In one review on his site, John T. Reed talks about negotiation and describes it as:
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?
I’d say that all negotiation strategies are annoying. 🙂
My real estate agent was the Queen of the “other offer”. She would never say there was an actual offer, but if we expressed an interest in putting an offer in, then she would always suggest that if we don’t do it right away then there “could be another offer”.
She was also a huge fan of the “make your first offer the best one”.
I liked her though, she was pretty good at booking appointments and driving us around to look at houses. 🙂
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I had a boss who was a crack negotiator, he could make you eat crap and like it… for a while. As soon as he would stop talking you’d think “What the hell did I just agree to?”
It seemed to be inherent to his personality in that he couldn’t stop doing it even when it was counterproductive. For instance Rogers Cable wasn’t in his building because in the past Rogers used to have very lucrative contracts for leasing the space their lines went through in buildings. When Rogers changed their policies about how much they would pay the building owner refused. The result was that Rogers could not provide cable in our building. This is still going on!
When I left that job, he shorted my pay, wouldn’t give me my separation slip, when I did get it it said quit rather than laid off as we had agreed. It was stupid of him I was his legal rep after all. I gave EI and the labor board his direct cell number 🙂 I also got great satisfaction thinking about him writing the check as ordered by the labor board.
Still he is a great negotiator but it certainly caused a whole lot of resentment in his staff!
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The real trick is to get the buyer to detach himself from the price. Get them to love what they’re buying and they will pay the markup.
I’d say used car salesman tricks are the absolute simplest and easiest to pick out. They have little to no credibility and, I think, people expect them to be dishonest. The tricks they use are geared towards coming from that position.
Other salesmen are much more subtle. They can come from a point of trust which means there are many more tricks available to them. My favourite is the “inside scoop” scam, where once they’ve achieved confidence with a buyer, they can convince them they have inside information which will give the buyer a sense they are either getting a deal, or at least not being scammed. This one’s common on condo presales but also on junk stock investments.
It’s all the same, though. Without actual evidence all you have is the salesman’s word. And even if you smell like roses and have a halo, it’s still nothing more than confidence. It’s why CEOs are so “numbers focused,” since they’re surrounded by salespeople, from all sides, most of the time.
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The “I am on your side” schtick always gets me. Happens a lot in real estate. My friend’s tip is if the price difference is small to modest the agent should cut their commission since the reduction in commission, in absolute terms, is quite small. However, suddenly, they are no longer your buddies. Thanks for the link.
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I think some people like to negotiate, and others don’t. I hate it. I always ask the right and fair right price up-front. I don’t inflate it expecting to be “talked down,” because I view that as dishonest. Since I won’t do it, I don’t expect others to do it. But I think I may be naive in my thinking.
My wife will walk into a car dealership and get them to knock $1,500 off a $14,000 car. And the funny thing is, they both act as though that’s the natural thing to do, and it was predetermined that they would engage in that dance.
I guess the lesson is, if you like it and you’re good at it, do it. Otherwise, bring someone along who IS good to do it for you.
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Don’t take the first offer.
Don’t take the second offer.
Take the third offer.
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DL: I’ll give you $10 for your blog. Ok, how about $5? Final offer: $2! ;-P
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I recently helped my Mother-in-law buy a new car, we were planning on going for a few test drives through the day, pick the car you want and sleep on it. The salesman just says to her ‘if you buy it today, I’ll throw in tint'(value $200) and suddenly there was no turning back. Two days later another dealer I had contacted, got back to me with a price $3000 less, but the deal was already done. She basically paid $3000 for tinted windows, which the other dealer probably would have included also…
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Negotiations in Real Estate have 2 levels: a) You and your client (or sales rep if you are the client) b) You and the other Sales Rep who represents the other party.
I enter into negotiations in real estate with my client as I formerly entered into an educational interview with questions like: Who? What? Where? When? How? and of course, Why? I do this because I am employed by them and they deserve my honesty and team membership – for I see it as a consensual outcome. I entertain a discussion and follow it up with a decision making chart in which criteria are written down and rated then ranked based on priority. This may take longer but it is a process of decision making. I may have lost a few sales but the buyer/seller I am with seems to appreciate that the “discussion” is a team event – you as rep and them as client. Sometimes however, the other client rep for the buyer/seller may not entertain this type of negotiation – implying that the negotiations most used in real estate has 2 levels.
The real difficulty comes when a sales person and an interested buyer/seller engage. This is a toally different scenario because of the competition that each party has to get something “better” for themselves/their company. Keep communicating – but listen more and ask more than talk.
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These strategies more often just turn me off. I myself have tried a few negotiation strategies by “creating a need for the customer” which has backfired on me a few times. 🙂
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I come at this from a psychiatry/psychology background but am also a small businessman and would argue that good negotiation has at its heart the same skillset as good communication skills in general. Or good diplomatic skills, or political skills, or indeed anywhere where you need to establish rapport quickly, gauge the other person’s perspective and engage creating a plan that both parties feel able to sign up with.
The key to doing this effectively is having good “theory of mind” – being able to put yourself quickly into the other person’s shoes and figure out where they’re coming from. I firmly believe a good grasp of core psychological/psychoanalytic principles (like transference and counter-transference) helps hugely in this process. There are a few posts on my own blog about this, but in brief, it’s all about trying to sense where the other party is coming from so as to be able to offer them a deal they CAN accept, even if they didn’t really WANT to.
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