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The Art of Incremental Negotiation

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When you’re negotiating a deal, is it best to just ask for everything you want all at once, upfront? As Thoughtful Real Estate Entrepreneurs, we believe in the art of “incremental negotiation”—the process of strategically getting a series of micro-agreements, instead of just asking for everything we want at once. Instead of insisting a Seller take one big leap, we often use the skills of incremental negotiation to move them along a series of smaller stepping stones, in the direction of the end result we want. In this episode, Jeff describes the importance of incremental negotiation, and how to do it thoughtfully and strategically.

Episode Transcript

Would you think about a real estate transaction? Let me ask you this. What is the part of the transaction where you’re negotiating? Well, most people would say does the negotiations at the beginning. As soon as you get the Yes, you’re done negotiating unless something else unexpected pops up. But we as thoughtful real estate entrepreneurs see it a little bit different. We think the negotiation whether it’s subtle, or overt, whether it’s obvious and stated, or if it’s just happening behind the scenes, is actually happening the whole time. And this brings us to a super important topic that I call the art of incremental negotiation. Frankly, I can’t believe it’s taken me 99 episodes to make this one for you. But we’re gonna jump right into it today. So let’s cue up that theme song. We’ll dive right in.

Welcome to racking up rentals, a show about how regular people those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans nor are we posting We Buy Houses signs are just looking for quote, motivated sellers to make lowball offers to. You see, we are people oriented dealmakers, we sit down directly with sellers to work out Win Win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from a thoughtful real estate entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media. This show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.

Thanks for joining me for another episode of racking up rentals. Show Notes for this one can be found at thoughtfulre.com/e99. That’s awesome. Please do us a big favor by hitting the subscribe button in your podcast app. It really helps fellow thoughtful real estate entrepreneurs to find this show. Onward with today’s episode. So, let me just ask you a simple question. In life and in business, do you always just ask for everything you want upfront? Or do you sometimes ask for baby steps in the direction of what you want. Let me give you an example situation, that type of which you might be able to relate to. In your normal life, let’s say you’ve got a vision. And you’ve got a vision to just transform your backyard and specifically, your deck. You want to build this incredible deck with some built in benches and you want to furnish it with brand new, amazing outdoor sectional couch and a dining table. You want an outdoor kitchen with just an amazing grill and a TV mounted on the wall of your house outside underneath the eave or someplace it will stay dry and surround sound, maybe a little water feature. This is what you want to do, and you know though, that you need to get your better half- your significant other on board in order to get this approved and to get it done. So, your gut says, you know, if I just go to them and spell out this whole overwhelming vision, it’s probably not going to go well, they’re probably going to say “whoa, whoa, whoa, slow down. That sounds like a lot of work. That sounds really expensive.” So, you don’t feel like just walking up to them and spilling it all out at once really makes the most sense. Instead, here’s what you do; perhaps you go to your spouse and you say, you know, I think that we should build a new deck. You know why? Because I just feel like these nice summer months that we have here, we need to spend more time together as a family. I think if we have this deck, we’re going to be out there together more, we’re going to get more quality time with the kids and what not. What do you think? And your spouse says “Yeah, actually, that makes sense. I think that would be great.” So now you’ve gotten a little ‘Yes.’ You start to move forward on that part of your vision. Next, then you say, “I’ve been thinking about this, this new deck and I think if we really do want the kids to want to hang out with us, we want to be comfortable. We want to log as many hours out there as possible. We should make sure it’s really comfortable as well. So, I was taking a look online at some new outdoor furniture when I run this by you. What do you think about this stuff? Oh, yeah, you like that, too? Okay, great.” Now you’ve got a second little ‘Yes.’ Now maybe the next conversation is, “Gosh, as I’m picturing us sitting out there on this amazing new sectional couch that’s on the deck. I’m thinking would it be nice if we could eat dinner out there together too. That would just be a way to enjoy so much more of the nice weather and really what signifies family more than, you know, family mealtime and I’m thinking, what if we put a nice grill here- like a little outdoor kitchen, we can plumb in a little sink. We get a nice dining table, it kind of matches with the new sectional couch that we’ve got. What do you think about that?” “Oh, yeah, I like that, you know that vision sounds really, really good.” And then the next thing you know, you’re saying, “Well, you know, if we want the kids hang out with us after dinner then I would, if we had a TV out here, and we could watch a movie as a family and surround sound so that they could hear really clearly, but it would just be great. You know what, like, when the Superbowl party comes, we could come out here, we could watch the Superbowl we can entertain our friends and family out here.” Now your spouse says yes, yes, yes. Because along the way, you have been building your spouse’s vision of this thing that you wanted to implant in their mind. But you knew that if you just went to them all at once, and just spilled it out and just puke the whole vision on top of them at once, they’d probably be overwhelmed. But you help them get on board, one little step at a time and eventually you got everything that you wanted, but you chose to do it in increments. Now we could call these “micro commitments,” right? You got your spouse to say, Yes, a one simple, easy. Yes, was let’s build a new deck and then the next simple easy deck was ‘Wouldn’t it be nice if we had some furniture?’ And then the next simple, easy ‘Yes’ Is what if we had the outdoor kitchen. So, you got a series of micro commitments out of this instead of one big, really intimidating level of commitment from your spouse. This series of progressive micro commitments is what I like to call incremental negotiation. It’s not one sale you’re making, right? You’re not selling them all at one time, you’re not pitching one big fat thing for them to buy an idea for them to buy. It’s more like a chess match of strategic sequential moves and that’s what we do as thoughtful real estate entrepreneurs in the real estate business, as well.

