Win-Lose Negotiating

In this style of negotiating the parties view the transaction as having a fixed amount of something, and the more one party gets, the less the other party gets. For example, there is a fixed size of the pie and if you get a bigger piece of the pie, your counterpart gets a smaller piece of the pie. In real estate, if the price is a dollar higher, the seller gains an additional dollar and the buyer loses an additional dollar.

In this type of negotiating, you “play your cards close to your chest” and do not disclose anything important about your situation. Why? Because everything you say will be used against you, so that you get less of the fixed amount in the negotiations. On the other hand, you want to learn as much about your counterpart’s situation, so you can use that information against them to get more of the scarce commodity. The best way to visualize this style is “My gain is your pain” according to The Power of Nice by Ron Shapiro and Mark Jankowski.

Win-Win Negotiating

You will live longer if you learn Collaborative Negotiating. It is frequently called Win-win, a term that is used way too much, because it implies that everybody wins equally. The perfect result is for you to feel you got a big Win and feel that the other side got a littler win while the other side feels they got the big Win and they think you got the little win.

This type of negotiating is characterized by questioning and listening, creating trust, avoiding hostile emotions and concentrating on ways to get mutual satisfaction. The first stage of this type of negotiating is for the parties to cooperate and exchange information, so they can create more value in the entire deal. The second part of this style of negotiating is for the parties to claim their share of the value.

To engage in this type of negotiating it is important that each side provide useful information about their circumstances and explain why they want to make a deal by discussing their real interests honestly. This is dramatically different than Win-Lose negotiating, where sharing information can hurt your position. Each party needs to explain what they prefer among the various factors in the negotiations. Finding additional terms that would provide value to the other side enhances the ability to make a deal. With this additional information, the goal is to create the best result for both parties by dividing up the additional value items. When you realize that your counterpart’s points of value are not the same as yours, you can find something that is more important to them than it is to you. So, one of your primary efforts is to concentrate on what you can concede to your counterpart that will not damage what you want out of the agreement. In other words, you concentrate on satisfying your counterpart’s needs. This style is different from Win-Lose negotiating, where the concentration is on what you can take from your counterpart.

Watch A Video Of Tim and Michael Krisa, That Interview Guy

This discussion of the difference between Investigative (Win-win) negotiations and Win-Lose negotiations is the subject of an interview Tim did with Michael Krisa, That Interview Guy.  Click on The Interview so you can see how Tim explains it in person. 

What Do You Do Now?

If you try to change to Win-win without completely understanding the process you will look like the farm boy negotiating with the street gang. They will take your lunch. Register here  to join the Real Estate Negotiating Institute and get full access to a step by step procedure for leaning this type of negotiating.   You can also pre-order Create A Great Deal, The Art  of Real Estate Negotiating by clicking here, because the book contains detailed descriptions of how to change to this better style of negotiating.  I hope you learn how to Collaborate.

On the other side of the transaction, the buyer frequently gets a case of “buyer’s remorse,” wondering if she did the right thing and whether the price is too high. So the buyer’s commitment to the sale decreases and her ability to walk away increases. In most states, if the sellers do all the repairs the contract goes forward, but if they refuse to do even one item, the buyer has a chance to cancel the agreement. If a sale falls through, the seller may have to disclose all the items that the inspection report calls out as problems. Also, when the home appears back on the market, it is frequently treated as damaged goods by the other real estate agents. These are some of the reasons that shift the dynamics of the negotiations so that the seller is at a disadvantage when negotiating repairs.

This second round of negotiations is the most frustrating for real estate agents, as they are not putting a deal together, but holding on to one. Also, spending your time arguing over the quality of the splash blocks under the downspouts is not a high dollar per hour job. You do not want to gloss over any item that may be a repair issue, as full disclosure is necessary, but you do not want to make a mountain out of a mole hill. If you have a team with a closing coordinator to handle the issues from the signing of the contract to the closing of the sale, you may want to teach them how to negotiate the repair issues

For Sellers

In the book, Create A Great Deal, the items you can do for a seller are discussed. An inspection before putting the home on the market can eliminate repair issues, or it can give you a disclosure disaster. You need to know when to do it and when to avoid it.

