Negotiating Power

Element # 3 - Power

Some sources of "negotiating power" are obvious, but some you may not have thought about. Here are fifteen sources of power, and notes on how to use them. There will be somewhat repetitive explanations of these in the chapter on specific negotiating techniques. Repetition helps us remember.

1. Competition

Know the nature of YOUR competition, and you'll be in a better negotiating position. You don't want to be the only one who doesn't know what your competition is offering. In fact, when they bring up their alternatives, you want to be able to authoritatively explain exactly why you have the better offer. Example: "It may seem low, but it's a cash offer, so you don't lose more time and money on deals that fall through."

2. Legitimacy

If you show up in a t-shirt, driving an old pickup truck, and offer a low down payment with the seller carrying the balance, you won't be taken seriously. Whether or not we like it, things like these do matter. Borrow a nicer car if necessary, have your credit report in hand, and have a list of references available.

3. Precedent

Citing precedent is a powerful way to overcome fears or uneasiness on the other side: "My father sold his home on a land contract with less of a down payment than this, and never had a problem. It's not uncommon. In fact, your neighbors house was sold this way just last year."

4. Identification

The more people that identify with you, the more likely you'll get what you want. Start by establishing personal rapport. If you know the seller is a family-oriented man like you, bring it up at the appropriate time: "You know, we both would rather be home with our families than in this real estate office, so..."

Use common experiences to elicit a sympathetic response during negotiations: "I'm sure you can remember being in my situation. I want to give you everything you need, but I need to make it work for my wife and I too." If they DO remember being in that situation, they will be more sympathetic.

5. Expertise

I was looking at a house once with an agent who knew building codes and construction costs. He had suggestions for converting the basement into livable space, knew what size windows would make it legal, and how much it would cost. He was so helpful with his expertise that it was easy to forget that his job was to sell the place to me at the highest price he could get.

That is the power of expertise. To use it when you are buying a house, have expert opinions ready. Get the realtor to show the seller with the official statistics for "days on the market" for listed homes, so he'll feel motivated to sell. Carry an expert's magazine article on the costs of maintaining old houses when you go to look at that Victorian home.

6. Risk Taking

There is great power in taking calculated risks. Inexperienced real estate investors successfully use zero-down techniques that "professional" investors say won't work, because they just take the small risk to try. You never know what you might get by asking, and you usually don't have much to lose. Is it possible that a seller will refuse to take you seriously once you present him a "lowball" offer? Yes, but he might also accept it, and there are other homes to buy.

7. Morality

If there are ethical issues involved, use them. For example, use peoples sense of right and wrong to keep them from changing their minds: "I know we hadn't signed the agreement yet, but when you said that you would include the chandelier, I took you at your word. If that isn't part of the deal now, doesn't it seem fair that we take a little off the price, or you pay the closing fee?" Most people want to be fair, and almost everyone wants to at least appear to be.

8. Commitment

The negotiating power of commitment is a matter of morality and momentum. Most decent people want to keep their word, and they tend to keep moving forward when there is a commitment, so build commitments to assure progress. You could ask the seller to commit to trying everything possible to make the deal work, which may or may not be appropriate. It is usually better to work on individual items, saying things like "Can I get you to commit to this if I do that?" For example, you might ask for them to pay closing costs if you agree to a higher interest rate.

This chapter continues here: Negotiations