For investors and/or commercial brokers, negotiating a commercial real estate contract can be rather daunting. If done incorrectly, then the losses can be astronomical. It is critical that you know the key provisions of a commercial real estate contract and how to effectively negotiate terms.
First and foremost, it is important to understand what your main objective of the negotiation will be. For example, is your objective to obtain the lowest price for the property? Or is your objective to close within an acceptable time frame? You get the idea. Since negotiating is a process of communication with the intent to reach a joint agreement, then it is important that you know what you want to communicate. You will notice that the Donald Trump’s of the world bring an attitude of high expectations to the negotiating table, every time.
Next, decide whether you will take a cooperative or combative approach. It should be no surprise that the cooperative approach tends to be the most effective and efficient way to negotiate. The combative approach, which includes negative comments, emotional statements, table pounding, etc…, does not leave room for any creative problem solving solutions. If you are negotiating with a combative negotiator, then it is helpful to the entire process if you do not respond emotionally. Also, do not argue and at the same time do not ignore their arguments. Furthermore, when dealing with a combative negotiator, always back up your statements with written facts.
Many people when entering into a negotiation for commercial real estate do not know that every point of the contract is negotiable. Remember that all the points in an offer can be used to help structure the deal. When followed, all the points in an offer can offer trade-off opportunities for both parties to reach a satisfactory negotiation.
Before you walk into a negotiation it is important to understand your leverage. The more that you know about the buyer’s or seller’s needs, then chances are you will be prepared with solutions for those obstacles.
Contract negotiation can be a sensitive time. Therefore, it is important that you act with integrity and try to develop a trust with the other party. If you can find some common ground with your buyer or seller, then you will be in a stronger negotiating position.
When negotiating price, know that buyers typically offer less than the list price. There is no standard percentage under the list price that is applicable when negotiating a commercial real estate contract. Market analysis’s show all the recent sales for the area, which is the best way to reference when establishing an offer.
If you are lucky enough to receive multiple offers, then it is beneficial for all parties involved to be given the opportunity to raise or adjust their offer within a set time frame. Then after that time frame the seller can review all the offers and decide which one to accept.
Finally, there is no one way to negotiate a commercial real estate contract. Just negotiate.