In commercial real estate, you will constantly use negotiation skills. Your negotiation skills will be used not only in creating an offer and working to get it accepted but also with your contacts, brokers, buyers, sellers, engineers, and lenders. In any situation with more than two interests, you can rest assured that negotiations must occur to satisfy everyone’s goals.

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Introduction to Negotiation in Business

Many people fear negotiation, usually due to a lack of experience. However, negotiation will become easier and fun once you practice your skills! It involves tactics and problem-solving to yield the best results for each party. Being a good negotiator is very important in this business.

Developing Your Negotiation Style

Different negotiating styles work for some people and not others. For example, some find success with a very strong, even intimidating approach to negotiation. I prefer to use a straightforward approach. I am prepared, informed, and persuasive. As I have anticipated the questions and concerns the other party may have, I am confident and will answer them as needed. This helps me to negotiate terms clearly and confidently. 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!

The Importance of Win-Win Agreements

In commercial real estate, as in most businesses, it is best to yield a win-win agreement, 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 mutually beneficial to both parties.

If you are not familiar with negotiation, I suggest that you take a class, purchase a book, or find a seminar that covers the basics of negotiation. Many generic tips and tactics will sharpen your negotiation abilities and make it easier for you to get what it is that you want out of an opportunity.

In commercial real estate, there are specific negotiation tactics that can be written into contracts. Many of these tactics require some creativity and are specific to certain situations. 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!

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The Importance of the Letter of Intent

In commercial real estate, it is always a good idea to write a letter of intent before purchasing a property. In residential real estate, a letter of intent is usually not necessary, but in commercial real estate.

The letter of intent should be clear, concise, and not in 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.

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 to do some initial research and not even mention closing a deal yet.

Employing Contingency Clauses to Protect Your Interests

This is a great option that allows 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.

When negotiating an offer, and 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 in Multiple Phases

As we all recognize, sellers have specific needs that need to be met. A buyer may want to take the opportunity that the property would provide but realizes that 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!

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Conclusion

As you can see, the negotiation tactics in commercial real estate are there to protect your interests and maximize 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 negotiations. You have to be prepared to walk away from any deal that cannot be made to fit your needs.

Always make an effort to sharpen your negotiating skills and finely tune the tactics you use to increase your bargaining power. Having a few extra “tricks” up your sleeve will enable you to make a deal in your favor and get the results you want.