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One of the Most Important Commercial Real Estate Negotiating Tools I’ve Ever Learned

By Jim Gillespie | June 22, 2011

You may have attended seminars, dinner meetings, and conferences over the years, trying to learn more to help you become an even better commercial real estate broker. During my early years as a broker I attended a seminar on negotiation, and the man leading the seminar said something that’s still emblazoned upon my mind some 30 years later:

Whenever you’re negotiating, never give a concession unless you get a concession in return for it.

This is a very important concept for brokers to understand. When negotiating, one of the biggest mistakes brokers make is caving in to other people’s demands. This is oftentimes done when being asked to reduce one’s commission.

Here’s an example of this:

Property Owner:

"I know we’ve agreed to a 6% commission on this transaction, but the buyer’s now making additional demands on me. Will you accept a 4% commission now instead?"

Broker:

"Well, if it will help us to close this transaction, then yes."

That’s not a good response for the broker to have made, and a better response would have been, "John, I work hard for my commission, and what you’re asking me to do isn’t reasonable. The difference between 4% and 6% is 50% of the money you agreed to pay me, and that just won’t work for me. But here’s what we may be able to do. If you agree in writing that the next building you’re going to sell you’ll list with me, we can close this transaction for 5%. You’ll be paying commission to brokers on the sale of your next building anyway, so just list it with me. You’ll be saving on the commission in this one transaction right now, and you’ll be paying the same amount of commission you normally would be paying on your next transaction, too."

John may not agree with exactly what you’re asking for here, but it now starts the ball rolling in the direction of negotiating with him to give you more than the 4% he’s just offered you.

Successful business people, especially the ones who are entrepreneurs, like negotiating with people. In addition, they’ll respect you more as a business person when you engage in negotiating along with them, instead of just caving in to their demands. This is one reason why negotiations can fail in a transaction when one principal caves in to all of the demands of the other person. For people who love negotiating, the game that they love isn’t being played by the other principal when the principal just caves in to them, and this alone can cause someone to walk away from a transaction. If one principal keeps giving in to the demands of the other principal, the principal making the demands can lose respect for the other principal, and begin feeling that there must really be something wrong with the property…because the owner is willing to give away so much in the negotiations so easily.

So recognize that when you’re negotiating, both for yourself as a broker and for your clients, the way that you negotiate can greatly impact both you and the people you’re representing. Your effectiveness at negotiating is an important component in determining whether you and the people you represent get what the best potential outcome is for all of you…or not. So remember, "Whenever you’re negotiating, never give a concession unless you get a concession in return for it."

There’s a game being played and a kind of a dance that’s going on when you’re negotiating, and how you participate with your own negotiating style will have a big impact on both you and everyone else who’s involved in the negotiations.

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