Hunt Corp. Commercial Real Estate Questions & Answers. : Six essential rules for concluding transactions
Q: We are trying to buy an industrial building for our distribution business. We have lost two contracts in a row and we are getting frustrated. I’m wondering what suggestions you might have for closing a deal once you’ve found the property you want?
A: Entire books have been written on the art of negotiation. Since you haven’t shared any details of your situation, allow me to share with you the most important strategies that have helped me negotiate beneficial transactions for our clients.
Here are my six essential rules for concluding transactions:
1. Know your market. Any real estate negotiation must be kept in the context of the market. Hope your agent has given you extensive market knowledge in your geographic area and size range. As an example, market data can tell you that buildings in your area, their size and condition are currently selling for between $ 150 and $ 175 per square foot, and that there are currently four other buildings on the site. market that fit this description. This gives you a starting point not only for making an offer, but also for responding to any counter-offer. So careful preparation is fundamental to any successful negotiation – it is the work that needs to be done before an offer is made. This is the only way to know whether you should be aggressive or careful with your offers and responses.
2. Know the situation and needs of the other party. It often seems like price is the only or the main element in a real estate transaction, but I often find the opposite to be true. Maybe the timing, conditions or some other matter is more important to the other party. As the buyer’s representative, I have already acquired a building at what was perceived as a reduced price by my client. In fact, we were able to set up a quick close for the seller, a public company that wanted the property to be written off by the end of its fiscal year. From the seller’s perspective, our speed of closing more than made up for the “discount” in the sale price.
3. Have a BATNA and trade on more than one building. A BATNA is the “best alternative to a negotiated agreement”. The more experienced negotiators try to maintain alternatives. Even if one property sits head and shoulders above the rest, trade on several and do it simultaneously. Make sure everyone knows you have alternatives and that you will get the best deal possible.
4. Negotiate with a full and complete description of the terms, preferably in person. Those who negotiate with incomplete offers and conditions only prolong the process and frustrate the other party. Negotiations that involve full terms leave more openings for potential solutions. If I press for a deal, I ask to meet with the other side personally. There is no better way to put together a complete picture of the needs and wants of both parties than a face-to-face meeting or a much-needed Zoom meeting.
5. Be creative with “out-of-the-box” solutions. Seek to resolve the needs of the other side on terms you can tolerate. At the very least, your efforts will generally be appreciated and will likely lead to more collaborative discussions. I like to ask a lot of “what if” questions, such as “What if I was able to deliver the closing date you want?” “
6. Maintain a sense of urgency after a verbal agreement has been reached. Robert Ringer called it “the violin theory”: the longer you manipulate a chord, the less likely you are to conclude it! I could talk for hours about the deals that were lost due to procrastination or negotiations over minor details. When the deal has been made, write it down as soon as you can. Focus on broad strokes. Your lawyer can beat you on this one, there is no such thing as physically meeting the other party for a lease or a “sit” contract signing. Bringing all parties together, along with a lawyer, in a room is an effective way to get the agreement signed.
These rules are the key to a solid and profitable real estate acquisition that will close!
Have a question about commercial real estate? Email your question to Commercial Real Estate Q&A, at [email protected] for possible inclusion in a future column.
David Hunt, MCR, CCIM, SIOR is President of Hunt Corporate Services, Inc., Plainview, NY
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