How about telling the buyer the home is sold “as is”? Will that eliminate the repair issues? It might, but it might eliminate the entire sale. You need to know how to use the “as is” clause. You also need to know how to prepare your seller for the buyers asking for repairs in spite of the ‘as is” clause.

Can you workout a personal agreement with the other agent so that the seller will give them a low price if they will not ask for repairs? Find out the problems with these understandings.

Remember Nancy Regan, you can “just say no”.

For Buyers

Do you know how to set reasonable expectations for your buyers? Can you explain the difference between the standards that inspectors have to follow and the requirements for repairs in your contract? If you cannot, you are going to lose all your hard work when the deal falls apart over an unnecessary repair dispute.

Do you know how to make your repair request sound smaller and more reasonable? If you can have the seller’s reaction be favorable, you will not go through protracted arguments.

When do you just let certain repairs go? If you can explain to your buyer the benefits of being reasonable at the repair stage, so that they can get benefits at a later stage, more of your sales will close, and close more smoothly.

For the Inspector

What can you do to make the inspector work with the buyers and the sellers, while still having full disclosure of all the issues with the property? How can you help the inspector explain the situation completely, without making a mountain out of a mole hill? A practical approach to leading the discussion will make all the difference in the reaction of the buyers and sellers to the items found by the inspector

How to Stop Losing Time and Deals Over Repair Issues

I have not had every repair issue possible come up over the last twenty nine years of selling real estate, just the vast majority of them. I would like to share what I have learned, so that your sales will close more often and more smoothly. Just click here and you can pre-order my book Create A Great Deal, The Art of Real Estate Negotiating so you won’t have to make all the mistakes I made.  If you would like to continue your education, you can click here to join the Real Estate Negotiating Institute, where we can discuss repair issues in detail.

You will probably have other negotiations along the way. As an example of negotiations extending after the closing of the sale, I have had buyers call after the closing wanting to continue negotiations on the condition of the house. My favorite one of these calls was from a buyer who wanted my seller to be responsible for the opossum that got into the house and ate the wiring on the dishwasher while they were remodeling a month after the closing.

The unknown is scary. Most people do not know the entire process of buying and selling real estate. So, walk your client through all the steps in the negotiation, tell them what to do and what not to do, and answer all their questions. For example, coach your buyer clients that if they meet the seller or listing agent do not tell them that “they just have to buy this house,” or “that it is the only one for them.” Once your clients know the entire process, it will be less scary.

Before you start, figure out where you need to end up. Most people just jump in, and flail away. Instead, figure out where you are, then where you want to be. Do not just figure out one ending point, look at the range of acceptable results. Look at what would happen if you aim high and focus on the best outcome you can imagine. Next, look at a mid range result that you would be satisfied with and make that your primary target. Then, figure out your reservation result, the one that is just barely acceptable that is slightly better than walking away. Also, you need to figure out your other choices, e.g. other homes you could purchase that would satisfy your needs or other buyers who could purchase your property

The party with the most alternatives in the negotiations has the most power. So, figure out several ways to get from where you are to where you want to be. For each alternate route, evaluate what the various tactics would be, and decide how well you can predict the other parties response to each of those steps. Some choices may be easier for the other party to react to, and increase your ability to predict their response. The more predictable path may have an advantage. Then, put all of the tactics together into a comprehensive strategy that becomes your game plan.

 As a part of this strategy, you can make a list of concessions that you are willing to make and ones that will never be made. This will help you decide what to concede first. It also helps to have a list of minor concessions, so that you will have something to throw in to give your counter part one last victory to put the deal together. In short, visualize most of your moves before you begin.

How Do You Develop a Great Game Plan ?

