REAL ESTATE
NEGOTIATION INSTITUTE

“The market sets the price” is an age-old adage that applies to many markets including the housing market. But what does this really mean? If the market sets the price, why don’t buyers pay that price? Don’t buyers know that the seller has researched all previous sales and set the price accordingly? Shouldn’t the home sale price simply be a matter of putting the market data on the table and letting it speak to all concerned parties? If only it was that simple!

The market data in reality simply establishes the price range for previous buyers for a given type of home. But there are at least three factors that can cause significant price variation among buyers and sellers of like properties:

1. Data interpretation: The simple fact that two people can look at the same data and come up with different conclusions is one source of variation. In real estate, that is the nature of the beast so to speak. The sellers (including the listing agent) look at market data and interpret it in their favor, and the buyers (including the buyer’s agent) look at the same or similar data and interpret it in their favor. Human nature causes us to typically over-estimate in our own favor so these different interpretations using the same data can sometimes be quite far apart. And each side will feel justified in their own position!

2. Property differences: No two homes share the exact same dimensions, features, upgrades, landscaping, decorating, etc. Each home has unique physical characteristics just like snowflakes. Formulas are normally used to adjust the pricing of one home based on the pricing of a similar yet different home. But the formulas and methodology used vary, and there is no one standard approach used by real estate agents and appraisers alike. So price determinations for a property will also vary due to different methodologies used to adjust for differences in physical characteristics.

3. Buyer perspectives: Our perspectives and the way we look at the world are based on our own life experiences and life situation. Because of this, no two people will ever have the exact same perspectives or life situation. When buyers (and sellers!) evaluate a home from their own unique perspectives, they are focusing on value, not just price. Value is defined as “benefits versus price”. The value of a home is therefore greater when the benefits (real and perceived) are high relative to the price, and lower when the benefits don’t appear to be equal to the price. Benefits are based on both the data or logic (“Look how big the kitchen is!”) and the emotions and feelings (“We can entertain the whole family in the back yard!”). The saying “buyers buy based on emotion and justify based on logic” simply shows that the purchase decision is normally made in the right brain first based on emotions and feelings, and then justified in the left brain based on logic and rationale. So the value of a given property will most certainly be different for different buyers, and also different from the seller’s valuation.

So given differences in data interpretation, different methodologies to adjust for physical differences, and different perspectives among people in general, how do buyers and sellers ever reach agreement? Through the use of negotiation skills! And not the client’s negotiation skills, but the agent’s negotiation skills! The final outcome for both clients is heavily influenced by their own agent’s negotiation skills as well as the other agent’s negotiation skills!

Each individual buyer’s and seller’s situation yields a unique set of needs and desires for each party. A negotiation is all about trying to satisfy each party’s needs. The buyer and seller both establish goals and objectives they want to achieve. The actual negotiating with the other party (persuading one side to accept the other side’s position) is almost always done solely by the agents (how many times do you put the buyer and seller face-to-face?). A well-trained negotiator will have a carefully developed plan that will increase the odds of success, and this plan can be a combination of actions both away from the negotiating table as well as at the negotiating table. Knowing how to both create value and claim value is the true art of negotiation. Untrained negotiators simply try to claim the biggest piece of a smaller pie and normally leave money on the table.

Two of the best ways to provide value to clients is through market analysis and professional negotiation skills. Visit The Real Estate Negotiation Institute (thereni.com) for more information!

Have you ever tried to do something without taking lessons or reading directions first? Like assembling a new product? Or maybe using a new software program for your PC? Maybe you tried to use your MLS program before you had formal training. After the training you realized it had much more capability than you realized. Often, we wish in hindsight we had taken the class or read the directions first!

Think about your negotiation skills the same way. Negotiation is a real estate agent’s basic skill (actually it’s a life skill that is used daily by virtually everyone). You negotiate all the time – with your client, for your client, with other agents, with third parties, with your broker, and even with yourself! If you haven’t received the right training or read the right “directions,” you could be missing key approaches and knowledge that could significantly benefit you and your clients. Representing yourself to your clients as a professional should include training in at least the basic areas, don’t you think? And if you want to position yourself as a higher level professional, then having evidence of additional training (e.g., a designation or certification) to back up your claims is mandatory.

