
21 minute read
MASTERCLASS: How to be a better property negotiator
Negotiation is vital to success in property investment. It so often gets overlooked however as we focus on strategy, stacking and sourcing. Alex Daley seeks the tutelage of a real-life business Sensei to earn his blackbelt in the art of negotiation.
As investors, a lot of our learning and education is around different strategies, how to raise the value and how to recycle our money. There are dozens of weird and wonderful strategies out there, and just as many very straightforward strategies, but what do they all have in common? The need to be able to negotiate. In fact, many times how well the deal stacks will depend on how well you negotiate.
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Some property deals, let’s take a very common Buy Refurbish Refinance Rent single let, will include numerous stages at which being a dab hand at negotiation would see your deal stacking spreadsheet looking more attractive than the prospect of Arsenal winning the premier league this year.
Negotiation 1: The purchase
Negotiation 2: The renovation (which could be over multiple trades)
Negotiation 3: Rental agreement
Some would say that you could even add a 4th negotiation, the valuation, however, this is something we have less ability to influence so let’s stick with the three.
It’s important to keep in mind, whilst we will often focus on the financial aspect of a negotiation and the wins we make there, that’s only one aspect. Negotiation wins can take many forms. It may be persuading the seller to go with your offer despite it being the same as a competing offer. It may be persuading the vendor to provide the house with vacant possession or for your build team to bring their start date forward a few weeks.
Let’s say you negotiate an offer just £3,000 below the true market value for a tenanted rental, then you also persuade the landlord to sell with vacant possession despite them initially saying they’d sell with tenants in situ. Then you managed to get £1,000 off your initial £15,000 renovation and twist your builder’s arm to start (and thus finish) your project two weeks earlier and you negotiate a rental amount at £25pm extra.
None of those are crazy. But that saved bridging finance costs from the two weeks early start and not having to serve notice, alongside the other savings and the higher rent mean your deal could look significantly different. Suddenly, you’re £5,500 better off, from a number of quick wins.
UNLOCKING THE SECRET ART
Weirdly, negotiation is not something that is really spoken about in the property world. Maybe it’s because no one feels qualified to talk about it, who knows? All we know is that ON THE HOUSE Magazine is going to change that. We’ve asked the questions and heard from one of the best in the business to help you sharpen your negotiation abilities, win those three negotiations and send your deals skyward. If you pick up just one thing in this article, with deal sizes as large as they are in property, it’s likely that one thing will be worth thousands. So, limber up, it’s time to get training…
Let’s first introduce who we’ve enlisted to spearhead such a topic.
Horace McDonald, CEO of the UK division of Scotwork, one of the world’s leading negotiation training companies with clients as big as Facebook, FIFA & Cisco - you might have heard of one or two of those. Scotwork run courses on negotiation both in person and virtually.
Let’s be very clear about what we’re aiming to do here, we’re not going to give you four magic words to say to get £4,000 off your next deal or bag that date with Margot Robbie or Hugh Jackman. The objective is to instill a set of principles that will allow you to have an edge in your negotiations, a consistent edge.
McDonald explains: “Negotiation is everywhere, often we don’t realise it. Our job is to equip people with a set of skills to enable them to better understand how a negotiation works and the skills that are most appropriate for that. We take a very clear view that negotiation is predominantly a learned skill rather than an innate skill. That’s black and white, clearly, there are shades of grey.
“The skills that we teach are relevant universally, through different
cultures, and nationalities, deep down we’re all the same and so the frameworks are universal. How it’s interpreted can change but the map applies around the world,” he notes.
“We have an eight-step framework that encompasses anything you’ll do within a negotiation, there are three that are most critical.”
PREPARATION
This isn’t a section that’s going to excite anyone, but skip it at your peril.
McDonald explains that the art of a predictable, successful negotiation starts way before you even open your mouth. It starts in the prep stage.
“The first mistake people make is lack of preparation,” he warns. “You have to be very clear from the beginning about what you want. In property that could be outlining what you want from a property, you need to know what your deal-breakers are and what your musthaves are. This could be the number of bedrooms, transport links might be important.”
“The challenge often is people write a list and then realise they aren’t truly must-haves. Must haves need to be things that if you don’t have, the deal can’t go ahead. Then, of course, you have the things you would like to get.”
So, how does spending time on your ‘must-have’ list set up your negotiation? McDonald explained it’s all about understanding what your position is like in the market. If you have a list as long as your arm, which means there are only two properties on the market in your area that meet your criteria, you aren’t exactly in the driving seat. If your list means that 20 properties are potential options for you, the balance starts to swing.