You can learn by trial and error, and if you study the results well enough, you can learn which game plans work and which fail. You can read books to learn ideas from other people’s experience. It has taken me twenty nine years of studying books then trial and error, then more reading, more reflection, more trial and less errors to get to where I am now. So, you can click here to join the Real Estate Negotiating Institute learn from the experiences of all the members of the group.  If you can wait until spring, you can click here to read the book “Create A Great Deal, The Art of Real Estate Negotiating where the chapter on Game Plan will provide more insight.

Thank you for planning ahead in your negotiations.

Internet Equals Information

We are in the Internet age. This means you have a golden opportunity to find out as much about the property and the person as you can before you start negotiating. Google is a great tool, but so are MySpace, Facebook, LinkedIn, Twitter, ActiveRain, Diggit, BlogSpot, Friendster, Bebo, VillageMaker, Word Press and other social media. Find out if anyone involved in your negotiations has a blog, as you can get a feel for what is important to them by reading their entries.

If you are dealing with younger people, look at YouTube to see if they have any videos. I had an offer on a property in California, and I wanted to know more about the buyer, so I Googled his name. When I found out that preservation of open space was important to him, I emphasized how the house he was interested in purchasing was surrounded by a nature preserve that is bigger than Central Park in New York. This greatly improved the quality of this buyer’s offers.

To learn about the property look to similar Internet sources and public records. In most states, the tax records will tell you when the property was purchased and for what amount. If you know your way around, you can look up the loans on the property; the covenants, conditions, and restrictions; as well as possible liens. Use every bit of information you can to help your proposal succeed.

Just Chat

You need to get the formal disclosures to find out what is revealed about the property. But, there is an even better substitute for the required disclosure: just chat. I work in Raleigh, North Carolina and outside of Los Angeles, California. The stereotype is that Southern women like to talk. Most of them do. You will be surprised how much Southern men also like to talk. In fact, real estate agents everywhere tend to be chatty. So, call the real estate agent for the seller or buyer, and talk.

Start with something personal about the real estate agent or yourself, just to be cordial. Then, once you are telling each other friendly stories, go on to the property and the client. If you are good at this exchange, you can give the other party only what you want them to know and they will feel like they have inside information. If you are not, you will find that everything you said “can and will be used against you,” unless you have a collaborative negotiation where both sides are sharing information that is useful in putting a deal together.

You Need to Know the Real Estate

Not only do you have to know about the property, you have to know the real estate market, in detail. Not just the market in general, but the portion of the market that the property is in. For example, in Cary, North Carolina, if you have a property under $200,000, it is a raging seller’s market. If the property is in Wake Forest, North Carolina and over $500,000 it is a raging buyers market. So, the offers you make in the affordable part of Cary are dramatically different than the offers you make in the luxury part of Wake Forest.

You have to know what the media has been saying about the market, because it affects the beliefs of the people involved in the sale. The media only has time to give a sound bite of information, so they condense an idea into one phrase. For 2008, the phrase is “buyer’s market” and the lead story is foreclosures, so they apply it to the entire United States.

That notion makes about as much sense as one weather report for the whole nation e.g. giving the average or median weather for the entire United States. What would you think of a weather reporter who took the feed from the national NBC station and said “the weather today, February 6, across the entire country is 42 degrees, partly cloudy, with a three mile an hour breeze from the south east?” If you averaged all the data, that is what you would get. That report would be stupid for Palos Verdes, California, where the temperature was 73, sunny and calm, and equally dumb for Raleigh, North Carolina, where it is 34, raining with a ten mile an hour wind from the south.

All weather is extremely local, reported with high definition radar that can distinguish individual road intersections. All real estate is extremely local, but reported in short sound bites averaged for the entire nation. Yet, buyers, sellers, and their well meaning friends try to apply what they have learned from the news media, which has to have a major entertainment component to their report. Do not fault the media, they provide information and entertainment. If you are a real estate agent, you need to know the image that the media has presented so that you can be more of a guide to your clients than the media and their well meaning friends.

You Need to Know the People

You have to know the personality type of the people involved. There are dozens of psychological treatises that have divided people up into different personality types. Chose one and learn it, as it will help you predict the way the people involved in the negotiations will behave. If I have a reluctant CPA for a buyer, I make offers dramatically different than if I have a gregarious politician.

