REAL ESTATE INVESTMENTS: YOU HAVE TO NEGOTIATE

The Financial Markets Are Called Negotiated Markets. That's pretty much a joke. You don't know what negotiation is until you're bought a real estate investment. The trouble is that even experienced investors don't really know how to negotiate. Most employ strictly positional bargaining. The seller prices a property at more than he expects to get and the buyer offers less than he expects to pay and they meet somewhere in the middle. A very experienced high end investor explained that process to me and then told me "it's not rocket science." Given that attitude it certainly isn't "rocket science."

Perhaps We Should Study The Process A Bit More. Here are some things to consider.

1. Know your BATNA and try to project what the other party's BATNA might be. I guess every one doesn't know what BATNA means. It's "Best Alternative To a Negotiated Agreement". You may think you know your BATNA right away but if you spend some time contemplating what it might be, you may come to a different conclusion. When I bought a lake front lot, I started out with some strictly positional bargaining but when I thought about it, I concluded that although lake front property may be somewhat plentiful in East Texas, I wanted to be within a reasonable distance from a town, I wanted a wooded lot, and I wanted an area that might be attractive to potential retirees from an industrial area 50 miles down the road. A little research told me that the sellers were heirs to a sizable estate and could afford to hold the property since there was no loan on it. They could wait for another buyer easier than I could find another lot. With that in mind, I was willing to pay nearer their asking price than I had originally anticipated.

2. Retain your objectivity as much as possible. One of the main points here is to avoid letting your emotions interfere with your logic. I have seen transactions that were in the best interest of both parties fall apart because they made their differences personal rather than financial. One of the best principles I know is to be more rigid on substantive issues than personal issues. Give the other party every possible to save face while you stick to your guns on what's really important to you.

3. Remember there are several aspects to a transaction. A seller might be favorably influenced by a large earnest money deposit which could cost the buyer very little since it is ultimately credited into the transaction. Sellers might also be favorably influenced by a speedy closing date. Buyers can be favorably influenced by attractive seller-carry terms which can also be in the best interests of sellers who might not need all the funds from sale right away.

4. It's not over until its over. Just because you have a signed contract don't think you no longer have to negotiate. There are inspection contingencies and title issues to deal with. In large commercial transactions, there is often a "due diligence period during which a buyer can cancel for any reason. Once a buyer or seller discovers what he considers a critical issue, the negotiation process begins all over.

5. Both parties expect to win in the negotiating process. Most of us have heard of the "win-win" negotiating strategies. While this may sound a bit hokey, it is true that both parties can win in a mutually beneficial transaction. In reality, you can expect that neither party is going to participate in a transaction that is not in their best interest. A broker in a transaction can earn more than his fee by discovering the interests of both parties and facilitating an agreement.

Have You Read The New Financial Publication? It's called Rolling Stone. For all these years, I have considered this mainly an entertainment magazine and not bothered to read it. Ms. Betty bought home the most recent edition which featured an article that concluded that the next big bubble would be the green energy phenomenon brought on by the proposed "Cap and Trade" legislation. The author, Matt Taibbi, provides rhetoric that wall street firm, Goldman Sachs, has been involved in manipulating market bubbles ranging from the great depression to the "tech wreck" of the late 90's to the sub-prime mortgage debacle of 2007. During this time they have made a fortune participating in these markets. The "cap and trade" bubble will allow Wall Street to broker "carbon credits." Again this will make them a fortune by doing what they have always done: taking a very small piece of a multitude of huge transactions. While I don't like this author for a number of reasons, I must admit that it provided me with much food for thought as I endeavour to make investments for myself and my clients.