Negotiations In Real Estate
Merging Formal Discussions into a Written Agreement
It is a perfect world when I hold all the cards and can dictate terms and conditions of a deal. That is not negotiating. Negotiation is a process of give and take. To get something, I usually need to concede something, or at least part of something. When I was less experienced I typically went into negotiations with my mind set on the things I would and would not do, then I tried to force my position on the other party in one way or another. Sometimes this is still the way depending who I am dealing with, but generally not so much anymore.
I have found that the more rigid my internal position is going into a negotiation, the less I actively listen. When I fail to actively listen I miss cues and opportunities that reveal openings to capitalize on. Let’s be clear, there are things I absolutely will not do, but my method in general is to let the other guys talk first. This reveals their key positions and the ways they propose to solve them. It also reveals what they are not thinking about. That spells opportunity for me.
Once they have spoken I always re-state my understanding of what the opposing party has said. I have found that people become better listeners for my side once they realize that their side has been heard and understood. Remember, understanding ridiculous opposing demands does not mean conceding to them. I am just setting the table to be heard myself. Since negotiations are generally opposite sides coming together, I am kidding myself if I think I am going to get everything single thing I want. Therefore, it is important to know before I go in what positions I have flexibility on and just how far I will go in being flexible.
Once verbal agreements have been reached they need to be put to paper. A common scenario when taking negotiations to a written and signed agreemnt is the drafting of additional clauses. These clauses are helpful in nature since they provide clarity through use of specific language describing terms and conditions of a particular point. At the same time, they can favor the party that is drafting them. This is especially true if an attorney is doing the drafting since it is their job to protect the client and they are usually very good at it.
Let’s say the Buyer and Seller agree as follows during negotiations:
“Seller will, at Seller’s expense, deliver to Buyer a recorded access easement to the subject property, no later than 5 days prior to the expiration of the Inspection Period”. Seems simple and straightforward.
Additional Clause to the above:
“In addition, Seller warrants to buyer that the access easement will comply with state and local laws to allow for a building permit to be issued for a single-family dwelling. After delivery of said easement, Buyer will have 5 days to review suitability of the easement for Buyers intended purpose(s). If Buyer, in Buyer’s sole and absolute discretion, determines that the access easement is not suitable, then this agreement will terminate upon written notice from Buyer to Seller and the earnest money will be refunded to Buyer within 3 business days”.
This simple example shows that an agreement in concept during verbal negotiations can have more teeth when put down in written form. I notice everything when a verbal agreement is put in writing, because in real estate the fully signed, written agreement, is the only thing that matters. I am a huge fan of being specific in written contracts, since most problems I have witnessed in them are a result of ambiguity and/or failure to clearly identify all of the following list:
1. What will be done and who will do it
2. When will it be done
3. Specifically, how it will be done
4. How completion will be measured
5. What will happen if it is not done within the parameters of the agreement and/or timeframe
I have often seen inexperienced folks fall into a very common trap when turning verbal negotiations into written form. They are anxious to have a fully signed written agreement and don’t want to delay or kill the deal by adding more detail that might cause complications. The thinking is: “After all, we all know what we mean”. The trap is in writing the contract in general terms, open to interpretation, and not being specific by following the five principals identified above. It happens a lot.
Who am I dealing with?
I try not to target certain sectors within the real estate industry for the use of extreme caution because I am always cautious no matter who I am dealing with. I have also found there are exceptionally good and simply awful people within the licensed and unlicensed sectors of real estate. But, having said that, I have found for decades that with the exception of lawyers, the more experienced they are in the real estate business the less they want to put it clearly in writing and if they do, the more general they prefer to keep it. This leaves wiggle room for later. Certain folks within the real estate world are like nailing Jello to a wall. If I start hearing “let’s worry about that later” or I am getting verbal commitments for things that should clearly be stated in writing, I make extra certain that the signed contract is air tight.
In summary, negotiating is an art of agility and flexibility within certain parameters. Active listening skills are essential to gain advantage and create mutually agreeable solutions that work. When taking verbal agreements into written form I take care to be specific and follow the five principals of contract drafting shown above. Finally, I know my adversary before I go in.