How to Become a Commercial Real Estate Negotiation Expert
4 1% of home buyers choose a real estate agent based on recommendation
Fact: clients hire real estate agents to get the best price. On this blog, we’ve discussed the numerous ways to really wow potential clients with high-quality photos and video, the emerging technology for agents, and more. We haven’t touched on what happens once you secure the client. Now, is when an agent has the opportunity to wow the client and their friends. Word of mouth marketing is king, after all. According to a 2019 study by the National Association of Realtors, 52 percent of buyers wanted agents to help them find the right home. 12 percent wanted help with negotiations. However, 41 percent of homebuyers choose a real estate agent based on recommendation. That’s huge. Negotiating a better price is key to getting that recommendation.
In this article, we dive into the pitfalls agents experience during negotiating property prices and how to improve. You’ve read this far, so you’re already on your way to being a real estate negotiation expert.
You’ve likely read about some of the basic tips, so here we’ll get into some more complex ideas.
Negotiation Styles
In commercial real estate, as you’ve probably guessed, you’re constantly going to be using (and improving) negotiation skills. These skills will not only be used in the process of creating an offer and working to get it accepted, but also with your contacts, brokers, buyers, sellers, engineers, and lenders. In any situation where there are more than two interests, you can rest assured that negotiations must take place to satisfy everyone's goals.
Many people are afraid of negotiation, but this is usually due to a lack of experience. Once you begin practicing, it will get easier for you, and may even become fun! Negotiation is filled with tactics and problem-solving that are used to yield the best results for each party. Being a good negotiator is very important in this industry.
Different negotiating styles work for some people and not for others. For example, some find success with a very strong, even intimidating approach in negotiation. Others prefer to use a straightforward approach, which includes being prepared, informed, and persuasive. Confidence is key to becoming a real estate negotiation expert. Agents need to practice anticipating the questions and concerns the other party may have and prepared with answers for them. This makes negotiating a house price much easier. As a result, closing deals is often easy and fun. Different styles should indeed be used in different situations, so study others who negotiate and develop a style that works best for you!
In commercial real estate, as in most businesses, it is best to yield to an agreement that is win-win, meaning both parties are satisfied with the results at some level. If the strongest concerns of each party are addressed and a solution results, the agreement is of mutual benefit to both parties.
Negotiation Resources
If you are not familiar with negotiation, we suggest you take a class, purchase a book, or find a seminar that covers the basics of negotiation. There are many generic tips and tactics that will sharpen your negotiation abilities, and make it easier for you to get what it is that you want out of an opportunity. One Step Ahead: Mastering the Art and Science of Negotiation by David Sally and Never Split the Difference: Negotiating As If Your Life Depended On It by Chris Voss and Tahl Raz are two resourceful books to get you started.
Negotiation Tactics
In real estate negotiation, there are specific tactics that can be written into contracts. Many of these tactics require some creativity and are dependent on a specific situation. Don't be afraid to get creative; after all, this is where commercial real estate gets fun! You'll be surprised how you don't have to have everything figured out when you put a property under contract!
Pro tip: it’s always a good idea to write a letter of intent before actually purchasing a property. In residential real estate, a letter of intent is usually not necessary, but in commercial real estate, it’s considered a necessity.
Letter of Intent
The letter of intent should be clear, concise and avoid legal format. It should appeal to the owner as a direct, personal letter, explaining your purchasing intentions with the property. Many people put in terms, closing dates, length of due diligence, and so on in the letter of intent. Negotiation can take place here, without any money being permanently spent by the buyer, or a deal completed. It can open a dialogue between you and the buyer, and start negotiations early in the game without anything being set in stone.
