The Art of The Negotiation

Despite the obviously important role information gathering plays in the art of negotiations, very few people actually spend much time analyzing their seller’s situations or needs before jumping into the negotiating process. Even logical individuals who wouldn’t jump into a dangerous sport before learning more about it often jump into a deal where they could possibly lose thousands without first getting the information they needed in order to protect themselves from a disastrous result.

I always remind my students that they need to listen, ask appropriate questions, do their due diligence and determine what the seller’s real underlying needs are. Don’t be afraid to ask questions of your sellers in order to get the information you need to make the best deal possible. If you need clarification on some part of the negotiation, ask!

So why are investors so reluctant to ask questions? Part of it is fear and part of it is the unwillingness to admit they don’t know or don’t understand something. It used to cause me a great deal of discomfort to ask certain questions of sellers such as “how much is your mortgage balance?” That one question used to really make me choke. The main reason for this was uncertainty as to how the seller would react to my question. Even when a seller refuses to answer your question, you are still gathering important information about that seller, namely that they are not particularly motivated. Usually a truly motivated seller will answer whatever questions you have. 

Sometimes asking certain questions of a seller will cause them discomfort or put pressure on them and they will just blurt out something they didn’t necessarily mean to tell you. This is another information gathering tool. Just judging the person’s reaction to the question you asked will often tell you a great deal.

If you really want to learn about a seller’s situation so you can determine the strategy that will work the best, don’t be afraid to ask direct questions. In most cases they will be willing to give you the information you need in order to help them, especially if you are dealing with a motivated seller. Don’t be afraid of offending your seller, they will let you know if they don’t want to answer a particular question. Sometimes we refrain from asking important questions because we are afraid to hear the seller say “that’s none of you business.”

You may also want to take the time to explain to them why you are asking or redirect the question to them in another way. When you are afraid of a response to a question you may be thinking of asking your seller, take a moment to think about how you might respond to that same question. Very often, this takes some of the fear out of the asking.

A good negotiator will also think about ways to phrase questions to get a better result. For example, instead of just asking a seller “how much are you asking for your property?” or “why are you selling?” you might want to phrase these questions a slightly different way to get a different result. Here is the way I like to phrase that particular question. I say something like “if I bought your house for all cash and I put a big pile of cash right in front of you, what would you do with the money?” You’d be amazed at how much more information you will ascertain from just changing the way you asked the question. Try it sometime and see for yourself. Another way to ask that question might be “what are you trying to accomplish with the sale of your property?’ What is your plan once you sell? You see, there are different ways to ask the same question to get a different result.

When you become a powerful negotiator, you will very quickly learn the art of asking questions and learning how to get the information you need. For example, if you really need to know the answer to a “why” sort of question, don’t just ask “why did you do that?” Sandwich the same question in a way that makes it more palatable to the person hearing it, for example, you could say “I know you must have had a reason for doing that, can you tell me what it was?” You are just asking the question in a different way that will get you a different result and that is what powerful negotiating is all about.

You will get even more information when you learn how to ask open-ended questions. Most people will ask a question that needs only a yes or no type of answer. For example, you could ask a seller “when do you need to close” This answer will usually net you an answer like “by the 15^th of next month”. A more open-ended question that will get a better result would be “What time limitations do you have regarding the closing? This type of question invites more discussion and will get you a much more direct answer with regard to what the seller’s needs really are. Once again these are all negotiation strategies you need to learn in order to become a successful investor.

When you become a powerful negotiator you will also learn that where you ask questions is as important as the questions themselves. It needs to be a place that is within the seller’s comfort zone, like the kitchen table. The more comfortable the seller is, the more likely they are to answer the questions you ask them. If you have them come to your corporate office for example, and you are standing above them dressed in a suit, you are going to make them very uncomfortable and they will not be nearly as easy to work with. So the place is very important. You must create an atmosphere of comfort and safety for you sellers during the negotiation process.

Make sure you do your homework before going to see a potential seller. Sometimes they won’t be as upfront with you as you would like them to be until you prove to them that you are “on your game”. So do the research on the property before speaking to the seller. Find out what the mortgage amount is, how long they have had it and whether or not a notice of default has been filed. Find out what date they purchased the property or if it was quit claimed to them as part of an estate or a divorce settlement for example. This is all part of public record and you need to check out this information before you go see the seller. The more armed you are with information, the better deal you can construct with your seller based on what you already know and what the seller tells you.

Another good rule of thumb to follow in the negotiation process is this, don’t be the first person to name a price. I have personally learned this lesson the hard way. The standard is “he who speaks first loses”. Very often we will ask a seller how much they want for their property and they will say something like-make me an offer. Then you end up going round and round in circles with your seller. This is another good reason to use the strategy I mentioned above regarding the pile of money. Very often asking this question in a different way will net the result you want, which is finding out how much the seller really wants for the property and why.

Someone who has truly learned the art of negotiation will always accept responsibility for the outcome of a deal because they know they have done their best. A poor negotiator will always blame the seller for a poor result. There is no such thing as a “bad seller”; there is only a seller whose situation you didn’t know enough about. You need to use negotiation skills to determine whether or not there is a deal to be made, and if there is, use your skills to make the very best deal possible that creates a win-win solution for both sides.