Loon wrote [PropBot Forum - 5+ Units - 8/8/09]
"I always start at zero, assumptively[sic], and make the seller explain to me why that won't work. If I pay more than 5% I expect a real bargain price. It all depends on what your competition might be offering, but don't assume there even is any competition until your seller shows their hand."This short post by "Loon" from PropBot.com demonstrates tremendous sophistication. So many investors are afraid of negotiations. They just are. They're afraid of the Seller and/or his reactions to a profitable offer. Worse, the amateurs fall into a trap of offering their "last best offer" trying to achieve a clean, acceptable deal. That is usually stupid, unless there's lot of competition. If so, then I ask why am I competing with anyone over any property in the first place?
Notwithstanding, doing this undermines the ability for both the buyer and seller to "work" for a closing --- and achieve satisfaction for doing so.
Yes, we all once dreamed of making clean, acceptable, profitable offers --- where all the chips fell into place with just one offer and no "pesky" negotiating. Well, that's reserved for dreamers, not for professionals. The fact is, if there isn't some emotional satisfaction involved by both the Buyer and Seller in reaching a deal, the deal will likely not happen. This is sad.
It's sad because the essence of getting either good terms, or a good price is allowing the seller/buyer to achieve emotional satisfaction from the negotiation effort. And we do that by opening the bid far away from where the seller/buyer wants to "end up,": as it were. Otherwise, what Seller doesn't want to say, "Yeah, I finally ground that guy down until he paid me what I wanted," or a Buyer bragging about how he beat the Seller to a pulp?
I say, ahh the satisfaction of getting exactly what I wanted by "forcing" a Seller to "cave" by making me to pay 50% of retail value!" Get it?
Well, the Seller's achievement may be debatable from an objective point of view. However, the point of this post is about negotiating "assumptively" to coin "Loon's" phrase here. Loon suggested assuming that "zero" percent interest is acceptable for all parties, and unless the Seller can prove this won't work for him, (apart from his greed, and no competition), the Seller has to show his cards and/or cave, all the while put the Seller on the defensive regarding the interest rate. I love it. Why not assume things are in your favor when initiating negotiations? The post goes further...
Someone commented: "Loon, Did I understand you correctly? They [the Seller] gave you free carry back financing?" [talking about one of Loon's four "zero" interest loan deals]
Loon: "Absolutely. You rarely get what you don't ask for. If they insist on interest, well, then let the negotiating begin!"
This is is so important. Let the Seller defend his position. But the Seller won't feel compelled to defend his "greed," if we don't put him in a place where he MUST defend his greed. That means starting low, and working to the satisfactory conclusion. BTW, the satisfactory conclusion has nothing to do with an objectively equitable position.
I've seen Seller's cave to fantastic prices just because other things were more important than price. So, if we don't know what the Seller's motivation is, it's very good that we assume the Seller wants to finance us, and finance us for free --- or.... give the property to us...because.... (he's dying with no heirs; likes us a lot; hates his children and doesn't want to give them a dime; has a lapse in judgment....etc.), or otherwise force them to defend charging us anything.
[As an aside, about 15 years ago a guy in my church made friends with a freight shipping company owner. He asked the owner to literally give him the company in his will. The owner had no wife or children. My friend ended up with the company just by asking. He simply made an offer "assumptively" and gave the owner the opportunity to say, "yes". My friend went from earning $60k a year to making $$760k a year.]
As Loon puts it, "....[we] rarely get what we don't ask for."
The moral is to ask for the moon, and expect to get it. This is precisely what big league negotiators do in the real world. It also provides a way to create satisfaction in the deal for everyone. That's how we get into the big leagues.