Strategic Negotiation

Commercial Real Estate Negotiations

Preface:  There is more to negotiation than what I can write in this post, however feel there are key strategies to consider when negotiating and wanted to highlight some key points.

Real Estate Negotiations is much more than getting what you want.  It is about making sure the interests of both parties are maintained.  Sometimes negotiations may continue throughout the course of a transaction to the very close; it doesn’t necessarily indicate things are not going well, however there may be new developments which change the nature of the transaction.  The real key is to become a strategic negotiator understanding the needs and interests of both parties.

Too many investors/brokers get caught up in only defining their own needs and desires and forget the other parties also has needs and desires.  Thus, they create an adversarial relationship which will not lead down an easy path.   Rather than being difficult, it would be more beneficial to determine the key interests of both parties and begin to create solutions which may involve some compromise to create a win/win opportunity for both.

I attended an advanced negotiating workshop led by John Shulman, an interest based negotiator and Harvard Law School graduate.  In his two-day workshop, John shared many key points.  He said in defining success, maximizing the satisfaction of your interests is different than winning.  Other factors to consider were to create an overview of your desired outcome and the outcome of your counterparts, to avoid internal and external conflict, focus on long term versus short term interests and assess outcomes against internal goals. 

John created a negotiation matrix consisting of stakeholders and their interests.  He then created a criteria consisting of a three-tier assessment of importance for stakeholder interests: (1) Critical (2) Important and (3) Not Important.  Critical interests are often deal breakers, Important interests are not deal-breakers to stakeholders, but create good opportunities to create value and Non Important interests can often be ignored.

I strongly feel a good strategic negotiation leads to a cooperative attitude between the parties.  Obviously, the goal in most real estate transactions is to have two happy parties at closing getting basically what they want.  Common Negotiation Examples to Consider:  Buyers many times fuss about making earnest money hard when if they are confident the lender will get closed, it should not make a difference.  Many sellers likewise are concerned about a quick due diligence period, when in reality in our new marketplace lenders are experiencing long delays with underwriters and securing secondary lenders is not a slam dunk.  If the goal is to get closed, does 4-6 weeks additional time really make a difference?

Gary Tharpe, CCIM wrote, “Salespeople know they should “always be closing.” Likewise, good negotiators test the progress of negotiations not by asking for the order, but by frequently testing how the other side currently feels. Are its interests being met? Does the other team buy into a particular solution? The Godfather's lawyer said his client “insists on hearing bad news immediately,” and so should you. If members of the other side aren't going down the same path you are headed, stop and find out where they are. Testing accomplishes that.”
Keeping the end in mind is the key factor in today’s negotiations as the marketplace is complex.  Not every deal is the same, situations can change and make the simplest become the most complex.  Flexibility of the parties and keeping the interests of the other party in balance is key.  John Shulman stated, manipulation does not satisfy interests rather facilitation satisfies legitimate needs of both parties.  The point I want to make is you must understand the needs of both sides in a transaction, create transparency built around trust, understand needs, satisfy needs and be clear on the consequences if needs of both parties are not met.

The bottomline to remember is to always stay strategic keeping the needs of both parties in mind to achieve a mutual ground of understanding which leads to a successful result.