16 Jun Negotiations
Calls for offers, letters of intent, purchase and sale agreements, and negotiating terms and pricing, as well as qualifying buyers, make up the core of the Negotiations Stage of the sale process. Over the years, MW Team Brokerage has perfected the art of working with clients to price assets optimally so as to generate great interest in the property and create a competitive bidding environment coupled with property tours and active negotiations structured to obtain the highest pricing with the fewest contingencies from the most qualified buyers. This is arguably the process used by all top notch agents in the business. But in real life, things do not always go according to plan. As the famous Mike Tyson quote goes: “Everybody’s got a plan… until they get hit.” What, then, sets MW apart over and above the carefully choreographed listing-to-offer-counter/offer process?
There is, in fact, a lot more preparation involved in the process of qualifying buyers than simply reviewing their proof of funds. Following best practices for negotiations established by the likes of William Ury and Harvard Program on Negotiation as well as CCIM Institute methodologies, MW Team Brokerage approaches every listing with a framework for consistently getting past NO and getting to YES in real life transactional real estate negotiations.
Two fellow CCIM’s outline the core negotiations skills and practices followed by MW Team Brokerage very well in their No-Fail Negotiating article for the CCIM Institute CIRE Magazine article. As aptly written by Darrin L. Boyd, CCIM, SIOR, and David A. Moore, CCIM, SIOR:
The outcome of commercial real estate transactions often hinges on the negotiating skills of the participants. Contrary to popular opinion, the most eager and aggressive brokers don`t necessarily seal the most deals. Competent, polished negotiators achieve a careful balance among all parties to effectively close many successful transactions.
Pre-Negotiation Preparation Each transaction is unique; therefore, the steps used to prepare for one will be tailored to its specific situation. However, it is important to keep in mind the major difference between negotiating for clients and negotiating with other parties, such as potential tenants. Brokers usually know their clients` goals and motivations prior to entering into negotiations; however, the goals and motivations of other parties must be uncovered during the negotiation process.
In general, the first step to effective negotiating is knowing the client — beyond the scope of the transaction at hand. For instance, what are the client`s short- and long-term goals? Does the outcome of the transaction have a major impact on the client`s business? Is there a time constraint affecting the client`s decision?
Brokers also should analyze the other party involved in the transaction. What is the other party`s objective? What does the other party stand to gain (or lose)? Who will be negotiating for the other side — the ultimate decision maker or someone who must gain executive approval before making a decision? Learning as much as possible about the other party can help to determine the most successful negotiation strategy.
As well as learning a client`s needs and wants, discuss its range of expectations. Know what your client must have vs. what it would like to have. For example, discerning from a client that a $5 million price isn`t acceptable, but a price of $5.75 million is worth consideration is very important. Yet many times, brokers fail to ask enough questions to understand fully the parameters of a client`s situation or expectations.
Just as important as asking the right questions is listening to the client`s answers. Brokers can gain valuable information during even casual discussions with their clients.
Reading a client`s — and the other party`s — nonverbal communication is another important negotiation technique. Many times, understanding different personality types helps brokers tailor their negotiation strategies for more effective outcomes.
Before sitting down to the negotiating table, brokers should develop a basic strategy for handling the various outcomes. Specifically, anticipate possible objections the other party might raise and have an outline of responses ready. Also, prepare an outline of the deal for partners or team members. References and notes can help control the flow of the negotiations and prevent discussions from getting off track.
Finally, mental preparation for both positive and negative results is essential. How a negotiator responds to a negative outcome can influence the possibility of future talks. Skillfully handling a less-than-favorable outcome with a calm and tactful demeanor reflects well on a negotiator`s general reputation and may lead to future business with either party.
Situation-Specific Strategies There are as many different negotiating situations as there are commercial real estate transactions. However, two general guidelines apply to all types of negotiations.
First, after explaining the parameters of the deal, be quiet and listen. Although it can seem unnatural, this silence often prompts the other party to respond first or provide feedback. This tactic can be very effective in phone conversations and conference calls where the other party can`t draw upon any visual cues.
A second way to negotiate more effectively is to ask more questions. For example, when representing a landlord who is negotiating with a potential tenant, ask what other properties or buildings the tenant is considering. Also ask how the offer on the table stacks up with other buildings` offers. The tenant`s broker might not disclose the details, but his answers may offer clues as to which factors are deal-makers — or deal-breakers.
Sales Negotiation Strategies. Sales negotiations differ from leases primarily in the additional risk associated with the transactions. A much longer term commitment is at stake, often 15 years to 25 years for a mortgage, and more money is involved upfront, usually at least a 20 percent to 30 percent down payment.
Knowing as much as possible about the seller`s or buyer`s motivations should be at the top of every broker`s agenda. Does the seller need to perform an Internal Revenue Code Section 1031 tax-deferred exchange due to capital gains issues? Does the buyer have the financial ability to successfully close the transaction in a timely manner? Is the buyer looking at purchasing and leasing options? Does the buyer have the time to consider purchasing land and constructing their own building? Only after these questions have been asked and answered should the parties start discussing the paramount issue in any sale — the price.
Successfully representing buyers or sellers of commercial property typically doesn`t work without effectively managing the purchase and/or sale price expectations. Although market conditions can cause fluctuations in price, the groundwork should be laid well before the negotiations begin. In addition, any deferred maintenance or physical issues with the property and timing of the sale process are critical.
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