Negotiation in Real Estate
By Jason Thomas
Many real estate agents, investors, and other professionals know their field well. They’re aware of local ordinances affecting property, desirable school districts, architectural trends and many other things directly related to the subject of real estate, but they’ve never formally examined the art of negotiation. The ability to negotiate can be just as important for real estate professionals (agents, investors, etc.) as other areas directly related to knowledge of real estate but is often seen as something that is either intuitive with no strategies to become familiar with or even worse, ignored entirely as an available skill to acquire. These are potentially costly assumptions. Negotiation is something you can and should learn.
We are often in a situation in or outside of our profession where negotiation is necessary. In general, we should start with the assumption that we wish to achieve two objectives. First, we wish to get the best terms possible, including but not limited to price. Second, we wish to preserve the relationship with the other side in the process.
To achieve these two objectives, it can be useful to negotiate based on real world facts rather than your own opinion or positions. Take as an example a job applicant who has received an offer with a salary approximately 20% less than desired. Let’s look at two different responses to this situation:
The first candidate might take an approach of reciting the aspects of their resume that make them a good fit. They did, after all, graduate with honors, perform a similar role for a peer company, get recommendations from top names in their industry and meet or exceed all of the required and “preferred” qualifications listed in the job ad. This candidate may also mention how much they “need” as a reason for greater compensation, but both strategies would be less than ideal.
A second candidate could take an entirely different and more productive approach. After receiving the less than desirable offer, they may say something like, “Thanks for this generous offer. I’m excited to potentially join the organization. I do have another comparable opportunity that is offering 30% more than this base range with similar benefits. If we can agree on a similar figure, I’d much rather accept this opportunity.”
The second candidate doesn’t recite their position (“I want x.”) but instead states interests (joining the company) and uses a real-world fact (the other offer) rather than their own opinion or position statement as leverage. For all we know, the second candidate may even fall short in many or all the areas advantageous to candidate one, but still has the stronger negotiating position. This is because they’ve used something called BATNA, the Best Alternative to a Negotiated Agreement.
BATNA is what you would otherwise do if unable to come to a successful negotiation with the current party. If you don’t get the salary you’re asking for, you’ll accept a particular amount elsewhere or stay at your current employer. If the store doesn’t match the coupon of their competitor, you’ll buy there instead. In general, the person who can afford to walk away from the negotiation is in a better position, regardless of how many legitimate points they have for why their terms “should” be accepted.
The best way to get familiar with this concept is to practice negotiating in real world situations and in mock situations prior to a particularly important negotiation. You can do this with a friend or colleague familiar with your situation. You should also read Getting to Yes, the most prominent book on negotiation which expands on the concept of BATNA and many other aspects of the negotiation process. Written by William Ury and Roger Fisher from Harvard’s Program on Negotiation, Getting to Yes is a business classic that deserves a spot on your bookshelf or Audible account. Become familiar with and put into application some of the concepts in this book and you’ll have a valuable tool as a real estate professional that will also benefit you in the many other areas of life where negotiation is necessary.