Some time in the far distant past, the Readers Digest had an optimistic article that made the point that people miss out on a large part of life because they don’t let others know that they want something. Perhaps because they fear having a request rejected, many people are reluctant to ask for things that they want. This must be a characteristic of adults; children seem to have no problem with this at all. In fact, quite often, if they don’t get what they ask for, they throw a tantrum. That article had a lot to do with what has happened to me ever since. I think I’ve led a charmed life, and been able to do much more than others, simply because I made it a practice to ask for what I wanted. Sometimes my request was verbal, more often it boiled down to an application of sorts, but in many of the cases, I got what I asked for; simply because I asked.
Here are a few examples: When the Army Air Corps split off into the United States Air Force, there was a lot of confusion trying to decide who would stay in the Army, and who would go into the USAF. All I had to do was to ask to go into the Air Force, and that’s where I went. When, in the late 1960s, after months of effort, I finally found a discount airlines that offered cheap trips to Europe, I wrote a letter to the address on their letterhead chastising them for being so hard to find; and offering to do their marketing in the Southeast on commission. As a result, I became the Regional Vice President of Shoftour Charters, Inc. with a marketing area from Washington, DC to Houston, Texas.
When I heard that ITT was preparing to assemble 44 lots into a single parcel of land in Tampa, I wrote a letter offering to acquire these for them for a 10% commission. At a time when selling Brokers, who worked for 7% of sale price, were being driven out of business for lack of business, I was being paid 10% of the price for each parcel I bought; all because I asked. Now that I’m buying and selling for myself, I’m still asking for what I want when I sell, buy, lease, or Option a property. Sometimes I ask for things verbally, then enter them into an agreement. Other times, I pose my request in the form of a “Letter of Intent” or written offer. Both techniques are surprisingly effective.
I think one of the reasons that “asking” for what I want has worked so well is that it seems to me that it’s just as difficult for someone to turn down a request as it is for someone to make a request. When I was just beginning as a real estate salesman, I was afraid that sellers wouldn’t list a house with me at the price I thought reasonable, so didn’t challenge them when they set the price. In like manner, I was apprehensive that if I tried to get buyers to increase their offered price, that they would just make their offer through another broker. This put me squarely in the middle; a spot I didn‘t like at all. I didn’t make many sales then, but I did learn something valuable:
Sometimes Buyers made really low offers that were countered by sellers with prices far below the listed price. And, sometimes, sellers listed and sold houses at prices I thought nobody would ever pay. Part of this reflected my own inexperience at pricing, but many times this happened because the other party didn’t know how to say no. I reasoned that I was on the wrong side of the Brokerage fence; I should be representing Buyers who had the money or credit with which to buy any property; rather than sellers who only had one house to sell. In doing this, I no longer had to service listings. I no longer needed an office. I was paid to search out houses that I could buy myself in the event my buyer didn’t like them.
Switching from being a “selling” broker to a “buyer’s broker” was heresy way back then. My friend Bill Broadbent had been pioneering the buyer’s brokerage concept for several years when I first heard about it I took to it like a duck to water. By representing the money in a transaction, this put me into the position of always making creative offers; not in having to figure them out and respond to them.
IF THE CUSTOMER WANTS A GREEN SUIT, TURN ON THE GREEN LIGHT.
The key to being able to buy at a below market-price and/or below market terms — or to sell at an above-market price and/or terms — is to find out what the other person’s “bottom-line” make-or-break requirements are, then try to satisfy them profitably. A major complaint that I have with “middle-men” such as attorneys, accountants, and brokers is that they don’t take the time to discover and verify exactly what the parties are trying to achieve. They merely structure and convey offers and counter-offers back and forth between the parties until a contract is signed or abandoned. Much better deals can be made if time is invested by both parties exploring what the other party needs to get out of the transaction. For this reason, I personally try to negotiate as many of my transactions as I can.
My first task when I set out to buy or sell is to get to know the parties with whom I’m dealing. Obviously, the more people you have to deal with, the harder it is to get to know the parties. Restricting the size of the group improves the chances that I will reach agreement to buy, sell, or lease. In an institutional setting, I try to trim down the size of the group by getting them to appoint a spokesman, or agent, with authority to bind them all in an agreement. With families, I try to boil the group down to people on title who will need to sign conveyances. There are a lot of busy-bodies out there who love to meddle in other people’s affairs. If too many people are present, they tend to focus more on impressing each other rather than to get down to the essentials of the deal.
