Know When Negotiating Isn’t Worth It

20160701_110945Graeme Fowler is a well-known property investor in New Zealand. In  2000, his best-selling book, Real Estate Investors Secrets, was released. He published another book, 20 Rental Properties for One Year, which tells the story of how he set a particular goal and went about achieving it.

Graeme and I had known each other since 1999 when we both attended a property seminar organized by Peter Aranyi at Empower Education and many other seminars/mentor programs ever since.

I’m currently reading Graeme’s new book and have some thoughts of my own.

Knowing When Negotiating Isn’t Worth It:

When I first started to look at houses to purchase for investment, together with my wife, I spent just over six months looking at about 500 properties. At first, we thought that we were looking at houses, but after a while, the penny dropped and what we discovered was that we were actually looking for real estate agents. This is one of the most important parts of your business jigsaw puzzle. The other two being a good mortgage broker, to finance as much property as possible, and a business structure specialist for your tax strategy.

Now after looking at a large number of houses, you will get a gut feel for your market, and you will have found maybe one or two agents that are hungry and are prepared to take your offers seriously. As Joe Arlt says above you cannot expect them to present all of the offers personally, my agents would not have enough hours in the day to do that, but you should expect them to take time over the ones that they believe have a good shot at being accepted.

The secret in dealing with the serious agents is not to waste their time. Build up a report with them. In my career before property investing, which was the grocery industry, I had to learn the art of dealing with people. You cannot run a chain of 125 stores on your own. This has helped me in building relationships with agents. Work on your people skills to help you build your own team. I also learned the art of negotiation while working as a shop keeper. It is very simple. Do not negotiate. Below is an extract of a book that I am writing about why you should invest. The passage is about how I buy products for business or houses;

“This is the art of how to acquire goods from suppliers with the most favorable terms to you. There are all sorts of books and business programs that teach, or at least aim to teach you the science of negotiation. Most of them tell you that it has to be a win, win situation. Personally, I have not found that to be the case at all. Let’s look at one case as an example. In England, Australia, and New Zealand there is a product called baked beans. These are haricot beans in a tomato sauce. They are sold in cans and the best by far are Heinz especially their organic version. This is subjective, but this is my book, so you are getting my opinion. They are best served after having been heated up slowly for about half an hour on the stove top. This way the tomato sauce reduces and the beans soften, lovely, especially when served with bubble and squeak an English dish of fried potatoes and cabbage. In New Zealand, they are sold under the Wattie’s label which since 1992 has been a division of Heinz. In New Zealand, Australia and in Britain Heinz Baked Beans is one of any grocers best-selling products, usually one of the top 100 sellers, which is a significant achievement in a store that can sell 50,000 products or SKU’s (stock keeping units) as the industry now likes to call items. As Heinz has such market domination, they are, what is known in the trade, as a KVI or known value item. Everybody knows how much they cost. Their price will vary from store to store but not by much, although in convenience stores, they can be 30% more expensive than in supermarkets. Now if I am buying beans for a group or a store, Heinz will come to visit me. They already know what price I am going to sell the goods at, they only have to look on my shelves. Being professional they will also know what margin I am expecting to make, they get this from my competitors. Therefore they can work out within a percentage point or two at what price I will want to pay for the beans. So all we have to discuss is the quantity that they can get me to take to get the price that I want to pay. Where is the negotiation? There isn’t one. It is simply a discussion on the quantity of product. You see grocery buyers, those that are good, simply show their hand to the supplier up front, because the manufacturer or wholesaler already knows the information anyway. We do not play games, we don’t have the time. Therefore I have developed a style of buying, no matter what the product is, baked beans or houses, where I tell the supplier or vendor what I am prepared to pay. It is then their choice as to whether to accept it or not. It is a one time offer. Would I open a store without Coke or Heinz? Yes, I would. Would I walk away from a house where the vendor would not lower their price by a grand? Yes, I would. This is one of my rules, and I do not break my own rules. Does it work? Yes, it does. Both in the grocery industry, I have never opened a traditional grocery store without Coke or Heinz, and in our first year of buying property in New Zealand, we had not far short of 100 acceptances of offers on my buying terms. This includes no deposit and a price that is at least 20% below FMV (fair market value) i.e. FMV is what the house is worth.” Copyright Michael J. Pettett 2002.

As you can see I do not negotiate, I just offer the most money that I can, over time your team of agents will realize that you will never go up in price from your first offer. This is a powerful tool for them when they are talking to a vendor. I am absolutely serious about not moving too. I have lost three deals over small amounts of money. One was for only $1,000 a second for $3,000 and a third for $3,500. I do not budge from my original price unless it is to lower it. Over time the agents have come to realize that they never should bring back to me an offer that has been countersigned, I will simply tear it up. This process saves everybody a lot of time. It takes time at first to set up but then the system runs almost by itself.