Buying, selling and leasing commercial real estate requires lots of different skills, including knowledge of financing, zoning, supply and demand, income statements, and demographics but the most valuable skill is good negotiating. What makes a good negotiator? It is helping all parties involved, who bring to the table different and opposing objectives, agree on the one objective of buying, selling or leasing property with terms that they may not like but to which they can agree. A good negotiator embraces conflict and works through it, discovering motivations of each party and helping them achieve goals they may not have initially thought important.
Good Negotiating Is Always A Short Volley In A Tennis Match
Negotiating has an ebb and flow, a rhythm that is similar to a tennis match. If you make it too short, both parties didn’t give their best, but if you make it too long, both parties tire out and make stupid mistakes. Negotiations always have several terms that both parties have to take into account. There is an offer, then a counter-offer and negotiations should never go past the counter-offer. There has to be some agreement at the 2nd change in terms, even if you have to reduce the number of issues under negotiation. This is where a good negotiator can add value to any transaction, by working with each party to identify issues that are minor and those that are deal-breakers. Negotiators need to understand why certain terms are important to people and help them understand the concept that if they can’t get one thing they want, maybe they can get a different thing that will also help them.
The Hard Part Of Negotiating Is Not Walking Away
Any negotiation eventually has conflict, because there are always various interests involved, called stakeholders, that have their own objective which can often oppose other stakeholder’s interest:
The Buyer or Tenant-the buyer and tenant want the property as cheaply as possible and more. Sometimes the buyer wants a long inspection period or time to arrange financing. The tenant sometimes wants the landlord to build out the space and always wants several months free rent.
The Seller or Landlord-both want as much money as possible with little initial investment. The seller doesn’t want to make any repairs on property being sold, and the landlord doesn’t want to give free rent or spend money building out space that may be unusable should the tenant leave in the middle of the night, skipping on the rent.
The Government-whether the property falls under jurisdiction of a city planning department, city council, mayor, or just the neighborhood association, each group wants to represent their constituents and get credit for any progress. The mayor wants a press conference, city planning wants all zoning laws complied with, and the neighborhood association wants services for their members even if it is doesn’t make good financial sense.
The 4 Strategies Good Negotiators Utilize
The easy thing to do when conflict of interests arise is to walk away. It is the most comfortable and normal reaction for many. But a good negotiator doesn’t take conflict personally, stays calm and utilizes 4 strategies:
- Takes all stakeholder’s interests into account and works behind the scene to address all concerns while reminding those with opposing goals of the benefit of achieving the main goal, which is to put the real estate back into commerce. Sellers and landlords need to understand what buyers and tenants are worried about. Buyers and tenants often have no idea of the complications sellers and landlords are up against. Good negotiators help all parties reach common ground.
- Identifies and separates the big issues and lets the other party have things that don’t matter. In any commercial property negotiation there are a wide variety of contingencies, including inspection and closing period, financing, deposit, occupancy and closing costs and price. The average person can only grasp 3 of these in any one situation, so a good negotiator will determine which 3 have the highest priority and methodically works to get agreement on the big issues first.
- Solves problems with creativity. For example, if a tenant wants 3 months free rent, the landlord could offer one month up front and 2 months at the end of the lease. That way if the tenant doesn’t stay the entire term of the lease, the landlord has taken less risk. Or if a buyer is unable to obtain financing, the seller could increase the deposit and finance part of the transaction. What if the buyer wants an extraordinarily long inspection period? If the buyer eventually cancels, then the seller may have missed other buyers while the property was under contract. In economics, this is called opportunity cost, and this increased risk can be offset by a deposit that becomes non-refundable, or an additional non-refundable deposit to purchase more due diligence time.
- Keeps communications from getting personal. It is never a good idea for buyers and sellers, or landlords and tenants, to meet initially and conduct negotiations. Personalities always get in the way and people say things they shouldn’t and statements get taken the wrong way. A good negotiator keeps all parties logical and rational, identifies the major issues and keeps all parties focused on the benefits to them of a successful transaction.
For more information on negotiation, read our article The Insanity of Inspection Renegotiation and our reality article on Successfully Negotiating the Largest Class A Office Lease.