Excerpt from Building Wealth One House at a Time, Updated and Expanded, by John Schaub.
1. Is the person with whom I am negotiating able to make a binding decision? If not, ask who can make that final decision and negotiate with that person.
With smaller transactions, such as a purchase at a store or when borrowing money at a bank or buying a car, you typically are dealing with an employee,
not an owner. The owner would have authority to negotiate and make a binding decision. An employee may have some negotiating authority but typically
will seek approval before making a commitment.
When borrowing from a bank, the banker who interviews you when you apply for a loan may give you the indication that he will make you the loan, but typically he will need the approval of the loan committee, which may be a committee of one, the boss. Bankers typically have a certain loan authority, the amount that they are authorized to lend without further approval. The higher you move up in the bank hierarchy, the larger the loan authority, until at some level a real committee would approve the transaction.
When you are buying or selling a house, you are often dealing with a married couple or sometimes two partners who own a house together. The decision to buy or sell is typically a joint decision, and you need to involve both parties in the negotiation, because they both will have to sign the contract. One person may be the decision maker. When you identify the decision maker (it may not be the one doing all of the talking), ask him or her what it would take to make a deal today.
2. Is it worth my time to negotiate? Although some people consider it fun to negotiate for everything, rather than trying to talk a store clerk into giving you a discount on a loaf of bread, save your energy for the purchase where you can save several dollars or hundreds or thousands of dollars.
Once you reach fifty, you should not have to negotiate for everything.Jimmy Buffett, A Pirate Turns Fifty
Most day-to-day negotiations involve little potential to make a profit. Plan ahead to be well prepared for the bigger negotiations that are worth hundreds
or thousands of dollars to you. By being prepared for the big negotiations, you will profit considerably, allowing you to follow Jimmy Buffetts
3. How will this negotiation affect my relationship with this person/company, and are future negotiations with this person/company likely to be important?
Many negotiations lead to another negotiation. The first interaction sets the stage for the second. Those with whom you negotiate can be a source of referralsor result in lost business. If you aim to be a long-term success in your business, then positive referrals can be a large part of your business. When you rent to a tenant, the tenant has the potential to be a source of income to you for a long time. The tenant also may refer other friends to you or steer others away from you. How you negotiate with this tenant will affect how she treats your house and what she tells others about you as a landlord.
Many of my tenants have been referred to me by other tenants. This is not because I am a pushover but because I deliver a good house at a fair price, and
Im predictable in how I respond to tenant requests. McDonalds has built a billion-dollar business not because its food is the cheapest or even the tastiest,
but because its food is predictable. You know what you are going to get. I have built my tenant management business using the same principle. Fair and predictable.
No surprises. It works.
4. Is this the best time and place to negotiate?
When you are the buyer, you get to choose when and where to negotiate the purchase. You want to be well prepared and in good shape both physically and
mentally before you begin the negotiation.
Have a good meal, be well rested, and take plenty of time to think through what you plan to say. Only when you are at your best and well prepared should
you negotiate for tens of thousands of dollars.
You want to have a plan. If things are not going according to your plan, take a break and regroup. When you are the buyer, you are in control of the situation. Walking away and then starting again can work in your favor as the buyer. The seller will see you as a serious buyer when you come back, and you can pick up the negotiation where you left off last time.
Although I close some properties within a week, I often take weeks, and occasionally months, to buy other properties. I visit with the owners a number of times, and each meeting moves me a little closer toward my goal.