So let’s pivot here, stop talking about decks and let’s talk about how this applies in real estate. Here’s how most investors “conduct their negotiations,” they decide what they want from a deal, and what they want a purchase transaction to look like. Then they make an offer, all at once, all in one shot, they say, this is what I need for the details to be in order to get a win. So, I’m just going to put it out there, and I’m going to make an offer. I’m going to ask for everything I want in one shot. Now, as tempted as I am to go off on the tangent of the difference between an offer and a proposal. I know that by this point in the podcast, you know my feelings on that. But they make an offer where they’re asked for everything they want, at once. It’s really in their mind, it’s one negotiation, it’s really all about them and what they need and what they want. When you present an offer, with everything you want, it’s almost like an ultimatum, you know, it’s like, take it or leave it. This is what it’s going to take to get the deal done for me and you can say yes, or you can say no. Now, here’s what I want you to do. Close your eyes and for those of you who are my coaching clients, you know that I wish I was drawing this picture on my iPad for you instead of painting a word picture, but we’re in a podcast. So, we’re going to paint a word picture. This is a simple picture. So, close your eyes and picture, a continuum, a horizontal line with a period at each end of the line, right? This represents the timeline of a transaction. Now, on the left end of this line of this continuum is the moment you meet the seller and on the far-right end, is the moment you close the deal, right? So, this is the entire timeline of a deal in a transaction. Also, there’s a period in, the middle that says this is the point at which you go and contract. This is the point where you make a proposal they say yes, and now you’re in contract, right? So, everything to the left of the in-contract period is the point at which you are still negotiating and trying to get to yes, and then everything after the in-contract period is the second half of the transaction, and most people would just call that the due diligence period, the escrow period getting ready for closing, that’s when the appraisal happens, and the loan docs are drawn up or whatever. Now, so you have basically a line with two segments in it. You’ve got the first segment between the time you meet the seller and you’re in contract and then the second segment, the time between when you’re in contract and you’re closing the deal. Now most people in a normal sort of real estate investing mentality think that negotiation happens in the first segment. That negotiation happens when you meet the seller, and it ends when the seller has said yes, and now you’re in contract. But our approach as thoughtful real estate entrepreneurs is that this entire spectrum, from the far left of meet the seller, to the far right of close the deal- all of this is an opportunity for negotiation. Now, we have to redefine exactly what negotiation means. Now, most people think negotiation means I want x you want y, I want x you want y. Let’s fight about it until we get to something that we can both live with. But what we’re talking about when we talk about negotiation, is simply the ongoing dance between two parties of creating agreement. Agreement can be agreement on overt topics like the purchase price will be $312,000. But there’s all sorts of other less overt, far more subtle things we are agreeing on as well in a very unspoken way. For instance, in negotiation, one of the things we are seeking agreement on is our perspective on each other. For example, I think I am a person of integrity, you now think I am a person of integrity. Thus, we agree, I am a person of integrity, you see yourself as reasonable and logical. I see you now as reasonable and logical. Thus, we agree you are reasonable, and logical. I believe that when I say something, I am telling the truth, you now have come to believe that when I say something, I’m telling the truth. Thus, we agree that when I say something, I am telling the truth. Now, these aren’t obvious negotiations that are going to get written up in a purchase agreement. But this is this ongoing process of creating alignment. Over time, as the parties get to know each other, these subtle negotiations that don’t seem to have anything overtly to do with real estate, however, start to impact the ones that do have a lot more literally to do with real estate. For instance, if both parties are feeling like they are in agreement and in alignment on a lot of topics, then as new challenges come up, throughout the transaction timeline, the two parties often feel much more like it’s reasonable, possible and worthwhile to continue to try to solve those problems and cooperate and be flexible. Because it seems very much like this is the best option for getting the deal done. For instance, just to make this very literal, if you need to ask the seller to repair a little patch of siding on the building, it’s going to be a different proposition and a different thought process for them. If you ask them to do that, on the day that you write the purchase agreement, versus 45 days later, right before closing, those two conversations have a very different dynamic because the process of negotiation has continued to happen throughout the whole timeline.