When trying to make a deal, my principal task is to learn as much as I can about the other parties’ expectations and go/no-go needs. Fortunately, I’m an extrovert who likes people. It’s almost second nature to me to take an interest in them, their families, their jobs, and their history. I’ve found that formal settings inhibit the free flow of information, so I try to get to know people in restaurants, bars, and parties. In the business world, many really big deals are made on golf courses, yachts, and in corporate retreats which more or less all do the same thing; they relax the parties and give each an opportunity to size the other up. Sharing information and making successful deals are founded upon trust. People tend to trust those they know, so getting to know each other is important.
I start off by trying to find a common interest. In both Florida and Nevada, where I divide my time, most of the people came from somewhere else; so I almost always ask where a person lived before. From there we can proceed on to why they moved, what their job is, family size and composition, what they liked and disliked about where they lived, where they want to move to, and the kind of house they hope to buy. I don’t interrogate, but more or less let the conversation flow along at a natural pace. I build my questions on the responses to prior questions. It’s important not to express judgment or comment positively or negatively about the things you hear. The other party isn’t looking for a report card. By always being the interviewer rather than the interviewee, I am able to control the conversation and to get a lot more information than I give while we get to know each other.
I’ve found that once a personal comfort level is reached between the parties, a bond of trust begins to be created. This may be several hours into an interview, but it is only at the point at which I think I understand what they need to accomplish in a deal that I begin to focus on any potential transaction. If I see that we are never going to reach an agreement acceptable to me, I try to point them in a direction, or refer them to others, so that they can meet their goals. On the other hand, if I sense a glimmer of possibility, then I begin to negotiate in earnest to see if there isn’t some way in which a deal can be struck. It’s slow work; a far cry from shoving an offer under their nose and asking them to take it or leave it. But, over the years, I’ve found it to be well worth the effort.
Thus far, I’ve been talking about the other guy’s goals. If I’m going to get what I want out of a deal, I’ve also got to know what I want too; and what I’m prepared to give up in the way of price, terms, or timing to get it. Trying to get as much as I can at the other guy’s expense kills deals. I need to limit my goals.
BEFORE STARTING SURGERY, LEARN THE ANATOMY OF A DEAL . . .
In butcher shops it’s not uncommon to see a chart of a cow on which all of the cuts of meat are diagrammed. The idea is that you’ll have a better understanding of just what you’re ordering when you buy. I look at potential real estate deals the same way. If I were to chart the “cuts” on a house, ten of them might include (1) Equity appreciation, (2) Tax benefits: (a)Depreciation write-off, (b) Section 121 Tax-free sale proceeds, (c) Section 1031 tax-free exchanges, (d) Amortization write-offs (3) Loan Pay Down, (4) Liquidity and Leverage via low cost loans, (5) Options, (6) Income from (a) leases and (b)sandwich lease; or from (c)installment sales, (7) Profit from (a) short term flips, (b) long term gain from sales, (8) Personal or Business use, possession, and/or occupancy, (9) Fixer opportunities, (10) Equity Sharing with Investors. I’d try to structure both my acquisition and sale to give the minimum number of these “cuts” to a buyer, or leave them with a seller, and carve off the rest for myself through negotiation.
If you can learn to perceive all the variable benefits of transactions, buying and selling at a profit amounts to much more than simply trying to bet the best price. See if you can figure out how I profit from the following:
A. I’ll willingly give you any price you want so long as I don’t have to pay you until I’ve sold the property to net 110% of that price; or
B. I’ll give you any interest you want so long as I can buy your house at a low price and pay you off in full when I sell; or
C. I’ll sell you my house for less than I paid for it, if I can keep an Option to buy it back for exactly that same price anytime I want in the future; or
D. I’ll pay you the highest rent in town over a five-year period and pay for all repairs and maintenance so long as I can sub-lease the property; if you’ll give me 125% credit for every dollar that I spend against today‘s purchase price; or
E. With a large equity, I’ll make your payments while you live in your house rent-free if you’ll give me a credit based upon top fair market rents for you equity; or
F. I’ll pay you the top retail price, if I can pay half now, and the balance in a single payment in ten years with zero interest and zero payments; or
G. I’ll put a new roof on your house and buy you a car if the fair market value of is counted toward a 10 year Option on your home at today’s appraised price; or
H. I’ll pay your kid’s 4-year college tuition and you can continue to live in your house in return for 125% credit against today’s price for every $1 that I spend; or
I. I’ll buy you a $250,000 insurance annuity for life commencing at age 65 if you’ll deed me your free and clear $250,000 house today; or
J. I’ll pay your hospital bills in return for equivalent equity in your house; or
K. I’ll lease your house, pay all costs, and pass on to you all the rents, if I can have half the profit when you sell the property in no more than five years; or
L. I’ll give you a $10,000 zero-payment Private Line of Credit to use to pay off credit cards in return for $20,000 credited against an Option on your house today.