You need to know the motivation of the people involved. Sellers facing imminent financial ruin are different from sellers retiring at their convenience. Buyers who have to get out of Extended Stay America with their four children and three dogs are different from buyers who might think about moving to your city, or several others, some day in the future.

You need to know the ability of the other agent involved in the sale. An agent working on a first sale needs to be treated differently than a twenty year veteran. The kind of discussions and offers that you can have with the one are dramatically different than what you can have with the other.

How Do You Improve Your Power?

Margaret Thatcher explained the perception of power perfectly when she said “Power is like being a lady . . . if you have to tell people you are, you aren’t.” In real estate negotiating, the perception of knowledge and ability creates the image of power. To develop that power, click here to join the Real Estate Negotiating Institute where you can learn much more about being powerful in real estate negotiating.  My book Create A Great Deal, The Art of Real Estate Negotiating will discuss how to prepare for negotiations and what kind of knowledge to gather when it is published in the Spring.  If  you would like to pre-order it, click here .  Just knowing what is in the book will make you more powerful.

As far as your own income is concerned, you do not get what you deserve, you get what you negotiate.

Negotiating Listing Commissions

Real estate commissions are highly negotiable. Real estate as a profession is one of the most creative in offering different models of service that provide for different amounts of payment. There are firms that charge a flat fee for limited service, such as just putting your home in the Multiple Listing Service. There are discount firms that charge a lesser percentage commission in return for less service. There are real estate agents who provide a menu of service, and you select the items you want and get charged appropriately. There are full service real estate agents who negotiate their commission down from what they would like to charge. There are also full service real estate agents who charge more than their peers, and insist on a premium over the amount other agents charge. Just a cursory look in any city will reveal a large range of business models to show that real estate agents negotiate their commissions in many ways.

Concentrate on Value

One of the best ways to negotiate the commission on a listing is to provide such an image of marketing, service and advice that the clients would not ask you to negotiate your commission. In other words, if the perceived value of what is offered is so high, the client will not want to negotiate the price, as it could go up. When someone wants to trade you their $50 bill for your $20 bill, you do not open up negotiations to try to get a better deal. So, explain the features of your marketing, the exceptional services you provide, and the benefit of your negotiating skill to give the client an appreciation of the value.

One of the major features of your value is established by using fear of loss in your negotiations. Choosing the wrong real estate agent puts a large strain on the family when the move is uncertain and filled with problems. Having the wrong agent can also cause a financial disaster. Most sellers are afraid of making the wrong choice. You need to use that fear as a part of presenting the value of your service because part of what you are selling is security, protection and freedom from fear.

Confidence

Brodrow’s Law from Negotiation Bootcamp is to be willing to walk away, always. The sellers will sense if you are desperate. They will also sense if you are willing to walk away. Convey your interest in listing their property, but also show your willingness to walk away in order to strengthen your bargaining position.

 Some real estate agents believe that if they do not negotiate their commissions, they will lose their customers. The more successful agents believe the opposite: that if they do not defend their commission the seller will lose respect for them. The seller’s perception is that if you will cut your commission to below the market value, you may be worth less than market value.

My favorite statement to bring the point home is “You do not want me to cut my commission.” Then wait for the sellers to ask why. The answer is “If your agent is such a weak negotiator that they give their own money away, how well will they do when an offer comes in and they are negotiating with your money?” If you want to show some style, change the subject to ask what circumstances would make the sellers feel that they should pay you a bonus. When the sellers get you to give up the bonus, they see some value in the concession and may give up their discussion of cutting the commission.

Higher Authority

Another approach is to use the higher authority technique. Indicate that your firm has a policy of charging a particular commission, so you cannot lower the commission for them, as you would have to lower the commission for everyone. A good phrase to add is that if you could cut your commission, the people you would do it for is them. But, you cannot. Some sellers may accept that you do not have the authority to reduce the commission.

