The 10 Commandments of Negotiation
What you MUST know to Succeed

By: Fred Rewey

Negotiation is one of the hardest areas in any industry. It can reduce a top-level executive into a sputtering seven-year-old. Negotiation doesn't need to be a mysterious intangible entity. The information on negotiation is out there, it is just not as easy to put on paper as sample letters or how to use a calculator. Negotiation is about people and the ability to fill their needs. These are my "negotiation commandments" if you will. I have condensed these into smaller bite sized pieces that can be used now (I plan to have a more in-depth version out later in the year). Your ability to negotiate will be determined by your capability to excel in the following areas that are explored in this two-part article series on negotiation.

1. Never Negotiate - What? I am going to give you a two-part article dealing with negotiation and the first thing I tell you is not to negotiate? Well, in a word, yes. The word "negotiation" needs to be re-invented. If you tell two people to "negotiate" over the price of a used auto, the seller may say "$4,500". The buyer then says "$4,000". The seller then counters with "$4,300". Then the buyer says "$4,150", etc, etc. This isn’t negotiation; it is a bidding circle. The price becomes some intangible object that the buyer and seller will stumble on at some point in time. That is not what you want. Your buy price is not necessarily up for negotiation. It may be up for discussion, but not negotiation. If you are buying a note, your price should be what the note is worth (I tend to like "market value of your note"). Make no mistake, the seller does not want to have a bidding war either. They just need to know that they are getting a fair price for their note and not getting ripped off. In other words, they do not want to sell their note for $40,000 and find out that they could have got $50,000 for it. One of the hottest marketing ideas to alleviate this problem came from the Saturn Car Company. Saturn came out with set (non-negotiable) prices on their cars. Whatever the price posted was how much you paid whether you lived in Milwaukee, WI or Wells, NV. You were not going to go back and forth on a price with some mysterious man behind the curtain and you will have paid the same as the next guy three towns over. They sold a ton of cars not because people necessarily loved Saturns but they knew they were getting the correct (fair market) price.
2. It Has Nothing To Do With The Note - The sooner you understand this point, the better. This is the essence of all negotiation. In the case of a note holder, the note is just a piece of paper. It is the proof or legal document that entitles them to receive a certain cash flow. Selling the note is not the issue. Giving up that piece of paper is no different than handing you a discarded piece of Kleenex. The issue is what does that paper represent or what does that piece of paper enable them to get? Of course the seller wants money, but money (in its paper form) is not the need. The need is what that money gets them. A new home? A college education for their child? A trip around the world? A way out of that sticky IRS lien? Pay medical bills? Whatever the need is…that is what the real issue is. The issue is, can you fill that need by accepting their note as a trade?
3. If The Deal Is Good…Tell Them - Remember that the seller may not know you from Adam. When they talk to you for the first time they are nervous and possibly afraid. They need to sell what may be their only asset. They have all seen 60 Minutes and know that there are a lot of scams out there and they need to know if they can trust you. Building a relationship will be key in your success and nothing will build or destroy it faster than your level of honesty. I am thrilled when I quickly learn that the seller has a good note (ie: good seasoning, down payment, credit, interest rate, whatever) and I TELL THEM! When you tell a seller it sounds as though they have a great note, they are more apt to believe that you are being fair and honest with them. I always point out the good things in the note (first) before mentioning the bad things. You don't want your seller under the impression that you are just trying to belittle their note to get it at a huge discount. As a side note, this is one of the best times to get an understanding of "why" they are selling the note. "This seems like a great note Mr. Jones, why would you want to sell it?" You will be amazed how many times the seller just comes right out and tells you their need.
4. If possible…Agree - This one is simple. If you have an opportunity, agree with the seller. If the seller says it is lousy that they need to sell the note at a discount, agree. If the seller wishes that the transaction could close faster, agree. The more you can agree with your seller and what they are going through, the more they will believe that you are on their side. This "positioning" will be invaluable when it comes time to mention something they may not agree with. Not to mention they may be more willing to agree with you if they feel as though all along you are on the same page and you haven't placed yourself in an adversarial role.
5. When To Be The Decision Maker - It is easy to want to be the top dog when you are buying a deal. You may want your seller to think he/she is dealing with someone who can make all decisions on their file including the price. Certainly, that is the only way to handle some sellers. However, I have found for the most part, it is better to have someone else making the final decision. You need to position yourself to be on the seller's side. That you are trying to get them every penny you can for their note. The perception should be that you are taking their deal to some "investment committee" that will make the final decision and that you will get them (the seller) as much as possible. I used to tell sellers that it wasn't my money (which back then, it wasn't). That my job was to spend (invest) the investors' money. So, short of going to Nordstrom, I needed to get that investor's money out and I will get them every penny I can. This "positioning" will also work well when you need to rebid due to a poor appraisal or credit. You can go back and sympathize with the seller that the value came in low and that the "investment committee" needs to cut the deal. You can even say that the committee didn't want the deal at all but you did get them to invest XXXX dollars. Sometimes you need to be the great "decision maker" but for the most part, it is just more important that the seller feels you are fighting for them.
