The 2% Masala: When I had to negotiate with a real-estate pro

Negotiation

Do you think some of us love to negotiate and others completely loathe the thought of it? Well, I don’t think it’s true totally. Most of us love to negotiate in some circumstances, and not so in other conditions. Some of us like to do it a lot more than others do. I belong to the category of folks, who prefer less negotiations.

Then there’s the other challenge – whether we like to negotiate or not, the situation could force you to do it. The other person has quite likely factored in that negotiations will happen – so whatever you propose, even if reasonable, will be negotiated.

Over the years, I have seen some companies which have completely (in my opinion) mastered the art of negotiations. There are interesting techniques and stories, that I could share another day. You may love it or hate it – but then, there’s no getting away from it.

Is negotiations all art? Is there any possible science in negotiation? Below is a real world experience of mine, the novice negotiator.

Prelude to the negotiation

Most of us in our life, would have either bought a piece of property or would be looking forward to buying a piece of property. Except when it’s auctioned, we invariably land up negotiating. At least in India, most of us feel that the real estate guys always over-sell, and over-price.

Two of us, SR and I had set out looking to buy an apartment each. We also were very aware the biggest risk, in buying, is that you could land up with the property getting ready several years later than promised. Then the next thing was that we were quality conscious – so we were willing to pay a reasonable premium, but did not want to get to pay a fortune just for for that.

We zeroed in on such a property. We were definitely satisfied with the engineering quality and  the attention to detail. They had three classes of apartments. We were looking at the top end apartment in that list. The sales guy knew that he had identified a high-probable buyer, in us, with all the early discussions. We narrowed down to the two apartments we could be interested and kept repeating like a parrot that the price was way too high.

The customary sales principle was applied by him. He said “Sir, you finalize the apartment you are interested. Let me know your budget. I will work out something special with my manager for you.” Given that most of the top end apartment complex was sold out, there was only two of the large sized top end apartments left. When we zeroed in on that, the sales guy was delighted.

Now the initial negotiation

He had shared the cost structure with us. Given all the data that I had, across all the classes of the apartment and the various size they were in, I was able to quickly reverse engineer some key cost components. One thing was clear, that the top end carried a few facilities more than the tier below, but the premium for that was pretty high.

In this period, the newspapers were all screaming that the real estate industry was going through a glut and sales were not happening. That was good from our perspective.

SR had left it to me to decide the price, and had kept his upper limit.

I appreciated the sales guy for all his help and courtesy. I explained that we are going to borrow to buy (as if it was something new to him). So I said clearly this price is not going to be acceptable. I further said that I am not into negotiating, as I was NOT good at it. So I would work to a fixed number, based on reasonable logic.  He said “Sir, I knew that from the beginning, that’s why we have given a fair price. We also don’t get into negotiations.” I also said that is the reason we are not simultaneously looking at other options – though we had a few. [This was genuinely true. We did not open multiple fronts simultaneously.] Both of us were just playing the good soul game, I guess!

Now I gave him a number (bid) that was nearly 23.5% off the best price he had quoted. I further walked him through my spread sheets on how I derived a fair price for this. He was taken aback with that. So he said that would be too much to make. I thanked him for all the courtesy and time spent. I said we will move on to the other options without any further ado.

Since I had shown him my calculation, he showed some possible factors with my calculation I had not included. He eventually came back with a number which was less than his original price by about (offer) 2.5%! He further said, they had never done such a thing in the past – and that he was doing it because we were picking up two of them and he was keen to see us live in those wonderful apartments. (After all he was a trained sales guy!).

I said that I had reworked the spread sheet with his  issues, and came back with the revised number – the bid was up by about 1.25%! I further told him that I am not giving him a percentage, but actually the revision in my offer, happened because of the issues he had noticed. (So we had a gap of 20% now between the bid and the offer!)

Was it time to call of the deal? Who will make the next move?

He was keen. He now tried to say that he had gone way beyond the norm. So he will arrange for a meeting with his regional head. I said, look I appreciate all that – but there would be no purpose in meeting if the price is that far, given that I don’t have room to change at all! [When you have done your homework, it’s important to set the right expectations and the logic repeatedly.]

When a sales guy knows that you are close to decision making, he will work everything possible to get the deal done. He called us the next day in the morning, to say that his Regional Head was not there, but he was keen for us to meet his National Sales leader who’s the boss’s boss. Of course he put it saying that he had to work hard to get the appointment.

I stuck to my basic position – I don’t have anything left to negotiate. So the meeting will purely depend on what his National Sales leader wants to do. Finally we agreed that we will meet at their office in the evening.

