Negotiating the deal

I picked up a book from a Glenferrie Road Thrift Shop "Success in Property Development" published 1989 written by Chris Lang of Gardner + Lang. The book gave insights into the property development deals of the 80s as well as a typical overview on how to structure & model a commercial property development syndicate.

In the appendix Chris wrapped up by distilling the 3 crucial elements in negotiating the deal: information, time and power.

Information Someone said that 'to be forewarned is to be forearmed" and information is forewarning. Gather all the information you can about the property you want to buy and the person or firm from whom you want to buy and about his/her agents. Herb Cohen in his landmark book You Can Negotiate Anything, wrote: 'Remember that what you want to know going into the negotiation process is the real limits of the other side ... the extent beyond which they will not go.'

Time Coher further wrote: 'Dont be surprised when you receive the initial reaction to your proposal. "No" is a reaction - not a position. With the passage of sufficient time and repeated effort on your part ... every "no" can be transformed into a "maybe" and eventually a "yes".'
Sometimes an excellent deal can be done by grasping an unexpected chance quickly. If you have fast access to money you can snatch a property that comes on the market without warning, offered by a vendor who urgently needs to sell, often at a reduced price.
But that is the exception. In most negotiations it is a plus to possess a great deal of patience. The fact is deadlines are often fictitious - products themselves of the negotiating process - 'Let's get the deal wrapped up by Friday.' Therefore, they are more flexible than you realise. Another fact is that shifts in position are made towards the end of a negotiation, not at the beginning when the parties are trying to get the feel of the deal; indeed Cohen states that '80 per cent of all concessions are made in the last 20 per cent of the negotiating process.' Of course you have an advantage if you know the other party does have an urgent need to finalise; it means you can hasten very slowly indeed in the hope of forcing concessions - again, the value of having as much information as possible.

Power Then there is power - of which Henry Ford said: "Power is based upon perception. If you think you've got it, then you've got it. If you think you don't have it (even if you've got it) then you don't have it.'
Some people have a lot more financial muscle than others. But some people have more muscle than they realise. When I talk to a lot a first home buyers I say to them, 'Do you realise you have a lot of power when you are sitting opposite the bank manager and asking for money?' They say: 'You've got to be joking. He's got the money, so how do you have any power?' I say: 'It's simple: You are talking to one bank manager and you say to your fiance who banks with another: "Look dear, I'm not sure whether we should get it here or perhaps from your bank." The chances are the first bank manager won't let ou get out the door. When you ask for money, he's going to find it very hard to turn you down.'
The power principle in negotiations is that you have to create the illusion of options; you let the vendor party know that you are considering the puchase of other properties - it does not realy matter to you whether you buy their property or some one else's.
Expertise is another important negotiatiing tool. The other party tends to respect you if you clearly know what you are about - but, of course, the newcomer investor cannot really know; that's where your retained estate agent can put the advantages of technical knowledge and experience in your corner.
Always remember: if you let the vendor name the price, you can name the terms - the way the price is going to be paid.