People make commercial real estate negotiating a lot more difficult than it needs to be.
First, you need to collect information.
There are certain questions you will want to ask the seller early on, depending on the particulars of the property, such as:
Why do you want to sell? The owner’s reason for selling can give you a clue as to his or her needs or basic interests. Understanding the seller’s motives can be a powerful negotiating tool.
Has the property been recently appraised? A recent appraisal can be helpful in determining the After Repair Value (ARV) of the property.
How long has the property been on the market? Knowing how long the property has been on the market could be an indication as to how willing the seller might be to lower the asking price.
Is there existing financing? If so, what is the payoff? If there is a mortgage or other lien on the property, the balance required to pay it off will tell you the lowest price the seller can afford to accept.
Have there been any structural repairs or additions? If so, was a permit obtained for the work? Building permits should have been obtained for any structural additions or repairs. Otherwise complications could ensue.
What other information can you give me about the property that might be useful?
Any other information you can obtain on your subject property is worth noting. You may discover some seemingly minor detail that turns out to be critical to your investment decision and to the negotiation process.
Ten Basic Principles of Negotiation
The following are some timeless negotiating principles that, if practiced regularly, will increase your ability to acquire real estate at terms favorable to you, while keeping your seller feeling that he or she has benefited from the transaction as well:
1. Everything is negotiable.
Question everything and don’t necessarily accept what you’re told at face value. To be a good negotiator, you must be willing to think for yourself and challenge everything. It’s important to look out for your own interests while at the same time respecting the interests of the seller.
2. Learn to listen and allow the seller to do most of the talking.
Ask open-ended questions that can’t be answered with a simple ‘yes’ or ‘no’, then sit back and listen. If you do this, the seller will tell you everything you need to know.
3. Gather as much information as you can before the negotiations.
Try to find out what your seller’s situation is and what his needs are. The more you know, the better you’ll be able to satisfy yours and your seller’s needs.
4. Be optimistic.
If you expect more, you’ll get more. Make your first offer lower than you expect the seller to accept. If your first offer is for less than what you can afford to pay, you have left yourself room to negotiate upward if necessary.
5. Do not be in a hurry.
Be willing to wait if necessary. As the seller runs out of time, the pressure to negotiate becomes greater.
6. Try to fulfill the seller’s basic interests.
It’s important to understand that the seller’s basic interests are not necessarily the same as his or her position. If you can determine what the seller really needs and satisfy those needs, he or she is likely to have flexibility on other things, such as price and terms.
7. Let the seller make the first offer.
They may ask for less than you thought. Don’t risk paying more than you have to because you made the first offer and it was more than the seller would have been willing to accept.
8. Don’t accept the seller’s first offer so he doesn’t think he could have gotten more.
If you negotiate for a better offer, when you finally agree on a price, the seller will feel that he has gotten a better deal.
9. Do not give anything away without asking for something in return.
Think tit for tat. If you do, the seller will be tempted to ask for more.
10. Always be willing to say ‘no’ and walk away.
If you are always willing to walk away from the table, you become a more powerful negotiator. However, there’s a common myth to playing hardball. Even if you do walk away from the negotiating table, it’s best to leave on good terms. Don’t burn your bridges.
Keep in mind that if your seller feels that he or she has been dealt with fairly, and is happy with the way the negotiations turned out, they may turn out to be an important source for more leads!