This is when good sales people try to make sure that they connect on some small things (to build a positive atmosphere) – he wanted to see if he could send a car to pick us up. He did not want us to worry about the traffic and then the parking challenges. When you have worked for years, you know all these things. I said “Thank you. I appreciate the thoughts. I have a driver, so it’s well taken care of. I don’t want you to waste money on us, when you still don’t know that if we can make the deal.” [So this approach sets the mood at the other end too – they know that the transaction is dependent on only the hard numbers and niceties will not make a difference.]

Will this be the final meeting?

We were there about 5 minutes before the appointed time. He came to greet us right at the street. He made sure that the protocols for getting into the office were all ironed out, so that we literally were ushered into the meeting room. He even had the air conditioner, up and running. [I should tell you these are some of the nice aspects of a thinking and well groomed sales guy. He does not want any small mishaps to shape the feelings and the mood.]

He apologized that the National Sales Head was running a few minutes late. We were o.k. We also wanted to acclimatize ourselves in that place. [I noticed that it helps to get that feel, especially when you are into some of this critical – go/ no go meetings.]

Soon, after exchanging pleasantries, we got down to business. He opened at the starting price. I said that the sales guy, had already gone beyond that. Remember the earlier 2.5% discount. [Well this is a standard technique, with many sales leaders. They would pretend that the junior guy has already taken away his discretionary discount up front.] So he said, given that the entire discretion was passed on to us, which is done very rarely (!), he stated that he was now hopeful for us to buy the property.

I pulled out my revised spread sheet and walked him through my calculations. I showed him that everything (including the add on car park) was factored in my costing. I was taking nothing for free. I further reiterated that this was already pushed up higher by his sales guy, from my earlier number. I never talked of how much his sales guy had pushed me up by (That would not help my case!). Remember the 1.25% jump with the issue the sales guy had noticed. [This is important to do. You want the boss to know that his sales guys were not slacking and that they were squeezing everything possible to get the numbers higher! Having boosted the sales guy – you know that you leave the sales guy with an opportunity to further work with his boss.]

He was willing to cut the cost of the additional car park, and he wanted me to step up for the rest. I said I had reached my maximum, and there was nothing much I could offer him at all. But I kept reminding him that look it’s not one, but two that he closes with this transaction. Also they were the largest ones in his inventory.

I was not moving an  inch, though he felt he had already moved by offering the car park free. He was willing to help with financing the deal.

Then I said, look we are all set with our finances. Our banks were all set to fund it.  I further reiterated that in less than 72 hours, we can close the transaction. So I said the ball was squarely in his court. [When you have studied the situation, you know that cash flow was very critical for him. The unsold inventory was only costing him more and with the market dead as a dodo – he can’t afford to miss out on cashing it quickly. Almost all of the real estate guys were strapped for working capital.]

He believed that we were undervaluing the property grossly. He told us that the Deputy CEO of the group happened to be in the office and was set to leave for the airport. So, he wanted to get him for a few minutes. [It may be true about the airport et al, it’s also a  known way to sometimes convey to the customer – that from the CEO to the last man standing they are all genuinely looking at solving the customers needs. It’s also a way of flattering the buyer, by raising the levels at which you meet. The idea being that you start unstringing your purse more every time, till you meet their numbers!]

After the usual pleasantries with the Deputy CEO, he explained the quality principle and the way they worked to make sure that this long term decision will never go wrong. I used the opportunity to let him know that I appreciated the commitment for quality – and highlighted many of those features back to him. [Note: This is essential at this stage. He then knows that you have gone to the market. You know the real differences. You appreciate the value but only within a reasonable price.] I reiterated that was the reason, this was the first builder we were speaking to. [This was true.] However, while appreciating quality, we all need to draw a line on the price we can afford to pay.

His team told him that they had already made the reductions. So he said there’s nothing much that can be done on the price front. I did not get into spread sheet here [I am sure he would have got the message, and I did not want to get into the details, with the final guy in that org.].

Sometimes, you need to deliberately bring up something – so that the discussion veers off a little bit.

So I reiterated my price and further said that this was including the additional car park (each) for the apartment. He said that the price his people had quoted was impossible with this additional requirement! [Usual style of expressing outrage that his team has gone too far!]

I got up and thanked him for his time. I told him that this was not a new requirement. It was in from Day 1. I further reiterated – that he has every liberty to value his property at whatever he thinks is fair. I am not going to question his prerogative on that. So I said it was time to bid good bye and move on.

As I shook hand, I said “Your property stays with you, our money stays with us. If you are interested in making the switch, we will give you time till 10:00 AM tomorrow. After that we are going ahead with other options.”

SR and I walked away. I knew they were surprised at the way I closed off. [They are normally used to telling buyers that the price offer expires in the next day. So if you don’t buy, you will pay the higher price thereafter. Here was a buyer doing the reverse on them.]