So, I can already hear the cynical voices saying, “Okay, this is not thoughtful at all. This is unethical. This is disingenuous, this is manipulative.” I even have a really good friend who refers to any change of terms after the original purchase agreement as, “retraining” and I tell her that it always grates on my ears a little bit when she uses those words, simply because the spirit of the word “retraining” sounds to me like I’m changing the game on you. This has all been a ruse, but that is just really not how we are thinking about it as thoughtful real estate entrepreneurs at all. In fact, this process of incremental negotiation is more thoughtful, it is more strategic and overall is far gentler, for everybody involved, you know, go back to the deck example. It was only because the person with the vision for the deck was being extremely thoughtful about how they could unpack their argument in a way over time and in steps, so they were able to ultimately get the ‘yes’ they needed, which was really good for the whole family. It was a very strategic thought process, and it was far gentler and more acceptable feeling to the spouse, rather than that person just walking up and saying, “blah, blah, blah, blah, blah, here’s everything I want to do, please just say yes.” That would be a very jarring and abrasive experience for the spouse.

So, here’s how I want you to think about it. You are building a deal. Think about that word building, right? No building of any type happens all at once, right? Construction process, whether you’re constructing a case, an argument, a building, anything, a birdhouse, no construction process happens all at once. It happens in an order and the sequence of how the pieces are put in place matters greatly, right? I mean, you wouldn’t try to frame a house before you poured the foundation, right? So, the sequence of the steps matters a lot. The simple truth is that there are certain points that you will need to make with your seller that have a different weight at different times. As a deal progresses, there are three things that are happening and they’re kind of happening, maybe behind the scenes. But these are three things that are happening that absolutely alter the dynamic of the overall situation. The first thing is that you’re simply getting closer to closing. The closer you get to closing, the more that the seller’s motivation to get things closed, gets greater. Right? I like to use this expression of a football game, right? No team wants to march down the field, get to the one-yard line, and then turn over the ball and be playing defense or have to start over, back at their own 20-yard line. Again, know when you get to the one-yard line, you will do just about anything you need to get in the end zone. Because think about this, this seller, it knows that they’re about to sell their property, their mind has already moved on to the next chapter in their life, maybe what they’re going to do with the money that they’ve received, what their lifestyle is going to be like when they don’t need to worry about this rental property anymore. So, the closer you get to closing, the more amenable those people often are to your reasonable requests, suggestions and whatnot, because they don’t want to see the deal die at the last second. The second thing that’s happening is that more relationship has developed over time, right? On day one, how much relationship do you have with that seller? You’ve got one day’s worth of relationship? Let’s say you put the property in contract on day 20. How much relationship do you have? At that time, you have 20 days of relationship, which is 20 times more than you had the first day. Now, it’s day 60. And the deal is just about to close? How much relationship time have you had with that seller, you now have had 60 days, you’ve now had three times as much time to develop that relationship with the seller, by that closing date as you did on the day of the purchase agreement and 60 times the opportunity to create relationship as you did on day one. So, more relationship has developed more rapport has developed more of that subtle negotiation of Yes, that person thinks like I do. Yes, we agree that person is a person of integrity. Yes, that person does what they say they’re going to do. Yes, that person follows through much more time has passed for all of that to develop. That changes the dynamic in the situation. The third thing that happens as a deal progresses is you simply have more information that can become a part of the conversation as well, right? So