“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained, you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
– Sun Tzu, The Art of War
Ok so maybe the analogy of war is extreme when comparing it to buying real estate, but I think you get the picture. In every transaction, there are contrasting sides. There is always a buyer and a seller. One wants to get as much as possible and one wants to pay as little as possible. To add to the equation, there is also a broker and other potential buyers. These layers can make it exceedingly difficult to navigate a multifamily negotiation.
There are many negotiating strategies for acquiring multifamily properties. The most important one is knowing who you are dealing with. Knowing the broker is the first step to winning a negotiation. Certain factors go into understanding the broker. First, how many deals have we worked on with the broker? Have we spent time with them on a personal level talking about family or playing golf? Are they accessible? Are they friendly? Do they reach out to us on deals, or are we constantly chasing them? This is crucial when it comes to getting good feedback from the broker during the buying process.
If the broker takes us seriously and we have a good relationship with them, they will be more likely to present us to the seller as a legitimate group and give us as much guidance as they are at liberty to give to help us be competitive. This includes telling us about the seller and what they are looking for the most—the terms, the price, the surety to close, the timing of the close, etc.
Understanding the specifics of the broker’s process is extremely important to our success. For instance, we must know when to increase the price and when to stand firm. Do we increase the
price right away and get out in front of the pack or do we hold on to our “ace in the hole” until the last minute?
The brokers are our allies. They are also financially incentivized to sell a property to us for the highest price they can. Even so, they are still our allies and no matter how frustrated we may become with the broker, we must always remain professional as it will not be the last deal we do with him or her. As Winston Churchill said, “There is at least one thing worse than fighting with allies, and that is to fight without them.”
The second key part is knowing the seller. We must understand who we are dealing with on the seller’s side. What are their interests? What is paramount to them? What is their background in the space? Is the seller a family who built the property themselves and is more particular about who buys the property to pass on the legacy? Or maybe they are someone who jumped into multifamily because they realized it was a brilliant investment, but they did not understand what it would take to run a property. Or they may be a multibillion-dollar real estate corporation like Blackstone or CBRE. Each one will have its nuances which are important to understand. As mentioned, the broker can help paint that picture.
Having said all this, the price is usually always the most important piece of the negotiation. However, having a good relationship with brokers and knowing the seller gives us a huge leg up on whether it’s our price that is the one that’s inevitably accepted.