First time commercial real estate buyers often find it to be a stressful experience, even with the assistance of an experienced broker. Negotiations always prove to be especially nerve-wracking. Navigating the deal-making waters can really be an art, which is why you always want to make sure to work with your broker through the process. However, it is always helpful to have an idea of what to expect when buying your first commercial property. Take a look at the top 10 tips our experts have come up with that can help you and your broker beat out the competition
Imagine the counter-party’s point of view
When thinking of commercial real estate investments, empathy doesn’t usually top the list of requisite skills. However, one of the biggest deal-making assets can be keeping the other side in mind while negotiating.
Your broker should attempt to get the listing broker to provide useful information like: the owner’s motivations, challenges and reasons for selling. If you can really understand the seller’s perspective on the transaction, you can use that to your advantage. Try and solve their problems with terms that have the least cost to you (contingencies, long close, lease-back, etc).
Don’t show your cards – negotiate like you don’t need this deal
When negotiating a deal, your broker should act as if they have a dozen great deals lined up behind this specific one. They should always push hard, and not be afraid to say no – you might want to give them permission to do so on your behalf if you are comfortable with that. More often than you think, a confident “no” will be met with a conciliatory “yes.”
This is a skill that can take time to master, and it is definitely easier said than done. Being able to toe the line between motivated and not desperate as a buyer takes practice, which is one reason why it is always best to leave the negotiating to the professionals. When you want the deal, especially your first one, you need to be more aware of the signals you are giving off. Even though you might not notice, if you are negotiating against a seasoned vet – they will. So make sure to let your broker take the lead.
Negotiate the important stuff in person
Nowadays, technology is king and it can be hard to resist the temptation to talk pricing or negotiate via email or text. Most experienced brokers will want to be face to face for the big-ticket items. They know that you can miss a lot of cues the other party is giving you through email or text – things like eye contact, facial tics, and other signs. These signs that give you a better understanding of what you are working with are important to close the deal. If you are only communicating over text, you will miss out on these gems.
If in-person isn’t feasible, then the phone is your next best option. If you are talking about anything big – your broker should try to avoid text and email as the main source of communication.
Know the Competition
This is an area where your broker is able to help you in a way that is unlike doing it on your own. Knowing the competition is a part of their job- so they will be able to put you in the best position.
Just like any great sports match up, a real estate transaction should be approached in the same way – with a game plan. And what better way to do that than by knowing your competition. If you can understand their strengths and weaknesses it can help you dictate what terms can help position you as the best offer. Don’t get discouraged if you find out you are going up against a large, experienced buyer. Your broker should try to find out how they structured past offers. Short or long contingencies? Closing time? Consider anything that you can use in order to structure a better deal. Remember, even though these buyers are reliable they often move slower.
The Less You Say, the Better
An experienced negotiator may be the one person you find who enjoys awkward silence. During a negotiation, your broker should use silence to your advantage. If the other side suggests something like price, do not respond right away. Give it a minute, just wait. Many experienced negotiators will tell you that the first person to speak loses.
It’s hard, it’s awkward – which is why it works. You’ll be surprised by how often the counter party will immediately negotiate against themselves just because of discomfort with the silence.
Try a soft, low-ball offer
When you are working with a hot commercial market, low ball offers will not be much of an option. However, when a listing lingers and is clearly overpriced, the softer, gentler low-ball option can give you a win.
Sometimes having patience is what will work in these situations. Some owners will take a while to drop their price, but if you (as well as all other buyers) know it’s overpriced, then it’s not going anywhere. Don’t be afraid to submit a low offer, and if it’s rejected stay strong. Chances are they will drop the price and reach back out to you. Hang in there – these deals can really be worth the wait.
When looking to potentially make this offer, it is always best to consult with your broker. They should have a better idea of the market, the property, the length on the market and what the actual value is. Using them as a resource is important before making any decisions with offers.
Don’t forget about “negotiating equity”
What’s negotiating equity? Even desperate sellers have limits as to how much they’re willing to budge. If you push them too far when negotiating the price, then you might not have as much leverage during escrow. Your broker should suggest you leave some room just in case you need something during a contingency period. You never know when you might need some additional time, or a price reduction due to something uncovered in inspections. When trying to get the best deal, don’t forget about long-term needs as well!
There is no money to be made if you don’t buy the property
In the end remember this one piece of advice, price doesn’t always matter as much as you think. While you want to get the best price you can, you won’t make any money on properties that you don’t buy.
If you spend all your time trying to get every last penny out of the buyer, then you could possibly lose what might have been a great opportunity. When in the midst of a negotiation, a good broker will look at it like a problem that needs solving, rather than a fight to be won. This approach can help keep you grounded and allow for you to get better deals, and deals that you will close. While price cannot be ignored, a smart commercial buyer will look more for the long-term than the quick price cut.
In the end, if you are working with a well-informed, experienced broker, they should be able to successfully help you navigate all these tips. Really lean on them to help you decide what property and price are right for you, and your budget. That is their job and the most successful real estate investors always lean on a strong broker.
Looking for that expert guidance on your next commercial real estate project? Head over to our Survey page, submit a form and connect with an expert who can help you along your journey. If you have additional questions we can answer, we are happy to help! Just contact us in order to have a representative reach out to you directly!