The Psychology of the Negotiation

negotiation

From my perspective, often the most interesting part of an assignment is the negotiation. Believe me, we see all styles of approach in our Saskatchewan commercial real estate market.

For the purpose of this article we’ll focus on only four different strategies, although there are many more. I don’t agree with some of them, however we do need the tools to stick handle each one.

Build it up

Building rapport with a seller can go a long way towards getting to where you want to go.  People simply enjoy dealing with someone they genuinely like.

Some buyers may get to know the other party and take note of what excites them about their property; or what they see as the greatest potential that exists to add value to the property.

The buyer agrees with the seller thereby building relationship and then comes to the negotiation table stating a couple of reasons why their lower offer is justifiable. Because the seller likes the buyer, some headway can be made with this approach.

Tear it down

Often prospective purchasers believe that by focusing on each and every flaw that may exist within an asset, they will convince a vendor that their property is worth far less than they are asking. They believe that by going down this road they can justify an offer considerably less than the asking price.

Sometimes it may work.  Other times a vendor may be offended and either not respond to the offer, or respond with a much higher price than what he would have been prepared to accept.

Drag it out

This strategy only works in a “buyers’ market”.  When a property is priced properly and there is reasonable demand for that property, it is unlikely to take long to sell.  If those conditions don’t exist, a buyer may have weeks or months to “play the game”.

Typically an initial offer is made and the seller either chooses not to counter, or counters with a number considerably higher.  In either case, the buyer can choose to let it die and come back again with the same offer at some point in the future.

Often a vendor loses confidence in his ability to sell at his price after the property has been on the market for a while and concedes to the purchaser.

Just under the line

In this example the buyer knows what the seller’s bottom line is and believes that number is a fair price.  The buyer proceeds to write an offer with very favorable terms; examples could be a strong deposit amount, either no conditions or short condition timelines.

The price offered is a few percentage points below the vendor’s bottom line.  A vendor will typically consider this offer very seriously.  This is a good strategy which often works well!

What’s your favorite commercial real estate negotiation approach?

Posted by Barry Stuart

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