Steve McTyeire, MBA, Broker New Location Realty Broker in AL, FL & GA Real Estate Instructor

1. Practical Real Estate Negotiating Steve McTyeire, MBA, Broker New Location Realty Broker in AL, FL & GA Real Estate Instructor New Vocation Realty School SteveMcT@gmail.com 205-957-9139

2. After Practical Real Estate Negotiating you will: Determine your BATNA Best Alternative To Negotiated Agreement Learn how to set price anchors ZOPA Zone Of Potential Agreement Describe difference between Distributive and Integrative Negotiating Be aware of SWOT Strength, Weakness, Opportunity, Threat Gain confidence after practicing negotiating

3. Negotiated settlement is advantageous only when: Better option is not available

4. This Photo by Unknown Author is licensed under CC BY-SA Best Alternative To Negotiated Agreement Don’t enter negotiations without knowing your BATNA – If no agreement - this is what happens Must know BATNA to frame negotiations Weak BATNA = weak position BATNA improvements strengthen your bargaining position Continue your search for ways to be stronger What is next best property? Will that seller be more willing to deal? Weaken their BATNA to weaken them –

5. BATNA is your best alternative to agreement Accept deal only if is better than not accepting When you know this point it becomes your “bottom line” or reservation price anchor Other side has their own reservation anchor If there is any overlap, it will be: Zone Of Possible Agreement This Photo by Unknown Author is licensed under CC BY-SA This Photo by Unknown Author is licensed under CC BY-SA

6. Improve BATNA by: Knowing other side’s BATNA (estimate) Learn by asking open ended questions about ways you may be able to help with their goals Put yourself in their shoes – what would you do? Use this information to help them achieve what they Need first: Must have or not have Deal killer Want second: Also would like Trading point

7. ? Discover why selling or buying More you know, better your deal What if you discovered seller was laid off from job? 2 months behind on mortgage payment? Would this change negotiating? Or, seller just got big promotion and wants to upgrade housing Different pressure. • Buyer MUST have school zone • How does this effect their power? • Must sell their home before buying yours

8. ZOPA Zone Of Possible Agreement Reservation Prices are both anchor points Seller will accept Buyer will pay Seller Anchor Buyer Anchor List Price 100 105 110 List price is 110 = Seller’s pie in sky number Seller anchor is 100, below which no deal will be made ZOPA is between Seller anchor and Buyer’s reservation price Above buyer’s anchor 105, there is no deal – outside ZOPA ZOPA

9. Outside ZOPA Zone Of Possible Agreement has no point of agreement Reservation Prices have no overlap Buyer will go up to Seller will accept Buyer Anchor Seller Anchor List Price 95 100 110 List price 110 Seller anchor 100 Buyer anchor 95 ZOPA - No point of agreement Buyer Zone Seller Zone

10. Outside ZOPA No ZOPA, No Agreement Zone Of Possible Agreement has no zone of agreement Reservation Prices are both anchor points Buyer will go up to seller will accept Buyer Anchor Seller Anchor List Price 95 100 110 Problem may be buyer needs funds for closing cost What if Seller added $ to price and paid $ for buyer cost? Possible owner held purchase money for balance? Created value to buyer without cost to seller Risk is with appraisal

11. Once we have a reservation anchor price, it becomes our BATNA point Other side has their own BATNA and reservation price Negotiations 101 https://www.youtube.com/watch?v=Xjg5CKuBnOU

12. Reservation Price based on Principle of Substitution A better alternative is available at this price Walk away price for rational person – not all are rational At this point - not profitable to do deal You have a better BATNA Buyer has low reservation price Seller has high reservation price These prices become anchor points for ZOPA This Photo by Unknown Author is licensed under CC BY-NC-SA

13. Principle of Substitution When selling, focus on value and benefits not price Price may not be most important thing Remember that old real estate saying What is most important thing in real estate? Location, Location, Location A Florida real estate company starts all its advertisements with “This valuable property is now available for you” Psychologically framing property as valuable

14. Value created through trade off of something of lesser value to you for something of greater value Example: seller to remain in home one month after closing Great value to seller May not close and seller has moved out Risk may be reduced by higher non-refundable deposit Less value to buyer Always get something in return: Reduced price? Rent?