I’ve done all the above. In every instance the seller accepted the offer because I was solving a problem that was more important than his home equity. In just about every instance where you take the time to discover the true personal reason — other than merely a desire to make a profit on a sale — why an owner is selling, you can negotiate better while you buy and sell at a greater profit.
GETTING WHAT YOU WANT DEPENDS UPON HOW YOU ASK FOR IT . . .
There are a number of ways to get what you want out of a deal. These are called negotiating “modes”. We use them all, and they are all present to a degree in every negotiation. For now, let‘s look at four of them which include the Cooperative, Competitive, Ethical, and Third Party modes.
COMPETITIVE MODE: This is a very aggressive mode used by one party to extract as much as he can from the other party. Think of a foreclosure sale. Nobody is a bit interested in helping the foreclosee. It’s often the same with pre-foreclosure purchases where all that’s offered is to avoid a public sale. In both instances, there is very little residual good will on the part of the party who gives up the most; and there is very little opportunity for repeat business. Unfortunately, the Competitive Mode is often used by landlords with tenants. The result is that they lose the opportunity to establish long term productive profitable relationships that keep tenants renewing for years.
ETHICAL MODE: This mode relies upon trust and confidence between the parties that, if there is any problem with the transaction, the other party will restructure the deal to be sure that what has been promised will be delivered. This creates long term relationships between the parties, and builds repeat business. A familiar example of ethical negotiation occurs when a vendor gives a “Money-back” guaranty. If the customer isn’t satisfied, they can return the merchandise for a full refund. I think we’ve been able to stay in business as long as we have because of our policy to do that when people at seminars want to leave early because it’s not what they expected. Whether buying services, products or lodging, everyone wants full value for their money. Trust is wiped out when we over-promise and under-perform.
COOPERATIVE MODE: The Cooperative Mode gives each party a way to convey and receive the maximum satisfaction with each transaction. Cooperative negotiation can be summed up with a question I often ask of those with whom I’m negotiating, “Would you be willing to take a little more time to work to find a way for both us to make a better deal?” In the Cooperative Mode, both parties put their cards on the table by revealing their bottom-line objectives. This makes them vulnerable if the other side should suddenly decide to switch to the competitive mode. This often happens when a listing broker, who has been confided in by his client and has been told the bottom price the owner will sell at, suddenly decides to make an offer. For this reason, the foundation of the Cooperative Mode rests on the expectation on the parts of the parties that the spirit of the Ethical Mode will also be observed.
THIRD PARTY MODE: In this mode, you find yourself negotiating with parties who weren’t present in the initial negotiation. No matter how cooperative or ethical the original parties may have been, when “third-party” brokers, attorneys, Trustees, etc. are working for the sole benefit of their clients, the mode can switch from cooperative to competitive without warning. You often encounter this mode when dealing with Trustees who must approve deals; for instance, when dealing with one of two spouses, or elderly people, or divorcees with protective adult children; and agents unable to bind their principals. It rises to the level of an art at used car lots where no matter how much you’ve been able to wring out of the price, the “sales manager” must approve the deal; and usually doesn’t without additional concessions.
One of the first questions I ask is whether or not there is anyone not present at an interview who will have to approve any deal that is made. If there is someone, I suspend negotiations until he or she can find a way to participate, even if by phone, FAX, email, etc. If this party emerges after a deal has been struck — in spite of the fact I’ve been assured that the parties present can enter into a binding contract — it signals to me that we aren’t bargaining in good faith. I usually refuse to negotiate further with the same parties. I’ve left more than one attorney in the lurch who probably never understood how he had failed his client.
