How to Negotiate Commercial Real Estate Deals

You’re watching a football game on television.  One team kicks off and a flurry of activity ensues.  Guys are running everywhere and the ball’s on the move.  They settle down.  The two teams square off.   They run plays to outsmart and out-maneuver the opponent. The offense works its way down the field, reaching the 50 yard line, the 40, the 30, then the 10, and they land on the 5.  The game’s moving quickly, when at the 5 yard line, first down, and they can’t budge.  Huh?  They’ve made it all this way and now they’re stuck and have just run through 4 downs with 5 yards left to go.

How many deals have you seen end this way?

Getting deals done in this market will take 20% of the effort to get to the 5 yard line and 80% of the effort to reach the end zone. Most people have it the other way around.

Here’s why. Both parties have exhausted their emotional capital getting there.  Emotional capital is the sense of good will and mutually advantageous perspectives that two parties share when negotiating a business transaction.  Its outcome is known by the cliche, win-win.  Two parties that use emotional capital sparingly through a tough market, often reach agreements they consider a success because both parties would willingly negotiate with one another again.  It’s when you’ve used 20% of your effort to get to the 5 yard line and 80% to reach the end zone, score a touch down, and the game continues.

How to waste emotional capital to kill the deal:

  • Ignore the other party’s needs and wants
  • Write an offer that doesn’t consider anyone else’s interest but your own
  • Try to “steal” a property
  • Low-ball
  • Agree to a term or condition and then later trying to re-trade
  • Make mistakes in the negotiation, ignore them, and ask the other guy to pay for it

How to use emotional capital to get what you want:

  • Conduct a stakeholder interest analysis
  • Model the deal from the other party’s perspective
  • Uncover the other party’s underlying motivation (timing, pricing, motivation)
  • Respect your opponent, ask them for advice, show them what you have in common
  • Ask your opponent what they’d like to see happen as an outcome of the transaction

Give to get

Sound obvious?

I’m an expert in negotiations and I’ll confess that I sometimes forget these things when I’m representing myself. It’s easy to get emotional through a negotiation, take things personally, and to avoid, accommodate or attack the other party without respecting what you and the other party really wants. And it’s really easy to exhaust emotional capital trying to reach an agreement, just to watch it die because no more willingness to give.

Stop yourself.  Step back. Use emotional capital to create a winning, positive, and productive negotiation. It’s free and often ignored.  You’ll often find the other party making concessions you’d never have believed possible, and usually, you’ll uncover solutions to problems that were invisible to you while you were upset about the other party’s response.

The outcome?  You’ve invested your emotional capital wisely and you do more deals together in the future. And most importantly, your deals are easier because you share something in common with your new friend, trust.

By the way, where should we send your free 10 part email mini course?  It’s 100% commercial real estate investing focused and you can get it here.

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