Set Aside

Another way to deal with commission negotiations is to set the issue aside. Explain that you and the seller are a team, both in this effort together. You depend on them to have a good house in good condition that is available for showings at reasonable times. They depend on you to get the attention of potential buyers, make them appreciate the special features of the home, and negotiate offers to a great deal. If you end up with a great price, you are in it together as there is enough money to go around. If you end up with a price that is unreasonably low, then you will both be disappointed together, as they will take less money and so will you.

Explain that now is not the time to negotiate the commission as you have not been given a chance to bring in a good offer and prove your worth. If you do, you earn the full commission. If you don’t, you work with them at that time on the amount of the commission. Setting aside the issue until later has worked for me as I have yet to have anyone want to negotiate the commission after seeing how much our Team has done to sell the house. If you happen to do a less than wonderful job and want to share in the loss with your client, there are worse ways to resolve a client’s disappointment than by reducing some of your commission.

If You Have to Cut the Commission

If you are going to cut your commission, try to negotiate it in dollars, not percent. After all, a one percent reduction in a six percent commission is actually a seventeen percent reduction in the commission. Have the sellers ever gotten a seventeen percent reduction when they negotiate to buy a car?

The commission rate will vary, as there is no standard commission rate, so use whatever is appropriate for you. Many sellers are looking for a one percent reduction in the commission, as one percent does not sound like a lot to them. But, to you, it may be one percent of $1,600,000 which is $16,000. If you talk with them in dollars, they may be happy with a $5,000 reduction in the commission, as it sounds like a serious amount of money.

Another way to negotiate the commission is to throw in an additional benefit to justify leaving the commission alone. Offer to do hire an ASHI approved inspector for a pre-listing inspection or to provide a home warranty.

Do You Want to Make a Decent Living?

In order to provide for your family, you have to keep your clients from taking your money when you list a home for sale. In Create A Great Deal, the book on real estate negotiating goes into detail on how to get paid for all the work you do. Do you know how to negotiate when a discount broker is an option? Do you know how to use the basic economics of supply and demand to your advantage in order to get a commission that is higher than your competitors? Do you know how to get your client’s respect when you refuse to cut your commission?

If you would like to take home more money for the same work, click here join the Real Estate Negotiating Institute and participate in our discussion so that you will get the respect, and compensation, you deserve.  You can also click here to pre-order my book Creat A Great Deal, The Art of Real Estate Negotiating, where an entire chapter is devoted to the issue of getting real estate agents the compensation they deserve.

In the book Create A Great Deal, I have 19 principles to follow that will make your decisions on how to negotiate easy. Here are four principles:

1. Your Clients’ Interests Are Paramount

Your clients’ interests come way in front of yours. Do not let your client miss buying the home of their dreams just because you want to do some fancy negotiating. If they think it is worth the price, be sure you give them your advice, but if they want to proceed, it is their life. When you are giving them advice that they do not follow, be sure to document it in writing. But, do not document it with something that sounds like a lawyer, do it with something that sounds like you are writing to a relative asking them to reconsider.

In the same manner, if it is going to take forever to negotiate a deal on the property they love, your obligation is to proceed and take the time required to get the best deal. The best way to lose a client, and all their referrals, is to let them feel that you put your interest in making a quick deal in front of their interest in getting a good deal on the home they want. So, do not rush the process.

Another instance where your client’s judgment is paramount is the success of the negotiations. You might think it went extremely well, but if the client is not happy, there goes your repeat and referral business. If you think you did not do well, but the client is thrilled, your business grows.

This is not to say that you always defer to your client’s judgment. They are relying on you for professional counseling. If they want to overprice their home when they try to sell, it is not in their best interest, so you have to do everything you can to prevent it. See also Rule 12: Don’t Let Your Clients Do Something Really Stupid.

The corollary to this rule is that you are negotiating your client’s property, it is not your own. You advise; they decide. In this capacity, you should not take on the tone or position of the client when you talk to the other agent. By being a professional counselor, you can avoid emotional responses to the other agent when their offer is “less than wonderful.” Any offer is an opportunity to make a deal and must be presented. You do not have to be gleeful about it, so you do not give your counterpart the wrong impression. But, being insulting hurts the process.

