ForeclosuresMass - ForeclosuresMass Monthly - Success Strategies - The Three Cardinal Rules of Negotiating Real Estate Deals (March 2008)

You can find hundreds of books on the art of real estate negotiation . . . but, pardon my frankness, many of these books offer stale strategies and tactics that just do not work.

For example, in many books you can find the ABC rule – “always be closing.” That is, you want to have a bunch of deals in the works and you want to get to “yes” as quickly as possible in order to close that deal.

However, getting to “yes” ASAP means you leave out a bunch of steps in the middle, such as carefully pre-qualifying your prospects by asking lots of questions. I call this process “Getting to ‘no’ first” – meaning, you weed out those who aren’t serious about a deal.

* Next 37 17 investors only!

It’s also why I’ve simplified negotiation down to three cardinal rules: the person who mentions price first loses, get to know your opponent before you begin negotiations, and always get your agreement in writing.

When I first started doing lease options, I had a woman call me to see if I had a specific type of property that she could then lease to own. She had $8K put aside but unfortunately at the time, I didn’t have anything in inventory that met her requirements. A few weeks later I found a property and called her about it and said that if she liked what she saw after doing a drive by, we could do business that very day.

She ended up loving the property. We did the walk through and as she and I talked, I knew that $8K was sure money in my pocket.

“Jim,” she said. “I have a problem. Remember how I said I had $8K? The problem is I don’t have $8K.”

My heart fell clear to my stomach and my knees went soft. “Uh oh,” I thought.

Now, if I had opened my big mouth and had said at the beginning of our negotiation talk, “I’ll need a check for $8K,” I would have never learned she had an additional $2K in her pocket. The moral being – never be the first person to talk about price.

Instead, ask lots of open-ended questions that will give you solid information in order to determine where people stand. For example, when I’m talking to a person who is looking for a house or a lease option, I ask questions such as, “It sounds like you’re living in a great place. Why do you want to move?” (What I’m really asking is, “Are you a deadbeat?”)

Or, if I’m sitting at someone’s kitchen table and he’s spilling his guts to me about his house going into foreclosure, I ask, “If you’re able to sell the property, what you would you be comfortable asking for it?” Having the property owner tell me first what he wants for the property is akin to him showing me his cards before he makes a bet. In other words, it gives me the advantage.

One of the first things lawyers do when preparing to negotiate is consult a lawyer’s directory. They want to know which school the opposing lawyer attended, what firm they work for, if they’ve made partner, etc. And, if you’re the lawyer who works for a larger firm, you’ll have the opposing lawyer come to your office in order to intimidate him or her with your fine furnishings, large conference room, magnificent view, etc.

The same principal – know you opponent – works in real estate negotiations. For example, if you’re working with a bank on a short sale, you’ll want to get to know the bank and its methods of operating and whether its personnel are “user friendly” or a bunch of pit bulls. One bank I work with is very confrontational and negotiating with them is like pulling teeth. I learned very quickly that I have to have all my facts, comparables, etc. ready and at hand when dealing with them because if I screw up, I do not get a second bite at the apple.

Knowing your opponent also means learning what kind person he or she is. For example, analytical people or number crunchers will want you to substantiate and document everything. Touchy-feely people, on the other hand, will want to talk things out.

To learn more about your opponent, talk to people in your network, do some online research (i.e. do a Google search), and attend your local REIA meetings – people love to talk and by asking questions and being a good listener, you’re sure to pick up some good “off the record” data.

Although we all want to believe other people are good and honest, the sad truth is that disagreements can and do occur in real estate negotiations, which is why you need to put all agreements in writing. This is especially important in Massachusetts, where verbal agreements are not enforceable.

If you do get a verbal agreement, at the very least follow it up with an email or letter outlining the conversation and what was agreed to by each of you. If you’re dealing with a bank regarding a short sale, send a quick fax to whomever you spoke with stating something like “These are the parameters of the deal and this is what we agreed on” and then list everything discussed in the conversation. Be sure to sign and date it and call the person to ensure he or she received your fax.

Developing your negotiation skills takes time but is well worth the effort. In order to negotiate your way to better profits, don’t blurt out a price first, get to know your opponent before you step into the negotiation arena, and always get everything in writing!