Option Contract
Another tactic that can be written into the letter of intent is known as an option contract. This option contract is a good way to investigate the property; you then have time to begin putting together a deal to make sure it is feasible. You can offer a certain amount of money to tie up the property in order to do some initial research, and not even mention closing a deal yet. This is a great option that can allow you to decide to move on with a property and begin negotiating, or simply move on to the next opportunity in a short amount of time. The option can be as simple as 15 days to do some preliminary work with $15,000 at risk. At the end of the 15 days, you may opt for a full due diligence period and continue with the purchasing process.
Contingency Clause(s)
When negotiating an offer, if you still have some questions left unanswered that will be unveiled during the due diligence, you can always write an item “subject to” or” contingent upon” the ability for you to do to the property what you intend. For example, if you are purchasing raw land zoned R-1, single-family housing, and the broker mentions that the city would be supportive of rezoning the property commercial, which would greatly increase the return on investment, then you could write in the contract that you will purchase the property if you can get the property rezoned to commercial. This is done often and works with many different variables that could affect the use of the property.
Writing in contingency clauses can be a great way to protect your interest and make sure that you end up with a property set up properly with a favorable exit strategy.
Negotiating Seller Needs
As we all recognize, sellers often have specific needs that need to be met. This is where real estate negotiation expert skills come into play. A buyer may want to take the opportunity that the property would provide, but realizes he or she may not be able to satisfy all the needs of the seller upfront. A negotiating tactic that would work here would be for the buyer to satisfy the seller's needs in two or more parts.
The buyer could set up two dates to pay the seller- with money in the beginning, and then money at the end of a certain period. This would allow the buyer to take the profit that he made from the property, and give the seller his money. As long as you satisfy the basic, upfront needs of the seller, he or she may be willing to accept these terms, and you are on your way to fulfilling another opportunity!
Investing without Taxes on Capital Gains
Another great tactic is for your benefit down the road. It allows you to continue to invest money into commercial real estate without paying taxes on capital gains. This option was made possible through the Internal Revenue Service tax section 10-31, better known as the 10-31 Exchange. This allows for sellers to use the profit from the sale and reinvest it in another commercial property without paying a cent in taxes. It can't get much better than this for investors.
There are investors who are strictly involved in 10-31 exchanges, and it is a great way to keep the cash flow moving from one property to another with the benefit of full profits and no taxes. This tactic should be added to the contract when appropriate.
These tactics are the foundation of what you need to understand to become a real estate negotiation expert. Protect your interests and maximize the results. Be creative with these negotiations, and always be confident when walking into a deal. Be prepared, informed and persuasive. It is also necessary for you to keep your emotions at bay and your ego out of the room. You have to be prepared to walk away from any deal that cannot be made to fit your needs. Now, read that last sentence again.
Always make an effort to sharpen your negotiating skills, and finely tune the tactics you use to increase your bargaining power. Even the most successful real estate negotiation experts revisit the basics. Having a few extra “tricks” up your sleeve will enable you to make a deal in your favor and get the results you want.
Do you have friends or colleagues that could find value from these negotiation tips? Show them you support their success by sharing this blog with them. We’re here to provide as much value as we can.
Read about how to secure clients and move them down the funnel on our blog.
What Now?
To enter negotiations, you have to first get the client. This can also be a negotiation. Optimizing your listing with high quality and video is the most powerful tactic the internet has given us. Contact us to set up a consultation to brainstorm how we can elevate your listing. Get ready to increase your buyer inquiries by over 400%!
Long Island, NY
631-223-8574
*Affiliate Disclaimer: Please note that some links of third-party services and products highlighted in our blog may be affiliate links and because of this we may receive a small commission from sales of certain products or services. Please know the price is always the same or better for you (in most cases we can secure a special discount for you to use).
If we feature an affiliate link to a service, it is an organization that we have personally vetted and recommend.
Elevate Your Real Estate Marketing with Aerial Photography
Ready to take your property listings to new heights? Schedule a free consultation call with Gino, a seasoned drone photography expert. Gino will discuss your specific needs and provide tailored solutions to showcase your properties from a unique perspective.