“You’ll reduce your opportunity if you have a long list of must-haves” he explains. “You’re more likely to overpay, and not feel you can walk away from a deal, this is where people lose their cool. Options are everything!”
“You’ve got a list of resources to hand to research what similar properties have gone for and get a much better understanding of what the market looks like.”
So the work you do at home and talking to estate agents is half the battle.
ARGUE
Though argue is a strong verb and suggests butting heads with a vendor, McDonald says this stage is not as harsh as it sounds. “The argue stage is all about constructive dialogue… you’ve found your property and now need to do a deal.”
This stage is a natural follow-on from the prep stage. “You need to have a number of questions to really understand what you’re buying.”
This means both about the property but also the seller. It is vital to understand their position and ask the questions to build a picture of how much wiggle room might be on the price, how desperate they are to sell, that kind of thing.
“This could be about subsidence, how old is the wiring? Now some of this information will be online but you need to ask the questions and get a very clear understanding of what you’re buying.”
Going into detail like this can help establish your credibility and underline the thinking behind your offer later in the negotiation.
The key thing here McDonald explains is to “Dig into that information and scratch well beneath the surface. All of the issues, and concerns, you have to get clear answers around.”
You’re looking to uncover information that may give you an edge, as well as information that might mean you rethink things.
Key questions you should be asking an estate agent: How quickly does the other party want to sell? Are they under time
pressure? Or happy to take their time?
What’s their family set-up? How many decision-makers?
How many other buyers are at the table?
What number do I need to be at to be competitive?
Everyone asks what the reason for selling is, and this isn’t to say avoid asking that, but it can be used as a set-up question to dive
“What’s most important to the vendor in this sale? Money? Time? Or something else?”
Generally speaking, there are three main drivers, money, time and certainty.
Now money is a straightforward - ‘this is what I’m offering’. Time is also quantitative, but with a bit more wiggle room and certainty, well, that’s a real opportunity to strengthen your offer.
Playing to your strengths is the key here, if your offer is likely less than the seller was expecting and/or less than other offers, you need to make a big point about your strength in the other two departments.
If you’re looking to close quickly through bridging finance or cash, make that the focus, especially if you know that’s important to the seller. If you’ve worked with the agency before and have bought from them, they know you’re a serious buyer, don’t let them forget that and make it a focus.
With a reported 31% of purchases falling through, the certainty of completing, due to being known to the agent and the impression you give is a huge competitive advantage. The three things that sellers want, money, time and certainty are exactly the same for the agent. They don’t get paid without the deal crossing the line so certainty for them is really high on their agenda. Sure, agents want to get the best price for their sellers, but their commission difference between a £200,000 sale and £205,000 is likely very insignificant. When they’re relaying the offers to their seller, if they think you provide greater certainty, you’ve won an ally there.
PROPOSAL
That brings us to McDonald’s discussion around the two types of negotiations.
“There are two types of ways you can negotiate, you can negotiate competitively or you can negotiate collaboratively,” he explains. Now transactional negotiations (where you buy and move on) can lead to a degree of competitive behaviour. You likely won’t have a relationship with that person moving forward. It is predominately driven by price and therefore many would suggest it’s good to be very aggressive with your pricing.”
McDonald warns however: “People buy from people they like and people sell to people they like. If you go in too aggressively it can put you on the back foot, but yes, clearly, you don’t want to overpay.”
He advises to keep to the collaborative model unless you know a competitive style will work.
And this is where we come back to the previous steps, prep work and our constructive dialogue.
“You have to use as much information about the marketplace as you can. If you go in too low, there’s a chance of you losing your seat at the table with others much higher, you put yourself at greater risk. Understanding who’s at the table from the agent and the vendor is key.”
This helps us see how strong your position is, McDonald emphasises that a large part of the negotiation is understanding your position, how strong of a position you’re in and how
strong the other parties are. He reminds us that half the battle is in the prep and dialogue stage, it’s those that allow the final stages to move smoothly.
Remember, this conversation is only the beginning, “If you’re buying something of course you’re going to want to pay as little as possible, but also recognise that the negotiation doesn’t start and stop at agreeing on the price, you then have subsequent interventions, survey, fixtures and fittings etc, which could involve additional negotiations.”
If you can forge a collaborative relationship with the agent and seller through these initial stages, it sets you up to get the most out of the following stages until you sign on that dotted line, often many months after this initial conversation.
Using the estate agent as your secret weapon:
This is perhaps one of the most important components to success in negotiation when it comes to purchasing (which may have the biggest wins and losses from how you negotiate in terms of £ amount).