NAR data (see 2007 Profile of Home Buyers and Sellers publication) shows that clients want negotiation skills in their agents. The data also shows that a majority of clients are not satisfied with the results their agents negotiate for them. This is most assuredly due to a lack of training, so learning to negotiate more effectively will achieve greater client satisfaction and give you a competitive advantage!

Think of negotiation training as similar to learning to drive a car. You need to know basic procedures and rules for your own success and the success (and safety) of others. You need to know how to interact with other drivers on the road (and in parking lots!) so you meet your goals with as few problems as possible for everyone. You need to know how to avoid getting into dangerous situations or, once in them, how to get out with minimal or no damage. And importantly, knowing how to plan for, how to anticipate, and how to respond to whatever comes your way is absolutely critical to your success (and survival). Good negotiation training teaches all of this and more.

Agents who take professional negotiation training can demonstrate a competitive advantage to their clients very early in the process. Here are some of the benefits you will gain for yourself and your clients with the right negotiation training:

• Better results for your clients and yourself – Negotiation is a blend of using collaborative approaches to help identify and create value for all parties, and competitive approaches that help ensure you capture the value components you want. Understanding the dynamics of collaborative and competitive negotiating will most certainly help you achieve better results for your clients and yourself.

• Become more persuasive and convincing – Using proven persuasion principles can significantly increase your ability to successfully convince the other side to accept your offer. Scripts incorporating effective persuasion techniques should be included, and this will give you a distinct advantage over those who don’t use these proven approaches.

• “Whole Brain” communicating and negotiating – When people make important decisions like buying or selling a house, they make the decisions using emotions (right brain) and logic (left brain). Knowing how and when to impact each side of the brain will drastically improve your success rate.

• Planning – You probably have a marketing plan, a lead generation plan, an open house plan, and other systemic approaches for your real estate business. Effective negotiation training will show you the benefits of using a planning guide of some sort to better anticipate and prepare for your negotiations. Planning is one of the hallmarks of professionals in every field.

Look for negotiation training that will help make you a skilled and successful driver in real estate. You – and your clients – will be very glad you did!

I recently helped my son buy his first truck. Like most 19 year olds, he was anxious to just get the negotiations over with and drive away in his new, shiny status symbol. I of course was more interested in the actual negotiation itself and getting the best deal possible since I was going to be on the hook financially for awhile! But I also wanted to use this as a learning experience for my son. During the negotiations I patiently explained my strategy and tactics to my son. When it was all over I knew I had realized my objective when my son turned to me and exclaimed “I can’t believe what you just did! I’ve GOT to take your class on negotiation!”

Skilled negotiators do things differently vs. average negotiators, usually because they’ve been better trained in the art of negotiation. Take any profession and the best practitioners usually have the most training and/or experience. So what have skilled negotiators been taught to do differently? What do skilled negotiators look like? How will you know one when you see one?

Here are some of the characteristics of skilled negotiators. Professional negotiation training can teach you all of these attributes (and more!).

- Ask questions. Skilled negotiators spend twice as much time asking questions vs. average negotiators. They probe to clarify issues and to understand underlying drivers and reasons for the “position or stance”  a given party has taken. Talented negotiators also try to understand what the other side wants so they can develop a solution that satisfies all parties.

- Active listening. Active listening is repeating back what someone said to ensure understanding. You can use phrases like “Let me make sure I understand what you just said” or “Let me summarize my understanding of what you just said.” This shows that you really are listening and trying to understand the other party.

- Make positive comments. Skilled negotiators make many more positive comments than average negotiators. They do this to emphasize and build on the “good”  in the negotiation to make it easier to deal with the “other”  issues.

- Explore more options to test limits. Often times in a negotiation you don’t have any idea what the other side wants. It’s important to zero in on the boundaries or limits by safely offering up options to the other party to test their reaction. Using questions like “Suppose my client did such and such, would your client do such and such in return?”  or “What if my client would do this, would your client agree to that?”? Skilled negotiators often explore many options before they find the one that works for both sides.PLAN PLAN PLAN. This is one of the BIG differences between skilled negotiators and average negotiators. Some very successful negotiators spend 4 hours planning for every 1 hour they spend in the actual negotiations. During the planning they seek out specific information that is needed to develop options and strategies. They turn the information into knowledge and then use the knowledge to plan the best approach for achieving their goals. And skilled negotiators are very methodical in their planning, often utilizing guides and forms in arriving at their final plan.

