Lieb at Law: Top 10 Tips For Strategically Negotiating Real Estate Deals

Lieb at Law: Top 10 Tips For Strategically Negotiating Real Estate Deals

Negotiating is first and foremost about preparation.
The following is the first half of a negotiating list that is your go to guide for your next real estate transaction. Whether you are buying or selling, renting or just contracting for a home improvement, you will need to negotiate the deal. To get ready, go over this list, tailor it to your situation and then practice, practice, practice with friends and family. Don’t skimp on practice: any weakness in your negotiating game will be exploited by your counterpart.

You must take control to successfully negotiate your next real estate deal.

1. Bottom Line
It is often said that the best negotiation strategy is being prepared to walk away from the table when the deal is not right for you. An even more important strategy is to identify what deal is not right for you. To do this, simply stating your bottom line is not enough. Instead, write it down and share it with trusted friends and family; that way, you’ll be embarrassed if you give in to the emotions of the negotiation and stray from your bottom line. It is true that the emotions of making a deal are often irresistible, but making a bad deal is far less beneficial than walking away from a bad deal and keeping your chips available for a better future opportunity. Therefore, setting a bottom line before the emotions of a deal sway rationality is the first step to being a top negotiator. Remember, successful negotiation results in favorable deals, not just deals for the sake of finding agreement.

2. Your Narrative
A narrative is composed of both solid math and good storytelling. When it comes to math, a top negotiator can justify their position with substance. To illustrate, before taking any position, a top real estate negotiator has an analysis of comparable houses that traded in the same market in the last year as that of the subject of the negotiation. Then the negotiator picks apart the comparables and can articulate the differences in the subject property from that of the comparables. These differences can be stated in terms of zoning rights and compliance therewith, finishings, and remaining lifespan of systems and components. These differences should be available in a written report that can be shared with the other negotiating party. Once this is done, the top negotiator should also create a fluff story of why they are selling or buying to humanize and make themselves a compelling negotiation partner while not giving away their true motivators. Remember, negotiating is about numbers that make sense while winning the hearts and minds of your negotiating counterparts.

3. Illegal Factors
A top negotiator also knows how to steer clear of illegal discriminatory topics that can violate federal, state and local fair housing and human rights laws. Protected classes on the East End, which must be non-factors in negotiations, include but are not limited to race, ethnicity, creed, color, national origin, alienage status, citizenship status, sexual orientation, lawful source of income, marital status, partnership status, military status, sex, gender identity, age, disability, familial status, domestic violence victimhood, sexual abuse victimhood, stalking victimhood, and religion. It is not just taboo to discuss these protected classes, but it can also result in great financial exposure in liability for consequential and punitive damages as well as attorneys’ fees in a prospective discrimination lawsuit.

4. Breaking Positions
When we think of negotiating, we think of what is called positional bargaining. For a simple example: the buyer offers $1,000,000 on a $1,150,000 listing and the seller counters at $1,100,000. Then the buyer goes to $1,025,000 and the seller counters at $1,075,000. Finally, the parties arrive at $1,050,000. To avoid this increase and decrease game, it’s important to mirror and label your negotiating partner. Mirroring means to restate the main idea of the other side’s position to them, inclusive of their justification for that position. Mirroring ensures that the other person knows that they are being heard. Often when someone feels unheard, they dig deeper into their position and refuse to move from it, lashing out from being ignored. Labeling means to attach a term to the other party’s feelings. The purpose of labeling is to get to the root of the other party’s tactics in the negotiation. Often when a person hears a label of their position which they don’t like they try to change the label. Conversely, a label can be utilized of the only favorable part of a multi-factored position stated by your counterpart. In this sense, the label can draw the counterpart closer to the favorable factors and away from the unfavorable factors. Remember, how a label is characterized is as important as the label itself. Together, mirroring and labeling changes the conversation from a pure position movement game to a discussion of the greater goals of the parties. Mutually beneficial outcomes can be achieved rather than having a winner and a loser at the end of the negotiation.