Property transactions are unlike many others, you’re often negotiating through a third party (the estate agent) so you have to alter your approach from what you may do when you’re trying to haggle on that brand-new Ferrari that the media would have everyone believe you’re buying each year.
“The estate agent is the market maker,” McDonald explains. “This is a very clear argument to turn the estate agent into a collaborative relationship rather than a competitive one. A very competitive strategy will only be the best route when you know the other party’s position so well that you know you can get away with it… It’s a one-off transaction with the person selling it, but you may be wanting to invest in the area for a long time. There’s a ‘piss off factor’ here with the agents.”
Burn bridges at your peril. Instead, you have the ability to turn agents into salespeople for you. With often no contact with the seller, how the estate agents communicate your offer can separate you from the competition.
This sort of strategy is often referred to as creating an internal champion, in the wider world. Strictly speaking, an internal champion would be an employee within a business you’re trying to win work with, but you get the similarities. If the estate agent is pushing your offer as a really strong option due to the certainty of sale, you have the advantage.
“There’s a point of trust with the estate agent, collaborative relationships tend to build trust, it’s hard to build but you can break it in an instant. It will only work if there’s trust… And this will be different depending on what kind of investor you are. Are you wanting to buy a lot in an area or is it one-and-done? Where you might care less about a relationship.”
When asked about terminology and how to get the most out of the conversation with the estate agent, McDonald said: “No estates agent will say things aren’t going well, but often how they answer your questions will give you an inclination as to what’s really happening behind the scenes. If they use quite a lot of qualifying language and aren’t clear, confident and direct with their answers, then that’s an indication. These are called signals.”
DEMANDS, CONCESSIONS AND LISTS
Property transactions are complex, you don’t just walk in, set a price, sign and leave - unless of course, you’re buying at auction. In most transactions, there are numerous points of negotiation, from the initial purchase price, fixtures and fittings, changes of price due to survey, dates, etc. With refurbs, you have a price, timelines, and amount of work done.
McDonald discussed one of life’s biggest frustrations, timelines with refurbs. Reminding us again that negotiations don’t have to be financial.
“It could be timelines with builders, asking them to commit to a certain timeline and if they overrun, negotiating in that they do a piece of extra work for free.”
This opened up the conversation around wish and concession lists. McDonald explained that “in a transaction, as contexts change, are there things you can get that you haven’t already thought about? If there are additional things, you might want to consider what you can concede as a result of it.”
In the context of building work, that concession could be time. In your purchase, that might be allowing the seller to sell with tenants in situ rather than vacant possession.
Remember - “Where you are in the negotiation process has a very clear impact on your ability to use any kind of tactic in a negotiation. Right at the start of the purchase, with numerous others vying to have their offer accepted, you have less scope to push the boat. Later as you go, once it’s just you and the seller, you have more ability.”
McDonald spoke about lists: “If you have a list of demands, it gives you the ability to trade away demands that aren’t important to you and keep the ones that are.”
It is all about “getting the things you want, that are valuable to you and trading away things that aren’t as valuable for you but might be to the other side”.
So, there you have it - all you need to bag that date with Margot (or Hugh). Sorry. To see a consistent edge in your negotiations, I mean, ahem.
Everyone will develop their own negotiation style. You’ll learn to read the room, where the boundaries are, when to put on pressure and when to play it cool. The key thing is you roll up your sleeves and put this into practice. It may feel awkward, impolite or uncomfortable, but you’ll soon get over that when you’re saving yourself thousands. So time to put it into practice and start negotiating.
Negotiations - the Dos and Don'ts
THE DOS:
Mirroring
In any collaborative negotiation, likability is key. And psychologists suggest one of the best ways to be liked by someone is to be similar to them. You’re not going to be able to change whether you’ve got three poodles called Rocky, Thor and Homer like the estate agent, but there’s something else you can do. Mirror. This is both physical and verbal. If they cross their arms, you might cross yours too, if they lean against a wall, you can do the same. Although with elements that are seen as negative, for example rolling your eyes, frowns, etc, it’s usually best to avoid those.
Create a sense of urgency
We’ve all seen those property events where the speaker says the offer is only for the first 10 people and suddenly three people run to the back of the room to sign up. Those same people happen to do it night after night and may even be seen in the bar afterwards with their boss. Sorry. The speaker. Well, that’s to create a sense of urgency (as well as social proof). We see it all the time, limited-time offers and of course, countdowns on webpages to lock in your price. The reality is, businesses do that because it works. It’s one of the most battle-tested strategies in deal closing. The more you can convince the other party that the offer will only be there for a short period of time, or perhaps that you’re offering on other properties and if they don’t get back to you with an acceptance first, you’ll pull your offer - the more success you’ll likely have. One of our greatest fears is missing out. Position your offer well, you can instil that fear.