6. Know your seller - Sounds pretty basic doesn’t it? Understand that for the most part, a seller will not deal with someone they dislike or don’t trust. Short of the seller needing money for a heart transplant on Monday, you won’t get the deal unless you have some relationship or trust with the seller. When I say, "know your seller," I mean that the more personal your deal becomes the better chance you have of it succeeding. Some of the best brokers spend a considerable amount of time on the phone never talking about the deal (or note). They talk about the weather. They talk about the kids. They talk about what selling the note will buy them. All this small talk helps you form some connection with the seller that is imperative especially if you need to go back and restructure the deal for one reason or another. I always kept all my seller's names in a database (Maximizerä , Sharkwareä , or currently, ACTä ). When I purchased deals direct, I would speak with 30-50 sellers per week. The odds of me remembering a person right away when they called three weeks later was pretty tough. Perhaps Mrs. Jones was going on a camping trip for couple weeks. I simply wrote in my notes "went camping / she will call in 2 weeks". Now, two weeks and 100 calls later Mrs. Jones calls in. If my assistant tells me Mrs. Jones is on the phone I punch in Mrs. Jones on the computer and pick up the phone. "Hi Mrs. Jones, how was the camping trip?". For that one moment, Mrs. Jones is the only person in my world (not to mention she is somewhat impressed). I would put the smallest notes down if I thought they were important to the seller. Hates Cats. Likes Fishing. Loves the Green Bay Packers (did they win last week?). Loves to Golf. Whatever. One last note. This is not some fancy form of manipulation. You need to honestly care about these people, you are just using technology to help you remember and "know" your seller.
7. Price - I mentioned in last month's article about how NOT to negotiate. So, let me say that round numbers (such as $45,000) scream that this deal is up for negotiation and no seller will believe that you "rounded" the number in their favor. I always, always, break the offer down to the penny. Some brokers break it down to an odd dollar amount and that is OK too. For example, $45,127.00 sounds like a real thought out number. $45,127.39 sounds like you got them every penny possible. I have had numerous sellers joke about the pennies. I simply say that "Hey, it's your .39, I would be glad to round the number for you…say $45,000?" They usually laugh and we all understand that I have put as much money on the table as possible. Which, and I believe I mentioned this last month, leads them to believe they are getting a fair, well-calculated, offer.
8. Are you the only game in town? - Is your seller shopping? Are you up against several other brokers on this deal? This is something you must know. If there is competition involved you may wish to focus on your ability to close faster or your experience in the industry or your being "local". You are not always able to ascertain whether you are "in competition" for a deal but there are ways to try and find out. Certainly, if a seller calls you and rattles off all the parameters of their note, tells you they are not interested in a "partial" and wants to be sure that you pay title and appraisal fees you can bet that most likely they have already talked to another broker. How would they know about "partials"? Most sellers are not ready to rattle off all the note parameters unless they just had to on the last phone call. Just because you are in competition with someone for the deal does not mean that you have to run and hide (provided your bid is competitive) …just be aware. Spend more time trying to build a relationship of trust with the seller. I have made plenty of deals where I was not the highest dollar bid, but did sound like the most capable of getting the job done quickly and professionally.
9. Be willing to walk away - Although this leans more towards an article regarding tactics, I thought I had better mention it here. You have to be willing to let a deal go. When I first started I wanted very much to make every deal. I needed to make the deal and pay bills. I will tell you right now that sellers can sense this. Sometimes, oddly enough, the best defense is a good offense. Occasionally I have held firm on an offer to a seller. If I know my offer to be fair and competitive, I may not budge even faced with the fact that I may lose the deal. More often than not, the very nature of my holding firm has lead potential sellers to believe that I must really be offering what the note is worth and that the transaction is truly not up for "negotiation". In the same vein, if you can't do the deal, or it just doesn't make financial sense to the seller, tell them. "If you don't need the money right now, I wouldn't sell and take this kind of a discount". Many sellers have replied "But I do need the money right now". You now have a motivated seller.
10. A confused mind says "no" - Regardless of whatever field you are in, there is extreme danger in presenting too many options. We have all been there, wanting to show someone just how much we know. I have seen many brokers run out and want to dazzle their client with their amazing calculator skills. They present the seller with anywhere from 5-9 options of how they can buy their note. It is much like walking into the Food Court in one of these Super Malls nowadays. Too many choices. I can't decide what to eat with all those choices so I just go home and make a sandwich. Your seller is not much different. By showing them too many ways to sell their note, they just get confused (or think you are trying to confuse them) and they go home to make a sandwich. You want to keep things simple. If you are talking about notes, I give the seller a full sale option and two partials if possible. That’s it. I am available to tweak those options if they don't exactly meet the sellers needs, but I did not confuse them out of the gate. Too much information will just confuse people. The same is true with your initial "agreements". If your agreement to do the deal with the seller is 45 pages long with legal information that only a staff of professionals understands, then you need to revise it. The agreement should be one, unintimidating, page if possible and if you can not explain it to someone in plain English; try another version.

Widely recognized for his negotiation and deal structuring skills, Fred Rewey has worked with the most successful brokers in the industry today. From start-up home based broker to Assistant Vice President of Metropolitan Mortgage, Fred has seen the industry from all perspectives. Currently serving as President of Diversified Investment Services, Inc. and Vice President of National Contract Buyers, Inc., Fred can be reached at 1-888-999-7905 or faxed at 1-407-909-0826.

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