Negotiation Requires More Than Dueling Ultimatums

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Not too long ago, I started negotiating for a property. I did extensive research online, and and I and my clients visited several competing properties. We made an offer that was a little under 90% of the asking price, and I justified it in a cover letter with several direct comparisons. The property had potential - but my clients were going to have to really work at realizing any of that potential - and I don't mean just carpet and paint.

The owner's response? They did come down a little bit - about 2% of the asking price. But all they said was, "We want $X"

That's it. No, "But the kitchen is beautiful, it's 500 square feet more than those, the location prevents it from getting socked in by traffic noise." None of which was true, but are examples of the kinds of things they could have said.

Instead, just an ultimatum. I don't believe anyone can legitimately call that "negotiation", unless you want to include the sense that a flying creature with feathers that waddles on land, swims on water and goes "quack" can be labeled a Doberman Pinscher. It's still a duck, no matter what you call it, and that's still an ultimatum. If you look at diplomatic ultimatums, what spot do they occupy in the hierarchy? They're the last step before war. Similarly, in real estate, they're the last step before walking away. They should be a sign that negotiations have essentially failed. They're certainly not the way to start successful negotiations.

If you want more for the property, tell me why in the heck you think I should give it to you. What you want (more money) is irrelevant. It's counterbalanced by what I want - which is the exact opposite, to pay less money. Start a conversation for crying out loud - that's what I was trying to do. I didn't expect them to take my first offer, but my clients have the ability and interest to give them what they want - cash - for what they have: a property they no longer want. Even if my clients are getting a loan, it still amounts to cash for the sellers. That's what any offer is really saying - "We're interested in buying this property, if we can reach an appropriate agreement." The initial offer is your bona fides as to what sort of agreement you're willing to reach. I don't make first offers I expect to have accepted, but neither do I make hopeless low-balls unless it is just a shot in the dark and I don't care if it "poisons the well" of possible rapport. I do want a reasonable response, and I do everything I can to encourage such a response rather than an ultimatum.

Duelling ultimatums is kind of like throwing matter and anti-matter at each other. Often, there's an explosion, and even when there isn't, nobody is happy because the radiation when they combine poisons everything. If you do end up with a purchase contract, there's still no rapport, so anything that comes along later is likely to cause the whole thing to fall apart. Why in the nine billion names of god would anyone want to do that? You don't get any empathy, you don't get any respect, and you're very likely not to get a transaction, which means the buyer is unhappy, the seller is unhappy, and both agents are unhappy. Nobody is happy. It's nearly as certain as gravity. Why would you want to "negotiate" by dueling ultimatums when you know it's going to cause you and your client to end up unhappy?

I know how this happened. During the seller's markets, sellers had all the power. For a couple of years, there were dueling offers on almost every property on the market that was even vaguely reasonable in asking price. Listing agents got used to being able to dictate terms, and buyer's agents went along, in part because they could only hope to extract one or two things and going along with everything else was the only way to make it happen, and in part because the next time they made an offer to that listing agent, they didn't want it rejected out of hand. And it's taken three years of a buyer's market to start to get the message across that buyers are in command right now, buyers have needs of their own, and in the current environment if you don't give one buyer what they need in order to qualify or want in order to prefer your property to another, you may not get another buyer. You want to play hardball with this buyer, they're going to go down the street to the competing property, leaving you as the seller high and dry.

We're moving back to a more normal state of affairs now, but this doesn't mean sellers can play the autarch again. You have equity in a real estate property. You can't spend it at the grocery store, the gas station, or put it into your 401k. It's a real pain to swap it for another property, and if you're not willing to dive in and negotiate, you're not going to do well there either. You need the cash from a buyer - not necessarily this one, but how many do you think you're likely to get? There are almost always more properties for sale than there are people looking to buy them, and more coming onto the market every day. You can compete strongly enough to convince one buyer that they want your property instead of a competing one, or you are wasting your time. Effective negotiations are a large part of that competition.

A negotiation is first and foremost, a conversation. You ever had someone you got off on the wrong foot with, but then you had a conversation and found out they're a pretty swell person? Guess what? When you negotiate in good faith, both sides stop thinking of the other so much as "the enemy" and start to see each other in more human terms. This is good.

Negotiations are also an argument. A civilized refined argument. Many of us have forgotten how to have an argument that doesn't end up with lost tempers. You can find examples of this on both ends of the political spectrum - a sort of take-no-prisoners way of talking past each other - argument by slogan. Argument by putting the worst possible spin upon everything the opposition says or does (and conversely, the best on everything your side says or does) is worse than argument by slogan, as it shows actively bad intent, rather than just closed ears. Sometimes, one side is entirely in the right (or the wrong), but that's not the way it generally happens. Most times, there's evidence on both sides and some darker and lighter shades of gray involved, some justice and points on one side versus some justice and points on the other. In politics, the posturing is showmanship intended to woo third parties, but in real estate negotiations, the transaction is entirely dependent upon the two parties coming to an agreement both sides think makes them better off. Neither one can force the other to sign on the dotted line.

And what happens when you recognize the virtue of something the other side says? Yes, you give away something, but you get something as well. The other side takes a step back and says, "Wait a minute. This person is not just a member of the ravening horde, simply intent upon taking everything they can get." Yes, I'm trying to get everything for my client that I can, but if I try and get it by ultimatum, what happens when the other side is in a stronger position? If I try and get it at sword-point, what happens when the other side is better with sabers than I am? Even the very best lose at violence sometimes. This is why the idea of negotiations started - both sides end up better off and nobody ends up dead. The whole "defeat the vikings/huns/mongols" idea goes out the window when they start seeing you as human. Maybe when you say you see one of their points, maybe they come back and acknowledge some of your points as valid, and they give up something too. Guess what? The more both sides do this, the more likely the negotiation and transaction is to succeed.

Not everybody will negotiate in good faith. You always have the option of walking away from the negotiation table if they don't. I'm walking away less often these days than formerly, but it's still on the table. Knowing when is a matter of judgment and experience, and maybe training if you can find someone good enough, but you're not going to learn it all in one transaction. Sometimes walking away will knock some sense into the other side, most often when you've seen the virtue of some of what they're saying and they suddenly realize that in order to salvage this deal they want, they're going to have to get with the program. Sometimes, it doesn't. But in that case, there are other properties and other buyers out there that will be a better fit and give you a better bargain. If there isn't something better, then you shouldn't have walked away. It's as simple as that (Pssst: You can go back. Really. It's not easy, and you're likely to end up less well off than if you hadn't walked in the first place, but if it's still the best fit and the best bargain out there, you should).

So don't just trade ultimatums. Tell the other side why what you're asking for is necessary, reasonable, or both. Listen to what they say in response, acknowledge not only that you heard the response, but that you might even see the justice of some of it, if you can. They'll usually do the same. Give some ground where it is appropriate, and I am confident that your negotiations will come out better, as mine do, because we're not going back to a situation where one side dictates to the other any time soon. But you neither I nor anyone else can hold a conversation with the other side of a transaction if the other side is unwilling to hold it. If you are always willing, and always trying to start such a conversation, the odds of a successful negotiation increase dramatically.

My transaction? I think I've finally persuaded them to actually talk to me, rather than just trading ultimatums, both sides still have the ability to talk it over in private and think about it for a day or two. I was expecting an answer to my most recent proposal the day I originally wrote the article. We did eventually come to an agreement and consummate the transaction. Everybody ended up much happier than they would have had I not been able to talk them away from their ultimatum.

Caveat Emptor

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This page contains a single entry by Dan Melson published on September 1, 2019 7:00 AM.

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