Use data
Using data (gathered from your prep stage) to support your negotiation will help to keep the emotion of lowering the price out of it for the seller. It also supports your wider credibility as someone who’s serious. But keep things succinct, you don’t need to bombard them here.
Don’t be afraid to leave the table
this is business You’ve set your limit and you need to hold yourself accountable. You need to be prepared to walk away if the deal doesn’t work. Being honest with yourself here and accepting that can also give you an edge. If the seller gets the impression you’re prepared to walk away, that’s when they will start to make concessions they might not have previously made.
Follow up, follow up. Follow up!
Sometimes deals don’t work and you need to walk away. That doesn’t mean they’re completely over. Get in the habit of following up. Check-in with agents and sellers. Ask them how things are going. Maybe the property hasn’t sold. Maybe the buyer they went with instead of you is being slow. Maybe the builder has had a project pull out and needs to fill the days.
THE DON’TS
No one-way giveaways
“Avoid giving things away without getting something in return. It’s one of the biggest mistakes people make in negotiations, they don’t understand how important something is to the other person,” says McDonald. “It might not be important to you, so you might think you can concede on it and it not cost you much. What you can do is trade something back in return for it.”
This feeds off the questions you ask, the information you gather before from online sources and your read of the room.
Tactical info-share
“People tend to not want to give away too much information. Sure, you only want to give information away that helps you get to your objective, but a lot of people hold onto this information.”
This could be building credibility with the estate agent to help tick that certainty box they want ticking. Whilst price and speed are more quantitive, certainty is much less of a quantitive thing, and something you can elude to when you speak. Maybe you mention that you have a house two roads over, maybe you mention you are currently in the market for two properties and that this isn’t your first rodeo. Whatever you have to your advantage, this is your time to subtly let that out, and let it work for you.
“Avoid uncertain language”, says McDonald. Make sure you’re clear about the signals you’re putting out to set the impression you want to set.
Be precise
Research shows that those who present more precise offers are more likely to see success than those who present round number offers. Maybe it makes you sound more like you know what you’re doing, maybe it makes it sound like that’s a well-considered best offer. Whatever the reason, the science shows framing your offer with precise figures gives you the edge.
Make multiple offers
Max H. Bazerman, professor at Harvard Business school suggests that by making multiple offers, you can gain a much greater insight into what the other person is thinking. By asking which offer the seller preferred, even if they reject them both, you can start to craft your next offer to better align with what they want and create a win-win. This can also create a scenario where the other side starts weighing up which they should accept out of your two offers, rather than whether they should take them at all. For example, on a house with an asking price of £160,000, you might offer £150,000 with tenants in situ or £153,000 with vacant possession. Suddenly the seller is debating whether they want to evict their tenant for the extra £3000 or sell to you as is. Rather than their whole focus being on where that £7,000 has gone. Sneaky.
PERSONAL STORY: DID WE SAY FOLLOW UP?
ON THE HOUSE Writer Alex Daley shares a negotiation win because he likes a good humble brag… And to show these tips really do work!
Alex puts the nabbing of his first investment property down to the habit of following up.
He writes: “After buying a number of investments I decided it was time to buy my first home to live in myself. I found a great project, viewed it, and put in my first offer. It wasn’t my highest offer but it was a good starting point. There was another party interested who had offered more. After a bit of back and forth and they offered more than my limit and got their offer accepted. I kept an eye on the listing every few days and noticed it hadn’t been marked ‘SSTC’, so I phoned up the agents who I’d built a decent relationship with from our back and forth and just checked in with them. Turns out the purchaser hadn’t got their paperwork, proof of funds or their decision in principle over.
They had promised it that day, so I said I’d call back in two days to see how they were getting on. Two days later (now about nine days after the offer had been accepted) I phoned, and still not in. Less than 10 minutes later I’d sent a slightly increased offer (albeit still under the original purchaser’s), attached my proof of funds, DIP, ID, proof of address, broker’s contact details, solicitor’s details - everything I knew they’d need. I did everything I could to show them that there was certainty with my offer and it worked. Offer accepted.”
Suggested further reading
• Never Split the Difference, Negotiating as if Your Life Depended on It - Chris Voss
• Influence - The Psychology of Pursuation - Robert B Cialini PH.D
• How to Win Friends and Influence People - Dale Carnegie
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