The psychology of successful negotiation
Part 1: Applying life lessons to ‘close the deal’
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 do not only save that $15,000 upfront, but also 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-capitalizing, 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 favor.
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.
Negotiating life
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, a 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:
- 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 subconsciously) 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.
This is all about being prepared.
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.
7. Listen!
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 favorably 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.
Part 2: Thinking on your feet
Are you a good negotiator?
Armed with your newly acquired knowledge of negotiation psychology from the first part, you have the capacity to clearly define your objectives and reach a mutually beneficial resolution for all concerned.
Now we get down to the nitty-gritty, as it were, of honing these skills further.
It’s all well and good to have them in your arsenal, but you also need the ability to call on any one of your negotiation strategies at a moment’s notice.
Excellent negotiators are nothing, if not adaptable; while they approach mediations fully prepared and with an expectation as to the desired outcomes, they are also ready for anything.
Know as much as you can, but accept what you can’t
While you know about your own situation and circumstances, the other party’s goals and motivations are not something you will ever be fully privy to.
While this might seem like a game of chance, rather than skill; clever negotiators are very good at viewing a deal from many angles and potential scenarios.
The ‘scratch the surface’ to get an insight into how they might be able to help the other party achieve their ideal outcome.
This knowledge then becomes a part of their negotiation strategy.
Let’s say you want to add an inner-city, one-bed apartment in need of some TLC to your portfolio.
Upon viewing the property, you notice photos of a happy, smiling couple.
The woman appears to be pregnant and they’re standing in front of a home under construction.
You casually mention to the agent — “Looks like they’re making room for a growing family. Exciting times.”
Often open-ended statements like this will elicit a response from the selling agent, who confirms your initial thoughts as to the vendor’s motivation — an impending upsize in property, with the financial pressure of juggling two mortgages as the household income is downsized.
Now you have an idea as to the vendor’s ‘pain’.
This means you can think about offering a fair, but the slightly lower price with shorter settlement terms.
A nice, smooth transaction without any headaches is this couple’s win scenario.
To disclose or not to disclose
Many vendors find this to be a very tricky issue.
If you are backed into a corner for some reason and need to sell as quickly as possible, time becomes your primary motivator.
When the other party knows this, they will often make cheekier offers while dangling enticing settlement terms as a carrot.
Some things are disclosed as a matter of course while the deal is being discussed — such as a pregnancy!
However, when it comes to relationship breakdowns, financial pressures, or serious illness, the ball is firmly in your court as to how open and honest you are.
Keep in mind that negotiation is about producing a win-win outcome.
Confiding in your agent as to why you need to move on can assist them in finding a potential buyer who can be an ideal party to facilitate a deal that pleases everyone.
Of course, you are legally required to disclose certain things when you sell a property.
Failing to include information regarding things like mortgages, improvements, easements, planning controls, rates and taxes, can get you in hot water and quite likely sour the entire deal.
Learn the art of compromise
In my forty years as an investor, I have made more money saying ‘No’ to deals than saying ‘Yes’.
Knowing when to walk away is critical, but you have to make sure you opt out of negotiation for the right reasons.
If you have attempted to make the deal work and the other party just won’t budge, then by all means don’t waste your time.
But if something like pride prevents you from realizing the next perfect asset for your portfolio, swallow it and consider a compromise.
There’s no point missing out on a property that will generate hundreds of thousands of dollars over the course of ownership, for the sake of $5,000.
A fantastic way to compromise is by building giveaway concessions into your initial proposal.
Lengthier settlement terms, for instance, are something you could later compromise on, particularly if you know the vendor is after a quick, no-mess sale.
Knowing when, where, how, and why you are compromising, will give you the necessary confidence to do so effectively.
This is about using your head over your heart and considering the big picture result.
Make your decisions at the ‘negotiation table’ based on dollars and sense, not a need to win ‘the battle’.
Be adaptable
Entering into negotiations with clearly defined outcomes is essential, but it’s also necessary to recognize when the best outcome is one that you may not have considered.
Always be prepared to take a flexible approach.
The vendor might propose a deal you had not yet entertained, but that could actually make good financial sense for all involved.
Again, just make sure any changes to your plans and end goal are favorable.
Coping with rejection
None of us like to be told ‘no’ outright.
Even if we’ve heard it a thousand times (as I have!), it doesn’t make it any easier the next time, particularly if we become emotionally invested in negotiations.
If the other party responds with an immediate rebuttal to your proposed terms, don’t give up on the entire deal in the first instance.
But don’t feel intimidated into throwing all your cards on the table and making your absolute best offer at that point either — unless of course, you’re prepared to walk away.
In property, no doesn’t always mean no.
In fact, it rarely ever means no.
If it does, however, and you can tell there is no more room to move in order to make this deal work for you, take it as a sign that it wasn’t meant to be.
I can guarantee that another deal is waiting to be done, just around the corner.