- Role play. Professionals spend a significant amount of time practicing prior to competing. Skilled negotiators do also. Find a partner and have them play the part of the other party in the negotiation. Then reverse the roles (see 12 below)! If you have role played various scenarios several times, you will be much more confident when the actual situation presents itself.

- Argue less. Arguing introduces negative emotion into the negotiation and skilled negotiators know the importance of minimizing/eliminating negative emotions. And, since skilled negotiators spend more time exploring options, making positive comments, and asking questions, there is simply less time to argue! If you are going to argue, do so on a limited basis.

- Win-Win Mentality. Highly successful negotiators know that the best way to get a win for their client is to help create a win for the other party as well. It’s extremely rare that one party will be able to “force”  the other party to accept terms and conditions that are unsatisfactory to the other party. Collaborative negotiators therefore seek to understand what the other party wants so they can create a solution that is mutually satisfactory or win-win. The goal should be to satisfy your client the most while adequately satisfying the other party or parties.

- High Integrity. This is a given. If you have ever negotiated with someone who demonstrates a lack of or questionable integrity, you never want to negotiate with them again. In fact, you may break off the negotiations or ask the other side for another representative. Never negotiate in any other way except with high integrity. Trust is built (or destroyed) during the negotiations and once trust is established more open information sharing occurs. But once integrity is questioned, the information flow stops and the negotiations become extremely difficult.

- Knowledge of Subject. Expert negotiators know knowledge is power and they will spend the time to become knowledgeable about important areas of the negotiation. In real estate for example, knowledge of the real estate market is key in determining the proper strategy for your client. If you lack knowledge in a specific area you can also bring in your own expert. For example, if you are a real estate agent going on your first luxury home listing appointment, you might team up with a luxury home specialist from your office. If the other side has an expert, have your own!.

- Think DOUBLE. Thinking double means anticipating what the other side will say or want in a given area of the negotiation, and being prepared with a response when appropriate. When a home Seller exclaims “I won’t pay that high of a commission”  a real estate agent better be prepared with the appropriate response! Skilled negotiators think “If I say this, they might come back with that, and if they come back with that, then I’ll come back with this.”  Thinking double makes you better prepared to deal with issues and concerns in the heat of the battle.

Effective negotiation training can help you learn to do everything necessary to be a skilled negotiator! Then you’ll be better able to serve your clients, and get better results for them and yourself!

As a new agent in real estate, learning negotiation skills should be high on your list of priorities. After all, if you can’t negotiate effectively for your client or yourself, you won’t last very long in this highly competitive field. But let’s say you have been in real estate now for several (or many) years and have never had any formal negotiation training. You have done fairly well – at least you are still in the business! Will learning professional or advanced negotiation skills help you reach the next level? Can investing a few hours in high level skill training make a difference in the results you get for your clients and yourself? Without question – YES!

Ask successful agents about negotiating and you will hear common themes in their responses. “You have to know how to negotiate or else you won’t get paid.”  “Knowing how to negotiate and influence others is the most important skill in real estate.” “Sure negotiating is important but you have to learn through experience.”  “Knowing how to make the right first offer or the right counter offer is critical to getting the best agreement.”  “Negotiating is what we do all day long with each other, with our clients, and with third parties.â”

If you ask agents who struggle in real estate about negotiation training, you are likely to get very different answers. “Negotiate? We don’t really do that. We just fax offers and counter offers back and forth until we get an agreement.”  “Negotiating is what lawyers do!”  “My broker says not to worry. Everything will work out.”  “Negotiating? We’re in sales!”  “You mean like a used car salesman?â”

As a fiduciary agent, what do you think your clients expect from you in the way of negotiation skills? “I take it for granted that my agent will negotiate the best deal for me. That is what I am paying her for.”  “Of course negotiating is important. I expect my agent to be very good at it.”  “I don’t care if my agent knows anything about negotiation. I’ll take care of that part of the deal.”  “I’m sure my agent got plenty of negotiation training in real estate school.”  “My agent works with her broker to help get me the best deal.”  “My agent will bring me all the offers and I will decide how to respond myself.”  “My agent and I will decide together how to respond to any particular offer.”  “I rely on my agent to recommend the best approach to negotiating.”

