There’s no getting around it; investing in real estate means dealing with people. Building skills as a negotiator is the most important part of being successful as an investor.

Philosophers from Machiavelli to Rousseau have debated human nature, and although I’ve run across more than my fair share of jerks in my time I nonetheless reject the Machiavellian view of human nature as fundamentally dishonest and mean spirited. The guy you’re negotiating a sale with isn’t out to get you. That contractor you’re haggling with isn’t stupid or evil. People might act in ways that are fearful or greedy, but in my view most people aren't bad.  So I see it, a critical key to being a successful negotiator is initiative, backed by fearless, transparent honesty. But it this only works if you have a plan...

Not too long ago I was involved in a major corporate merger and had an interaction with a senior executive who was a direct party to the negotiations. He declared “well we all agree on everything…except for the price.” There’s a lot to that simple statement – that bottom line dollar figure can make people act in strange ways. A dollar figure is hard and concrete – you can get your head around it. But often the price is just the catalyst for conflict and the real concerns lie beneath.

In my experience, the biggest concern that the person on the other side of the table has is that she'll be taken advantage of. She can probably live with a 10% increase or decrease in the price...but she can’t live with looking foolish. Therein lies your challenge.

:: Example

I recently purchased a multi-family property. I made an offer and contentious back-and-forth ensued .  Finally we had an agreement, pending inspections. This was a tough process and it took a lot of work to get to a price that worked for me and which the sellers could accept.

Then: the inspection. I use a guy named Robert Goodspeed . He’s ruthless but fair. Meticulously thorough. If there is a nail out of place he’ll note it. I love working with Robert – if there’s something wrong he’ll find it.  I can negotiate with confidence when I have a Goodspeed inspection report in my hand, and that makes me a repeat customer. 

Now aside from a long laundry list of minor items this particular building was in solid shape. But there were three items of concern that Robert noted:

• Pier and beam foundation had recently been repaired. There wasn’t necessarily an immediate problem, but we needed to ensure that the work had been done correctly.
• There were some electrical problems in one of the units, the breaker tripped while we were inspecting
• The elevated back deck (over the carport) was not up to code with regards to the railing.

I sent the Goodspeed report and the list of three items that I needed to have repaired.  Predictably, the sellers freaked.

:: Getting into the sellers’ heads

At this point it would have been easy enough for the various personalities to take over the negotiation; for us both to cross our arms and let the deal die. What I try to do in these situations is try to put myself in the other guy’s shoes.

Time to take the initiative and take control of the discussion.  The key, in this case, was to give the seller a way to save face and keep the deal moving forward. To do this I emphasized not our respective positions (“fix it!” “no, I won’t fix it!”) but the principle at stake: in this case the purpose and intent of the option period.

I didn’t want money – I wanted assurances that everything was as they had represented it when they offered the property. The sellers cooled down. They brought out some certified, licensed inspectors: a structural engineer and an electrician.

The foundation, as it turns out, was rock solid. The electrician found a couple of problems – nothing major. And since the seller uncovered these problems with their contractor (who I approved) it was not contentious to get them to pay for the repairs. The railing on the back deck I agreed to pay for – this was an item I could have identified by site via my pre-offer casual inspection, and it was only a $1,000 item.

The seller’s initial reaction and refusal to budge was a reaction based in fear. Fear of being treated unfairly. Fear of looking foolish. And that reaction could have easily triggered a fearful reaction in me: these guys are trying to hide something! They’re out to get me! Too risky...no deal!

But by putting myself in the other guy’s shoes I was able to efficiently get to a fair solution and acquire a great property.