up to the point where you put the property in contract, you have certain amount of information, you know, you’ve received information that the sellers have given you, I hope you’ve seen the property in person, you’ve walked around, maybe you’ve even taken a look at a few leases. But now you’ve conducted due diligence, you’ve talked to the city about this and about that, and you’ve got a physical building, inspection that’s been done. Perhaps there’s been an appraisal, and there’s all sorts of new information that has been entered into the conversation. So now as the deal progresses, let’s say it’s five days before closing, you have a completely different scenario than you did on day 20. When you were making your proposal and getting the initial Yes, simply because you’re far closer to closing way more relationship has been developed since then. You have far more information that factors into the conversation that you can point to. So, here’s the bottom line. I want you to see the whole transaction timeline as your negotiation opportunity. The whole timeline is your runway to incrementally get your seller where you need them to go. As new information becomes available as your relationship develops. As you get closer to the end, you have new opportunities to move the needle of this overall transaction. Ask yourself, what is the end destination that I am trying to get this deal to? Then what are the steppingstones that will help me get there and in what order do I need to lay those steppingstones so that I lead the seller from one logical thing to the next small, logical step to the next small logical step? Pretty soon, I have gotten them, I’ve walked them all the way to the destination that I need them to.

Now it’s super important to point out the simple style factor here. We are never ever as thoughtful real estate entrepreneurs, leveraging the seller, we’re never deceiving the seller, right? We’re never going to come to them five days before closing and say, haha, sucker, you only have five days till closing. I know you won’t want to start over now. So, I’m going to turn the screws on you and we’re gonna have to make this adjustment or else I’m not closing. That’s not at all what we’re talking about. Of course, we would never ever do anything like that. But we are subtly leading them from one steppingstone to the next steppingstone to the next steppingstone. Without worrying about having every single element of the deal be totally perfect on day one or on the day that they say yes to. We are thoughtfully and nicely unpacking this conversation with them. It’s really valuable to I think to think of this as a chess match. A chess match is a series of moves, a series of moves in a sequence that is responsive to the moves that the other person is making as well. We know that we need to get them to a different destination than where we’re starting. But we’re not going to try to do it all at once. We’re going to try to move them slowly, incrementally, along a series of micro commitments, that’s going to get us to what we need. So, my encouragement to you is simply to embrace incremental negotiation as the thoughtful tool that it is, and you will end up closing, maybe more deals but I’ll tell you, the deals you close will be much finer tuned deals far more optimized deals than you will have if you don’t employ this strategy of incremental negotiation.

That’s it for today’s episode of racking up rentals Episode 99. Again, Show Notes for this episode can be found of course at thoughtfulre.com/e99. Please do us a huge favor by hitting the subscribe button in the podcast app you’re using and take a second to rate and review the show, I so appreciate that. I see them all personally and I read them all and I really am grateful for those. Did you know that we have a Facebook group as well for thoughtful real estate entrepreneurs? We do and I think you should be in it. It’s called rental for portfolio wealth builders. We would love to have you join us there you can just go to group.thoughtfulre.com and you’ll be redirected right to that page. If you liked this episode, please take a screenshot of it and post that screenshot to Instagram and tag us we are @thoughtfulrealestate.

I will see you in the next episode. Until then. This is Jeff from the thoughtful real estate entrepreneur signing off.

Thanks for listening to Racking Up Rentals where we build long term wealth by being a win-win deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the profits.

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