James A. Gage is a best-selling author and internationally known expert in Lease Purchase, AKA Rent To Own Real Estate Investing and Negotiating. He mentors one-on-one throughout the U.S. and across the world. Director of the Gage Consulting Group, LLC (www.jgage.com) in Holden, MA, James can be reached at (508) 595-9567 or coach@jgage.com.

Did you like this article? You May Also Like:

	Negotiation Skills: Developing Strong Relationships... A Key to Success with your Contractors Richard Cohen, Negotiation Coach and Consultant As a property investor, you're challenged by the sheer number of contractors with whom you must negotiate. It can be a struggle, but as Richard Cohen explains, it doesn't have to be. Build strong relationships with these folks and watch your negotiations go smoothly.
	Success Strategies: The Top Three Fears That Prevent You From Making that First Deal Kelle Sparta If you've yet to close on your first deal, it could be that something is blocking you. According to author, trainer, and coach Kelle Sparta, people usually have the following fears when it comes to real estate investing: they think they don't have enough information, they're afraid they'll lose money, or they believe they aren't the real estate investing type. Read her article to find out how to conquer these common, yet debilitating, fears!
	Interview with the Expert: The Nitty-Gritty Rehabbing Tips You Must Know Kevin Lacasse What's the biggest mistake real estate investors make when it comes to rehabbing properties? According to expert rehabber Kevin Lacasse, it's paying too much for a property! Read his tips for figuring out how much you should pay - and how to budget for those unexpected cost overruns.
	Interview with the Expert: Using Syndication to Fund Multi-Family Transactions Kate Dobens, Clear River Partners, LLC In the fall of 2006, Kate Dobens attended a training seminar about owning and operating apartments. Now, a year and a half later, she and her husband manage $18 million in multi-family assets - thanks to syndication. Read her advice about getting started in syndication - and how you can use it to consider deals that are double or triple in size.
	Interview with the Expert: Helping Families Get Back on Track Financially After Foreclosure Jennifer Matthews, Founder, Creating Financial Literacy, LLC You can play a key role in helping clients get back on their feet both financially and emotionally by understanding the challenges they face. According to Jennifer Matthews, an advocate for those who have been through foreclosure, often times people lack basic financial literacy and management skills - the lack of which contributed to their financial woes. In this livley article, Jennifer Matthews provides the essential tools consumers need to increase their financial literacy, repair their credit, and recover from foreclosure.
	Interview with the Expert: Know How to Use Your Contingencies David Camiel, Attorney If you think you can use an escape clause to get out of a real estate contract, think again. Because the courts look unfavorably at escape clauses, contingencies are a better way to protect your interests - as either the buyer or the seller. Veteran real estate lawyer David Camiel explains the legal ins and outs of real estate contingencies and how they can work to your advantage.
	Feature: How Real Estate Investors Make Big Money with Syndication Eileen Schwartz, Real Estate Investor Want to get in on a little "secret" real estate professionals have long known to offer a very considerable return on investment? Eileen Schwartz shares her knowledge of real estate syndication, a potentially lucrative strategy that involves forging a partnership with a group of shareholders to invest in multi-million-dollar properties. This introduction to real estate syndication provides everything you need to know to get started.
	Success Strategies: What Banks See When They Look at Your Credit File Tammi Koza and Carl Phinney, Family First Mortgage Corp. Most people know the credit score is the first thing the bank looks at when reviewing a credit file, but did you know lenders also look at a host of other data? In this article, Tammi Koza and Carl Phinny explain why you need to view your credit file the way a bank does if you're serious about investing in real estate.
	Technology Corner: Generate More Leads With Text Messaging Dylan Schleppe You know the problem with flyer boxes - you're forever filling them up only to find out two days later they're empty again. Wouldn't it be great if you could eliminate the flyer box problem - and give your prospects property info when they want it? Now you can with SMS (also known as text messaging). In his article, SMS technology expert Dylan Schleppe talks about the state of SMS and how real estate companies and investors are using this technology to generate leads 24/7 - without breaking the bank.
	Feature Article: Talk Like a Contractor to Explode Your Rehabbing Profits Paul Esajian What's the number one fear that prevents investors from rehabbing properties? The potential nightmare of working with contractors! The star of A&E's popular "Flip this House," TV show, Paul Esajian gives you three steps for establishing expectations with contractors up front. Learn how to talk their language - and reap the benefits!