Thoughtful and well-played negotiation is critical for buyers and sellers of real estate.
In this two part series I will explain the intricacies of negotiation, because getting this aspect of your investment journey right can pay a number of dividends, whilst getting it wrong can have a costly, long-term impact on your property portfolio.
And when it comes to property investment, knowing how to successfully parley with a third party can save you thousands of dollars.
Negotiating can save you more than money
If you can apply your skills to knock say $10 -15,000 off a property’s asking price, you not only save that $15,000 upfront, but also you reduce associated purchasing costs like stamp duty and borrowing fees.
Then of course there’s the extra interest you’ll save on decreased borrowings.
Paying slightly less than market value means creating immediate equity and having an extra kick-off from the starter’s blocks.
Whereas paying an inflated price means potentially over-capitalising, and spending the first year or two waiting for your property to start working its compounding magic.
Then there’s the emotional and psychological cost of negotiations working overwhelmingly in the other party’s favour.
Buyer’s remorse is not uncommon among investors who observe the market post-purchase, only to see comparable properties selling for a lot less.
This can undermine the investor’s confidence and negatively influence all future negotiations.
So you see, it’s important to understand how to negotiate on many levels.
While most of us associate negotiation with high-stakes purchases – like expensive new cars or property – the truth is we negotiate in many contexts every day.
It doesn’t even have to involve another person.
How many times have you stood in the supermarket and agonized over succumbing to temptation in the confectionery aisle, while your inner voice carries on about the health kick you’ve just started?
Or what about bigger, life-changing issues, like when to get married or have children?
Negotiation is essentially a process of decision making – working through different scenarios at different times to determine the best course of action according to your self-belief, moral integrity and life’s path and goals.
At its core, negotiation is a form of dispute resolution we work through in order to reach the most acceptable outcome to various situations.
Becoming a skilled negotiator means maintaining a strong sense of purpose and direction; employing logic and reasoning over emotion and desire.
So how can you apply everyday life experience and human psychology to your property negotiations?
Here are 7 tips to get started:
1. Listen to your inner voice
Only you know what represents a win for you in any given scenario.
If you have a niggling doubt about your negotiations because (whether consciously or sub-consciously) the deal just doesn’t feel right, respect and heed your inner voice.
We often choose to ignore obvious and subtle messages if we want something badly enough, but doing so can come at a price.
2. Have a clear sense of direction and focus on the end goal
This is all about being prepared.
When you know exactly what the deal represents in terms of achieving your goals and enriching your life, you’ll know when to concede defeat and when to stand firm.
3. Don’t compromise your identity
What is it worth to you? What are you prepared to pay?
I’m not just talking about money, but also aspects of your life such as time, health and relationships. If buying low means selling out, it’s not worth it in the long run.
4. Practice the art of give and take
Successful negotiations will see every party walk away satisfied, by creating a win-win outcome.
Negotiations generally tend to fall apart when one party simply refuses to budge from a position that genuinely doesn’t align with the other person’s needs.
5. Be prepared to walk away
If negotiations stall and you’re no longer making any headway toward a positive resolution, back out gracefully.
There will always be another deal to be done, so resist the urge to dig your heels in when it comes to time wasting, no-win battles.
6. Be confident!
Know exactly what you want and how to get it.
Be assertive with your words, as well as your body language – speak in a clear, strong voice and maintain a posture that says, “Nothing can shake my resolve”.
Remember, there’s a fine line between assertive and aggressive.
Never try to dominate or intimidate, as this will make the other party shut down and bring the process to a standstill.
Out of everything I’ve ever learned about negotiation and human psychology, this is perhaps the most valuable lesson.
As the old saying goes, “You have two ears and one mouth, use them in proportion.”
While you might fancy yourself a good listener, the truth is most of us only listen with the intent of responding to further our own cause.
Good negotiation requires collaboration and as such, you need to hear what the other party is telling you – with their words and their silence.
Interestingly, many people are afraid of silence.
They fill conversational pauses with nervous banter, instead of waiting patiently for the other person to voice their thoughts.
Knowing when to be quiet is an art in itself, and will often move discussions in your favour, enticing the other person to open up in an attempt to fill the void.
By listening and empathizing with your co-collaborator, you can respond to their ‘pain’.
What do they require to make the deal palatable?
What are they trying to achieve?
What life situation are they looking to favourably resolve?
When you know the answers to these questions – and people will tell you a lot if you are an attentive listener – you are much closer to establishing that win-win outcome required for truly successful negotiations.
Being a good listener is the difference between a lucky negotiator, who just happens to be at the right place at the right time, and a skilled one – who consistently walks away satisfied.