On the way back home

SR  felt, that I was probably too stubborn. He wanted to know what next. Do we start looking at other options? I said “SR, give yourself another 15 – 20 minutes. You will get a call from the sales guy. He will sweeten the offer, and want something from you. At that point tell him you will consult me and revert back”. I then told SR, “If my hunch proves right and he calls, we might have to loosen up a little.”

As predicted, a few minutes later, SR got the call (obviously not me!) from the sales guy. The sales guy, knew that SR was silent through the negotiation process. He told SR that he was trying to get the transaction for both the units closed quickly. He wanted SR to convince me that we should change our number. [Note, the emphasis in the ask – he wanted both to be closed out. This is critical to reiterate, just in case, we suddenly change our mind and close it out with only one of us picking it up!]. In the usual style, he told SR, “Sir, please send your revised offer by e-mail to me. I will work to get this closed. You also need to convince Srini to revise it reasonably.”

Bingo, the hunch proved right. We came back to my home. SR sent him a message stating, that despite feeling we had made a reasonable offer, we were willing to up it by Y Rupees – and explicitly detailed out the extra car park for both the apartments. Made sure that there were no loose ends in the e-mail which would lead to ambiguity in interpreting the offer. Further, SR reiterated in the message that this offer is valid only till 10:00 AM the next day.

The next morning

It was a Sunday. SR and I happened to be attending the same function. We were together. The call did not happen till 10:00 AM. SR wanted to know, if we were to call him. [This is sometimes a critical moment.  A premature call – and he could ask us to further up our offer! Not calling him – we may have exited the transaction for a small gap!!]

We waited for a few more minutes. 15 minutes later, SR’s phone rang. The sales guy was sorry for the delay, as it was a Sunday. He congratulated SR. He told us that he had convinced his bosses to accept the offer. SR offered to pay the base money the next morning. Once the necessary papers were available, we would close out the rest of the funds as well.

There you go. We finally closed the transaction with a 19% reduction from the original best price!

The Analysis

In the run up to negotiations:

  • When you are in the market looking for something, be clear what’s your priority. The list could have a lot of things that you want. Figure out what you “need”. In this case it was – A ready, quality apartment.
  • Know what’s your strength – We were ready to get 100% of the finance in immediately. This was not a promise, but a certainty.
  • Understand the market situation. In this case – there was a glut of apartments in the market. However, the challenge was that they were in varying stages of development. The completion date, though promised, used to slip a lot.
  • Next, understand what is the strength of the other party. In this case – the real estate company had a genuinely good quality product. Their attention to detail and engineering was very good.
  • Understand what’s the critical need of the other party. In this case – it was clearly cash flow. They did not look for commitments, they were looking for quick hard cash and a reduction in inventory.
  • Do your homework well. [We had surveyed other properties – so we knew the strengths of this property. We had reviewed a few others, one of them was even better than this – but they were far away from completion. The rest, would honestly result in us compromising our quality requirements, at least a little.]

During negotiations:

  • Be prepared with your logic of the offer. This helped us – he knew it was not a random number, but a number that was based on logic. In fact I shared the spread sheet, without the formula.
  • Observe the environment. However, do not get carried away by the niceties.
  • Be prepared to see the need for getting an emotional connect. Every professional sales guy is trained in that. They are experienced in getting you away from hard numbers. So be watchful. It’s important for the emotional connect, but not to get carried away.
  • Important to be sincere through the process. We kept to our stand – that we were having sole discussions with them, until either of us wanted to call it off. We were truthful about it.
  • Remember, as your discussion goes up the ranks – it’s necessary to show them that their juniors have done their job well. First it improves the morale of that person – the sales guy in this case. Then next, it makes him feel, at least, to work even harder to help close the transaction.
  • Do not be conceited, but at the same time do not hesitate to be firm. We did that when we gave them the take it or leave it offer.
  • Remember in the end – sales guys invariably need you to improve your bid. So always be prepared for that little at the end.
  • If you are a novice (like we were) – you need to use your experience to understand the way the game is played, even if you are not good at playing it.

The 2% Masala Effect

This is a situation where I had to get rid of the 2% masala so that I could focus on the real need.

When you have to negotiate, and do not love doing it (like us) – understanding what’s the real need of the other party is critical. You need to be not carried away by the emotional sway. At this same time you need to be sincere in your intent and action. Finally you need to be clear with your walk away position. It worked for us!

As I stated in the beginning, I am not a great negotiator, nor do I love that. However, even then, we could do a good job. (Later when we got to know from others who had bought there!). All of these learning came from my professional side of working, where for the most part, we had to deliver the sold services, and enable the guys to sell our services.

I am not going to deny that negotiations is an art. When I am not good at mastering it, I looked at the science in negotiation – to do the best I could. Would love to hear your experience in negotiating. The tips, and the tricks in negotiating.

What do you think?

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