So, what difference would really good, solid negotiation training do for your results? Would it help you get more listings because you would make better listing presentations and handle Seller objections better? Could you get higher listing commissions because you have strong negotiation skills? Would it help you deal more effectively with Buyers because you would be able to influence them more easily? Would you convert more sign calls because you know how to use effective influence principles? Would you put together better deals which would lead to greater client satisfaction and more client referrals? Could you negotiate performance bonuses with both Sellers and Buyers if you had better negotiation skills? Could you get higher referral rates or negotiate higher co-brokes with improved negotiation skills? And what about higher commission splits with your broker if you’ve had negotiation training and he/she hasn’t?

In the corporate world, people who negotiate for their companies are given professional negotiation training either in-house or at a negotiation training company. People who negotiate big deals receive big training! Most major colleges/universities have negotiation training classes/programs. If you search “negotiation training”  in Yahoo! you get over 3,500,000 search results! Negotiation training is required by those who negotiate professionally and guess what you do in real estate? That’s right, you negotiate professionally for your clients and yourself!

So, do you invest in negotiation training or not? Do you take what you do seriously enough to learn professional negotiation techniques that can literally make you and your clients thousands of dollars in return? Do you take your fiduciary responsibility seriously enough to learn new or better ways to protect and promote your client’s interests? Do you want to improve your chances of a successful negotiation, no matter what you are negotiating? If you do, then professional negotiation training is for you!

All too often in a real estate negotiation, both sides hide their real interests from each other. In competitive bargaining, the Buyer’s Agent and Listing Agent spend too much time arguing “positions” and trying to convince the other side that they are wrong or unreasonable. Skilled, collaborative negotiators know focusing upfront on the needs and interests of each party increases the odds of a direct hit on each other’s target.

The earlier each side understands the other side’s needs and interests, the better. When representing the Seller, a Listing Agent should make the Seller’s needs known to the Buyer upfront in the MLS remarks. For example, in a Buyer’s market the Listing Agent could write “Seller priced to sell, flexible on closing date and personal property, and willing to contribute to Buyer’s closing costs with acceptable offer.” No confidential information is exposed and the tone of cooperation is established. Prior to writing the Buyer’s offer, the Buyer’s Agent should have a dialogue with the Listing Agent to confirm the Seller’s needs and priorities. The Buyer’s Agent might say “Can you tell me what’s really important to your Sellers in this transaction?” The Listing Agent might then respond “My Sellers need a fair price for their home, and at the right price they can help with the Buyer’s closing costs. They prefer a 30 day COE and are willing to consider throwing in the refrigerator, washer, or dryer with a fair price. For protection in this down market, the Sellers would also like for the Buyer’s earnest deposit to go hard after 15 days from signing the contract.” Note that in expressing your client’s needs and desires, you put various value elements on the table for further consideration. If something is a must have, then you communicate that to the other side emphatically, e.g. “We must close by XX date.” If the Buyer’s Agent presents the Buyer’s offer to the Seller and/or Listing Agent, the Buyer’s needs and desires should be made clear to the other side.

As a Listing Agent, how do you clarify the needs and desires of the Buyer? First, the Listing Agent could require the Buyer’s Agent to present the Buyer’s offer in person to the Seller and Listing Agent simply as an opportunity to clarify the Buyer’s needs and desires as well as to potentially explore options and alternatives. If the Buyer’s Agent faxes over the Buyer’s offer without any prior dialogue, the Listing Agent can call the Buyer’s Agent to “clarify” the offer. During this discussion, the Listing Agent can say “Help me understand what’s really important to your Buyer.” Then the Buyer’s Agent might say “Given the market, my Buyer wants a great purchase price and help with the closing costs. He would also like the refrigerator, washer, and dryer and is willing to have his earnest deposit go hard after 20 days in return for the personal property. Additionally, my Buyer would like a decorating allowance of $XXX to replace the worn carpet on the first floor.” Now the Listing Agent can report back to the Seller with meaningful information that can be taken into consideration by the Seller.

Exchanging needs and desires allows each side to consciously consider important factors in their offers / counter offers to the other party. Without clarification of needs and desires, each side “shoots in the dark” until they hit the target. Spotlighting your target for the other side increases the likelihood of a direct hit!