Real Estate Negotiations
December 20, 2006

Yesterday, my neighbor Brian and I argued over a little piece of oceanfront land he wants to sell. I'd made an offer of $1.4 million a week or so ago, which he'd accepted. But yesterday he decided he could sell it for a higher price - and when K and I wouldn't raise our offer, he backed out.

When I went outside this morning, Brian was seated on his porch.

"I have an offer now. A firm offer of $1.5 million," he informed me.

"Like hell you do," I thought. What I said was, "You know, Brian, when our offer fell through and you told me you wanted $1.8 million for the property - well, it upset me. Because I ran all the numbers, and I'm sure $1.4 million is right.

"If you build a 5,500-square-foot house on this property, even at $200 a square foot - which is very cheap for a beachfront house - you'd be at $2.5 million. Right now, I think that's more than the current market will bear. If things improve in a few years, it will be a good price. But it's not a good price now.

"1.4 million is the right price. It's good for me. And it's good for you."

"I think the market will go back up," he said.

"If we have another hurricane season like last year," I said, "you'll be lucky to get $600,000."

After a moment, I said, "My $1.4 million offer stands until Monday at 11:00 a.m. If you don't take my offer and your current bidder falls through, the next price you'll get from me will be $1.2 million."

He looked at me to see if I was kidding. I wasn't. He was probably thinking, "I should have taken the $1.9 million he offered last year or the $1.5 million he offered last month."

"We are talking about a difference of only $100,000," he said.

"Right now, that's right. Next week, it will be $300,000."

He looked slightly uncomfortable.

"There's one thing to keep in mind, Brian," I said. "My offer is cash. You can take $1.4 million to the bank on Monday or you can sign a contract for $1.5 million ... wait and see if the bidder has the financing ... and, if he does, whether he'll go through with his offer."

Five minutes later, we were in my living room, once again at $1.4 million. Brian wanted me to sign a contract that had a hefty penalty clause if I failed to close for any reason on Monday. I called Justin Ford (creator of ETR's real estate investment program Main Street Millionaire) for his advice. He told me not to accept the clause.

"The banks don't open until Monday anyway," Justin said. "You're willing to close then. That should be enough for him. Unless someone comes in today or tomorrow and offers him a lot more, he's better off closing for cash on Monday. I wouldn't sign anything that could penalize you for things beyond your control."

I took Justin's advice, but felt like I had to keep reassuring Brian that I was serious about the offer.

"I don't think there's a problem here," K said. "It seems to me that you have both agreed on the deal. You are going to have to wait until Monday to close, but you've made a deal."

Brian nodded. I nodded. We shook hands. The property was mine.

Read this post in Early To Rise

posted by M. Masterson @ 9:12 AM,

6 Comments:

At 7:11 AM, Anonymous Paul Medynski said...

Nice little story that, in one form or another, confront people every day.

 
At 9:30 AM, Anonymous SaintGeorge Crosse said...

Thanks for the good word.It showed Clarity, Focus,use of a Mastermind and knowledge of the ins and outs of Negotiation.

 
At 11:21 AM, Anonymous Anonymous said...

Great example of negotiation and remaining true to your desires- I have industrial property for sale and have even thought of coming down in price (although it is worth even more than the asking)- this is the incentive to stand firm, and be clear & concise in what I want. Thank you. Greta Farina

 
At 11:22 AM, Blogger BlueStar said...

While I'm not in a position to buy any land at the moment, in fact I don't have a dollar to buy a bag of dirt today, I still read this kind of post. Its time well spent to learn how successful people think and act. I look at my morning "mastermind" emails as time spent with successful people, association I wouldn't have available to me otherwise.
Thanks for sharing your time and experience with us.
Carlin
Seattle, WA

 
At 12:30 PM, Anonymous Anonymous said...

Is it just me, or did Brian back out of a deal that he had already made with Michael, to chase a $1.5M offer?
When is a deal a deal? I don't think that Brian can be trusted to fulfill anything but a hard-copy contract.

 
At 2:34 PM, Anonymous Anonymous said...

This guy's an idiot! An all cash deal is unheard of in these days of over-leveraged financing. He should be grateful, take the money and run!!!

Jim,
California

 

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