2. Let the Other Side Feel that They Won

My mother, Lorna, enjoyed arguing and wanted to end the process feeling that she was right. It was a great education, because I learned very early that if I got the results that I wanted, it was not important for me to force the other person to feel that they lost. In fact, if I let my counterparts feel that they won, it was easier to get the results that I wanted, so they felt a “win” while I got a “Win”.

Forcing your counterpart to recognize that you are victorious is counter productive. If they feel that they won, they will do everything possible to close the sale smoothly. If they feel that they lost, they will do everything possible to have a victory before the sale closes.

This idea does not mean that you want your client to feel that they lost. Quite the opposite! You want your client to realize the great results they got in the final agreement. You just do not want to rub your counterpart’s nose in the great results you got.

This concept is particularly useful when you are close to making a deal, and your counterparts fancy themselves to be great negotiators. Find something you can give them as a victory, no matter how small, so they can feel they won, especially if they need to show that victory to look good to their spouse. You do not need to be right; you need to get the deal done.

3. Don’t Push: Present Choices

I have yet to meet anyone who says they like a pushy salesman. We help people make decisions. I learned from Joe Stumpf of By Referral Only to act like a counselor when I am working with my clients. The best way to act like a counselor is to present the various choices to a client, and discuss the advantages and disadvantages of each. Your clients know their life better than you ever will, so if they get complete, accurate information, they will make the right choice.

This principle is particularly appropriate for listing presentations. You discuss with the potential sellers that they can (1) Decide not to sell (2) Go For Sale By Owner (3) Use a discount firm or (4) Use my Team. Present all the advantages and disadvantages of each choice, and if you are the right choice, they will come to it. The first advantage of this technique is that you get clients who really support the decision they made. The second advantage is that you avoid clients who are not right for you. There are some listings that you do not want.

4. Present With Confidence and Conviction

According to President Lyndon Johnson, “Nothing convinces like conviction.” If you believe in your position, exude conviction.

Everyone has had an agent present an offer saying, “I know it is low, but see if you can get us a counter offer.” Don’t do that.

In law school, they teach the future lawyers that 10% of the effect is the words you say, and 90% is how you say it. Be confident in what you are presenting. Don’t say this is your initial offer, that you want to run it up the flag pole, or that this offer is a good start. Each one of those phrases tells your counterpart that you are not serious about this offer. Present the offer as being a good offer.

Do not over-present the offer, however. Do not tell the other agent that you have a great offer for them when it stinks. You will lose credibility. You can always be glad that your client decided to make an offer on the property, and express that happiness. If you get a negative reaction from your counterpart, just deflect it by saying the people she should be upset with are all the other agents who have shown the property and not been good enough to bring an offer.

A true believer is much more persuasive than a hired gun. As an attorney, I helped a Realtor friend who was falsely accused of an ethics violation involving displaying properties on the Internet. I have a conviction about the proper use of the Internet as a wonderful tool for Realtors and consumers, so I am able to present that issue in a convincing manner. The hearing was going fairly well. I noticed a major reaction from the members of the panel when I told them I was not being paid for my work that day because I had done all my research, driven for hours and appeared at the hearing as a matter of protecting a principle that I believed in. My friend received the written ruling that the panel found in her favor the next day, which means they had to rule immediately for us with no reservations in order to have gotten the results in the mail so quickly. I know it was the right result, which may have occurred without that statement, but the conviction helped persuade the panel.

Do You Want Your Career Guided by Principles?

Sometimes decisions are hard, particularly when there is nothing to guide the choices you have to make. If you have strong principles to guide you, the choices are easier. If you would like your career to be guided by principles that have been tested and proven over decades, click here and join the Real Estate Negotiating Institute and participate  in the study of the principles that guide your negotiating decisions.  If you prefer a text to computer discussions, you can click here to pre-order my book Create A Great Deal, The Art of Real Estate Negotiating.