to want to achieve a sense of fairness. That is why splitting the difference is so appealing in finalizing negotiations. What could be more fair? However, good negotiators will use this trait along with “anchoring” to split the difference when the split is based on two numbers that aren’t in themselves “fair”.

The Withdrawn Offer:

This tactic involves a bluff by taking away agreements that have already been made. For example you threaten to pull a counter offer by saying, “I’m sorry, but I had a mistake in my spreadsheet when I ran the numbers and gave you this counter. It’s too low and I’ll have to withdraw the offer.”

This often results in a response such as, “You can’t renege on your counter offer. It’s too late! We are accepting your offer.” You then reluctantly agree to the counter. This results in the party feeling that they have secured a good deal.

A good counter to this tactic is to walk away and test the validity of the bluff.

The Other Buyer:

People want things that other people want. It is just our competitive nature. You are mulling over making an offer on a commercial property. You get a call from the broker who says, “I just showed the property to another buyer. Looks like he is serious. If you want to buy this place, you need to put in an offer today before he does.” It is human nature that your anxiety goes up and that you want to prevent this person from taking “something of yours” even though a few minutes ago you weren’t even sure you were even going to make an offer.

Big Favor, Little Favor:

This tactic relies on the good nature of most people and the psychological trick of compare and contrast. The way this tactic works is that initially someone asks you for an outrageous favor or concession, knowing that you will decline their request.  They then immediately follow up their big favor with a smaller favor. The smaller (and usually intended favor) now seems more realistic to you.  They are hoping that in contrast to the larger favor, the smaller one will be no big deal.  Counter this tactic by simply declining again the smaller favor or concession.

Your knowledge of these negotiation tactics and tricks can be used for either good or evil! I am a firm believer in being well armed and prepared.