5. Invisible Factors
Drawing out the invisible motivators is the key to negotiating. Often a party’s position is based on an outside influence and until that influence is known and understood the negotiation is ineffective. A seller could be motivated to sell because they have a sick relative out of the area, a transfer at work, a new child or some other factor. Without knowing that factor, a buyer will just throw money at the deal when money doesn’t solve the invisible motivator. In the illustration, perhaps a quicker closing would be more valuable than more money to the seller. To find the unknown, a top negotiator asks many open ended questions with effective pauses that get the other side talking. Until you know why they want to negotiate, it’s impossible to close the deal on optimal terms. Remember, negotiating is happening every time the parties are interacting, whether they are talking deal or just about the weather. Always keep your negotiating switch on when dealing with your counterpart and stay focused on eliciting your counterpart’s negotiation drivers.

6. Knowing the Decider
When you negotiate sale or rental terms through a real estate broker, it’s like playing a game of telephone tag. Yes, real estate brokers have a fiduciary duty to account and give full disclosure. However, most of a negotiation is not what was said, but how it was said: those non-verbal cues. So it’s imperative to ask for a line-by-line, play-by-play, of what the real estate broker experienced during the negotiation. Through understanding the nuances of the negotiation, you can learn about the ultimate decider and what makes that decider tick. Ask your real estate broker precisely what was said, how the words were expressed and the timing of when everything was said during the negotiation. Only through hearing the other side, rather than just listening to what they said, can a true negotiation strategy be created for the next right strategic move.

7. Agreement Begets Agreement
Relationships are based on energy. When the energy is good, more good happens. So, in a negotiation you should decide in advance what minor concessions you can give away in order to get your counterpart’s agreement-ball rolling. To illustrate through a Hamptons summer rental scenario, concession items like flexible move in / move out dates, renewal options, rights of first refusal on sale, free cleaning service, low security deposit, and the like can be given for minimal relative cost to the price of many seasonal rentals. This carrot can be used as a tool to combat a tenant who makes a low initial bid for the property. Instead of fighting about the bid in a positional sense, start with negotiating these minor concessions. When the tenant starts agreeing, that is the time to revisit the big-ticket item of rental price. At this point, the tenant is already sold and can no longer emotionally back out from the deal after having already agreed to all of the minor deal terms. That is when it is time to close.

8. Accidental Contracting
Letters of intent, deal sheets, memos of sale and sales agreements are all dangerous documents that may constitute a binding contract if care is not taken. Always have your broker include the following disclaimer on all of their communications made on your behalf: “***This correspondence is for negotiation purposes only***, ___________ [name of real estate broker] lacks authority to enter into any final, binding agreement on behalf of our client. The execution of a separate, formal contract is a material term of any contract of sale (or lease) and there is no final, binding agreement without one. Other material terms, besides the one(s) proposed herein, exist and our client will not agree to any contract of sale (or lease) without those material terms.” More so, do not sign any of the above listed agreements until the agreement is fully reviewed by your attorney and you have a complete understanding of your costs and benefits from the deal.

9. Agreement to Agree
In the State of New York an agreement to agree is an unenforceable agreement. You cannot force someone to make an agreement which they have not yet made. Until the formal agreement’s Is are dotted and Ts are crossed, you have nothing. As they say, don’t count your chickens until they hatch. Keep pushing with eyes on the prize until you are in a fully executed contract.

10. Formalizing the Agreement
To formalize an agreement in the State of New York there must exist four essential elements: (1) definite terms; (2) an offer; (3) an acceptance; and (4) consideration, which means that each negotiating party is giving the other something of value to induce the agreement. It must be noted that the consideration element, under the Statute of Frauds, can be satisfied simply through a signed writing by the party to be charged with having a binding agreement. Be careful before signing anything. More so, under the peppercorn theory of contracting, the courts should not second-guess the value of a party’s consideration once it’s accepted because even a peppercorn has value to someone. As a result, terms utilized to express indecisiveness often create false contracts. Therefore, negotiating parties must utilize clear word choice in expressing their offers and acceptances. Only then can beneficial deals be achieved.

Read Part II of “Top Tips for Strategically Negotiating Real Estate Deals” in the next issue of Behind the Hedges magazine.

Andrew M. Lieb, Esq., MPH, is the managing attorney of Lieb at Law P.C. and a contributing writer for Behind the Hedges.

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