Tackling Tough Negotiators

Tackling Tough Negotiators While most sellers are good-natured and fair, there are also ones that are nearly impossible to work with. In this Self-Storage University podcast we’re going to explore the proactive steps to disarming even the toughest negotiators.

What is The Self Storage University Podcast?

Welcome to the Self-Storage University Podcast, where you will learn the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate self-storage facilities. And your host is a partner in one of the largest real estate portfolios in the U.S. with nearly $1 billion of holdings, Frank Rolfe.

Most sellers are good-natured. You can get deals done that are fair, that are win-win by nature, and that's great, and I'm glad most of them are. But there's another category of a seller which is a very, very tough negotiator. Sometimes so tough that it makes deals almost impossible. This is Frank Rolfe with the Self Storage University podcast. We're gonna talk about dealing with tough negotiators. Now, the first thing you have to know is the reason some people appear tough in their negotiation is they're insecure. They're often tough because they don't know what they're doing, and they're concerned you are gonna take advantage of them. So they feel that if they are irrational, hard to handle, always asking for more than the property's worth, then that way you can't trick them and they will get fair value. Also, some of them have been watching too much TV or reading too many books about win-lose negotiation. The popular show "Dallas," back in the 1980s, featured a character named J.R. Ewing. And J.R. Ewing was this oil guy. Of course, it's all fictional. It was just Larry Hagman, formerly of "I Dream of Jeannie" fame. But he was a tough negotiator. He was impossible. People hated working with him. But that was supposed to show that he was macho, that he was strong in business, and of course, not being able to get deals done has never been a symbol of someone who's strong in business. But nevertheless, some people, their brain has been polluted with win-lose negotiation biopics, and therefore they think that's what you do in life, is you act very, very tough because that's what real business people do. So when someone's a tough negotiator with you, don't take that personally. Don't say, "Oh, they hate me," or something that I did. No, it's not. It's a problem with them. They have insecurity issues. Now, before you begin dealing with the tough negotiator, you need to run a bunch of numbers and a bunch of scenarios, and you need to know what is a good deal from a bad. Because since the tough negotiator is typically working from the point of view of insecurity, they're looking for direction. They're gonna test the waters by demanding too much over and over and over to see if you ever give. So you've got to create a blockade in your brain of at what point you can't give.

And you should also strategize like a game of tennis. You're gonna hit the ball over there, you know they're gonna hit it back over here, and then you're gonna hit it over there and win the game. Strategize how it works. Because we all know how negotiation works. The seller always asks for too much, the buyer offers too little, and you meet somewhere in the middle. So here are some of the standard ways to work around the tough negotiator. And we find that negotiators that are tough normally come in two categories on most deals. The first one is on price. The best way to work with the tough negotiator on price is explain how the price came to be, what it's derived from. And normally in most real estate, that goes around bank lending. So explain to them how much this deal can actually get a loan for. Tell them about things like coverage ratio, other property sales in the area, what the appraisal will come in at. Make it so it's not you that says it's only worth X, it's somebody else who says it's X. And that somebody else needs to be something of more importance than you as the buyer, and that would be what the lending community says. Also, if when you tell them the price and they're just like, "Well, I mean, I gotta have this much," then say, "Well, if I can't get a loan on it, I guess would you carry the paper on it?" Because sometimes seller financing can get around the blockades, the issues that stop typical pricing, because you can kind of dilute the pricing with a low interest rate or interest-only terms, things like that. So see if you can push for seller carry to offset the fact that they're unreasonable on their pricing. Or maybe after you told them what the price could be and they don't want to do that, just say, "Okay, look, just spare me a lot of time. What would it take to get this under contract?" And just see if you can work around whatever his then lowest price he has in his mind might be. It'll save you a lot of time and trouble. And then also, if you sometimes... If you just say, "Well, I give up," then that sign of frustration, that is what he needed. That's the trigger that tells the seller that they're getting a good deal because they've negotiated so hard that you're willing to walk out of the room as a result. Then they'll suddenly say, "Well, okay, I guess I could do that."

Or sometimes they'll call you a week later and say that, or two weeks later. But those are the normal standard ways to get around the price: blame it on somebody else, push for seller financing, try and bring it to the end quickly saying, "What would I have to do?" And then if it looks like there's no chance, then just get up and leave. And by getting up and leaving, you increase your odds of something happening. The other item the tough negotiators typically focus on is on earnest money. We all know what earnest money is. Earnest money is held by the title company to go in as liquidated damages if you don't show up to close on the deal after your due diligence period and your financing period have concluded. And of course, due diligence, as written in your contract, or should be written in your contract, is fully refundable in the event you terminate the agreement during the due diligence period or the financing contingency. So as a result, asking for large amounts of earnest money, which is what often a tough negotiator will do, makes no sense. Why do you need the big earnest money? If you ask the seller, "Why do you want big earnest money?" Typical deals are 1% earnest money. These are people who will ask 20% earnest money. On a million-dollar deal, they want $200,000 of earnest money. Ask them why. It's refundable, what's the purpose? And what it all boils down to is they want to make sure that you have the down payment so they're not wasting their time. You don't need to put up in due diligence the full amount of the down payment for them to know they're not wasting their time. Show them a proof of funds if that's what's important to them. Show them something showing that you have the money in a bank account currently, that it's liquid, it's ready to go, and often that can solve the issue. But the one thing the tough negotiator may do, which might even be just on a regular 1% of earnest money, is they'll want to have it non-refundable. This is a line in the sand you cannot cross. In 30 years of buying and selling properties, I've never seen a situation, nor have I ever agreed to having earnest money that on day one was not refundable.

And the reason why is that seller knows a lot more about that storage facility than you do. He knows all the skeletons in the closet on the environmental issues, on the survey issues, on the condition of the facility. He knows it all. And he's insecure because he knows that when you find out the truth, you're gonna cancel. So he's hoping to kind of grift you your earnest money so he has some kind of income on the property. Never fall for the trap of your earnest money being non-refundable. It always has a terrible, terrible ending. If he knows more about the property than you do, and yet he wants you to put up money non-refundable day one on a property you know nothing about, I think it's pretty clear there's an ulterior motive, and you must never, ever step into that trap. The bottom line with tough negotiators are that as long as you understand they're working from a position of insecurity and understand how what makes their brain function, you can get deals done with them. But let me caution you, sometimes you just can't. You just can't. It's not because you're not a good negotiator. It's not because you had a bad presentation. There are some people that you just can't work with. And when you come to find that out, when you realize that, the best thing you can do for the sake of your own time and your own mental health is just to cut it loose. That doesn't mean you have to close the door forever. You can try back to them periodically to see if their opinion has changed. But wasting time is a sin when it comes to trying to buy a storage property. If you spend too much time wasting time negotiating with people who will never sign the agreement, then all is for naught. This is Frank Rolfe with the Self Storage University podcast. Hope you enjoyed this. Talk to you again soon.