15. Negotiation is confession of mutual needs Someone believes someone else has something desirable To get started: Offer incentives to solve their problem Ever been to a “time share presentation?” Can solve problem of expensive vacations with one time purchase And, their “gift” for going to presentation sets you up to owe them Social norms say you owe time share salesperson something in return for “gift” Cost of status quo Each vacation motel rental is so expensive and will go up each year

16. Express respect Remember social expectations “Breaking bread” small talk – Learn about their needs before you start offering solutions Listen

17. What would good outcome be for both sides? • Identify potential value creation opportunities • BATNA & Reservation Price • Strengths of your BATNA • Anticipate negotiating tactics – higher authority • Learn all you can about other side • Prepare for flexibility • Use objective evidence • Alter process in your favor by setting agenda Preparation steps to agreement Understanding both positions

18. Negotiating styles Distributive – assumes fixed value to be distributed Where one’s gain is other’s loss Zero-Sum Power of substitution gives one side leverage Carpet sales and installation – power to buyer Distributive Negotiations https://www.youtube.com/watch?v=oz5clyWOOIc This Photo by Unknown Author is licensed under CC BY-NC-SA

19. Distributive negotiating creates psychological value through anchoring - a claim to maximum value – listing price Anchor will be just beyond market value price Both sides use objective data to establish values Every seller has nicest house Every buyer is looking for a nice deal Have different views of nice Different View of Orange https://www.youtube.com/watch?v=v8hR7ZFAAmA

20. Distributive Negotiating Ignore their anchor price – Resist psychological power of their anchor When price difference is large, focus on common interest and areas of agreement. Ask them to justify price with comparables Why is this property $300 per square foot where comparable sales are $250 This Photo by Unknown Author is licensed under CC BY-NC-SA

21. Distributive Large moves in price indicates more room to negotiate Never offer a discount that is not ask for Small moves indicate being close to reservation price Is there something else to add? You are unlikely to know their BATNA or reservation Look at from their view What else do they need or want?

22. Negotiating styles Integrative – collaborative - Work together to make pie bigger Create value – trade off – concessions Look for ways to help other side Focus on common interest, not positions Separate people from problems Interest Based Negotiations https://www.youtube.com/watch?v=Wzimr2fAhrU This Photo by Unknown Author is licensed under CC BY-NC-SA

23. Integrative Negotiating – Opposite of Distributive Work together for common good Exploratory opening – Listen to what they need Open ended questions uncover these needs “Tell me about what you need” Clarify needs and offer “what if” options What If we could do this…, could you… Package option together to create value

24. Integrative Framing agreement as bird in hand and easy to do What can you do to sweeten deal if needed? Evaluate what you have learned Re negotiate based on new information Risk of pushing too far when long term relationship Nipping is not good with long term This Photo by Unknown Author is licensed under CC BY-NC-ND

25. Integrative Stand firm on BATNA 3 aspects of deal Price – Don’t start with price – this sets point Discuss areas of agreement - Process – Your offer was so low it embarrassed you May need to make a better offer to get moving Agreement on issues builds momentum People – Stick to issues Some negotiators will work your emotions

26. Barriers: Die hard negotiators – Must always win every point Will exploit information and weakness Create anxiety – huffing and puffing Red Herring & Hot Potatoes Expect low ball offer after criticizing everything Stay with plan – Your BATNA offer alternatives to their problems to see if real

27. BATNA Continue to strengthen your BATNA for better leverage John Adams Navy build up forced Europe to stop sinking American ships Always start nice, polite – building blocks of trust

28. Negotiator’s Dilemma Both sides create value if they share information Neither creates value by withholding If one side hold out, they win and other side loses Incremental sharing of information helps start process and build trust, uncover opportunities This Photo by Unknown Author is licensed under CC BY-NC-ND

32. Wikipedia link for Negotiating https://en.wikipedia.org/wiki/Negotiation

33. Evaluate your position SWOT Strengths Weakness Opportunities Threats Write down Do same with other side’s position What can you do to improve?

34. Mental Errors – Yours • Escalation – bid beyond reason (reservation price) • Ego overrides • Auction model works on this principle • Partisan Perceptions – Only see from your point • Feel attack is an attack on you • Stay with plan • Look at issue from other view – objectively • Irrational Expectations – Will not work as hoped • Emotion driven – ego • ZOPA has no overlapping anchor points • Be rational – professional • Overconfidence – over estimate strengths and under estimate weaknesses • Unchecked Emotions • Anger from feeling of unfair play • If they get you off your game, • your anger will cost you, not them • Power may not be equal, and you have weak BATNA

35. Relationships Future negotiating will be better when each deal is fair Greed is not a good way to build relationships Reciprocity – Easier to get concession in future Build trust – Do what you say you are going to do Communicate

36. Negotiating for Others Experienced negotiators will create better agreements Helpful Problem solver Overcome barriers Maintains distance between principals Must refer to higher authority is always there

37. Skills of a negotiator must continuously improve – Watch YouTube Negotiating Videos Process involves people, price and place What could go wrong? Negotiators work process, start to end End result must be better than BATNA or no deal Process turns inputs into value Consider negotiating a chess game When one player knows what chess pieces do and rules of game, they start negotiating 3 moves ahead of player who is playing Checkers

38. Concessions: Currency of negotiations Something for something Stop and re-read above Concessions is plural – Something for Something Give something; always ask for something in return Otherwise what you gave has no value Further in time from concession, less its value If other side keeps asking for more, up ante and ask for something of way more value to them in return Shows other side there is a cost – will stop asking This Photo by Unknown Author is licensed under CC BY-SA

39. Leverage With Distributive model one side has more power Pie is believed to only be certain size These are zero sum negotiators Dealing (concessions) can make pie bigger Can something of value be added to increase size of pie

40. First person to state price is at disadvantage Anchor is set for one end of price range This anchor is going to be listing price of home Buyer considering this home has this price in ZOPA, or just outside Buyer knows this is maximum they will pay Negotiate price down or get concessions to make deal better This Photo by Unknown Author is licensed under CC BY-NC-ND

41. Avoid round numbers It looks like you didn’t put any thought into offer Be specific - on a home offered at $99,900 Seller is just guessing at price Many buyers would offer 90,000 and some concessions – Don’t Reaffirms in sellers mind they set correct anchor Seller wants 95 and feels they framed for this with 99 price You should know what property is worth Offer a number that looks like you have done homework and know market value is lower than seller thinks Try something like 88,270 – when you are aiming for low 90s Resets seller’s anchor lower, maybe in their mind at 90

42. Clean Offer – No contingencies are better than many Remember KISS “Keep it simple… Cash is king Always, always offer less that you believe they will accept If you are not embarrassed by offer, it’s too much This Photo by Unknown Author is licensed under CC BY

43. Offer has been packaged and presented Time to be silent Thinking time Then when they start talking, let them finish Justifying decision This Photo by Unknown Author is licensed under CC BY-NC-SA

44. Great strategy is to collaborate for solutions Concessions are ways to trade something for something Trade away things that have less value to you Always thank them for each concession And remind them of your concession’s value to them Suggest conditional concessions: What if we could do this… could you…? Start with highest priority concern – must have This Photo by Unknown Author is licensed under CC BY-NC-SA

45. When party suggest they may be able to make a concession – immediately turn that into a commitment So as I understand… Is this what you understand? “meeting of minds” It never hurts to ask Don’t ask, don’t get

46. Home inspection report has major issues Buyer wants plumbing and HVAC replaced Asking for more than expected Is this within ZOPA and BATNA? Either say no or offer an alternative If we repair plumbing issues, Will you replace heating and air systems? Don’t be afraid to say “That just won’t work for us” Some deals are just not going to work – Outside ZOPA

47. Offers Lowball – not a serious buyer for what you have to sell Wants to steal property – thinks you may be desperate Make enough offers, someone will sell Best practice is not to encourage with a counter number, but counter with make a reasonable offer and we will respond They are trying to reset your anchor Some of these “buyers” are out making wild offers after going to a weekend seminar on how to get rich in real estate To send message back, counter at near list price

48. Offers About 10% or so below list price, and ask for concessions With discount will be outside your reservation anchor Ask them to make another offer Tell buyer their offer is just to complicated for seller and they would like for buyer to simplify and resubmit If serious, they will Now, it will be likely a lowball at -20% or so, but red herrings are gone

49. Offers About 10% or so below list price, and ask for everything This means: list price of 100 and offer of 90 Buyer also wants 90 day closing to repair credit Up to $1000 lender required repairs, going FHA You are to pay $5000 toward buyer’s loan points, closing cost & prepaids Carpet replacement allowance of $3000 Heating & Air replacement $5000 Roof replacement $4000 You pay attorney and title $2000 Home Warranty, Termite, $1000 They want you out of house at closing And, leave all furniture at no value

50. Offers About 10% or so below list price, and ask for everything With buyer resubmitting, they will remove many of their negotiating points and establish their new better offer with clear anchor Keep trying to shift cost off you Now clean contract will reduce to price Actual offer is about $70,000 Now negotiate. Show objective evidence for price – What has sold Actual market value may be 85 as is, and buyer’s 70 is as close as seller’s price of 100 How do you respond?