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Effective negotiation is about building profitable and sustainable relationships.
By Jim Van Dellen |
The art of negotiation can be found in nearly every facet of the commercial real estate transaction. From the initial meeting between two interested parties to signing the final contract, an effective negotiation process drives the relationships that lead to profitable agreements.
Several approaches to negotiation can be found throughout the industry today, including a win-win approach and the use of hardball tactics. Unfortunately, both methods have a downside: A collaborative approach can dilute the interests of the negotiating parties and posturing can burn bridges and limit relationships to a single transaction.
Defining the Process
In an effort to define a negotiation process through which industry pro-fessionals can build valuable business relationships, the CCIM Institute has adopted a three-step interest-based model and incorporated it into its education curriculum. This model asks three fundamental questions regarding negotiations:
1. Who are the parties involved and what does each party need to accomplish?
2. What actions can a party take to resolve the other party’s needs and accomplish its own goals?
3. What happens if there is no agreement?
By answering these questions prior to entering a negotiation, commercial real estate practitioners can better navigate through transactions with a map charting the desired goal.
The interest-based negotiation model was developed by Alignor, a Minnesota-based firm. This model was born out of a need seen by Alignor — attorneys and negotiators schooled in the Harvard Program on Negotiation — to create a streamlined, effective process to manage negotiations, handle business challenges, and resolve high-stakes disputes.
“The Alignor founders … applied the ideas developed at Harvard and refined those ideas into practical, useful tools and methodologies,” says John Shulman, president of Alignor. “Commercial real estate practitioners must handle complex, multifaceted relationships and negotiations on a daily basis — these tools and methodologies are a perfect, proven fit for that type of environment.”
One of the biggest challenges commercial real estate professionals face in becoming effective negotiators is letting go of methods and practices that have been hit or miss throughout their careers, Shulman says. Most experienced commercial real estate practitioners have found a way to negotiate that works for them, he adds. For some, negotiation is something they have to do but is not necessarily something they enjoy or is even core to their work. For others, negotiation is the most important activity they do and the most valuable work they perform for their clients.
Playing the High-Low Game
A common approach to negotiation today is the high-low game, Shulman says. In this method, one party opens the negotiation with an offer or demand focused exclusively on what is perceived as the most important issue in the negotiation, which is usually money. The opening proposal often is much higher than what the other party expects to receive.
After receiving this inflated, perhaps even unreasonable, opening position, the other party is expected to counter. The second party’s response generally is calibrated based on its perception of whether the first party’s initial offer was reasonable. For example, a high initial position often will be met by a correspondingly lowball counteroffer, far lower than where the second party expects to end.
The first party then responds with a second offer or demand slightly less unreasonable than the first, but still intentionally higher than where the first party expects to end. The second party then counters with a slightly better offer, again calibrating that counteroffer to preserve room for an anticipated future move toward a final, acceptable end point.
While common in the industry today, this approach can be time-consuming, inefficient, and even damaging to relationships. In addition, with each round, the risk of reaching an impasse increases. As each party makes a new offer or counteroffer that is further from its initial request, chances increase that one party will grow frustrated and even may refuse to continue negotiating.
Even when both parties reach agreement through the high-low game, it is possible that neither side ends up particularly happy and may look for opportunities to get out of the deal, undermine the deal, or find other business partners to work with in the future, Shulman says. Because of the structure of the high-low game, each side is reminded that its concessions were driven by the other party’s unwillingness to yield.
In addition, the high-low game often causes negotiators to ignore issues that may be of significant value to one or more of the parties involved. By focusing on only one issue — usually money — negotiators often miss opportunities that could be leveraged for their own benefit, the clients’ benefit, and the other party’s benefit. “The high-low game is a game of chicken. It is a battle of wills in which each party must calculate whether to hold to an unreasonable position or cave in because of the other side’s inflexibility,” Shulman says.
The Interest-Based Approach
Conversely, interest-based negotiation navigates the most advantageous route practitioners can take to satisfy their own (or their client’s) interests by finding ways to satisfy the interests of others involved in the transaction. The resulting leverage then can be used to barter for the practitioner’s own interests.
This approach may be perceived as win-win; however, the interest-based approach does not guarantee a win-win outcome, particularly when the parties may be in very different places. For example, one side may have several options — and greater leverage — available to it, while the other side does not.
When utilized effectively, the interest-based approach to negotiation is neither soft nor utopian, Shulman explains. It does not mean giving in, being inexplicably altruistic, or avoiding conflict. It means simply finding the optimal strategy — whether through a negotiated agreement or through not doing a deal — that most effectively satisfies the practitioner’s interests or the interests of those being represented.
“There is a widespread misconception that interest-based negotiators are somehow soft or less effective than hard-nosed [negotiators],” Shulman says. “The truth is, interest-based does not mean soft or even win-win in all situations. I personally handle very difficult negotiations with tough negotiators and am comfortable with whatever interest-based strategy will lead to the best results for my clients.”
At the core of interest-based negotiation is recognition that the commercial real estate industry is driven by relationships between people — brokers and clients, buyers and sellers, and users and owners. These relationships demand high-quality interpersonal interactions. To achieve this, the interest-based approach defines negotiation as any occasion where a professional is trying to persuade an action from another party. It is how professionals try to influence the decision making of others through communication and presentation.
Realizing these are essential characteristics of a CCIM, the CCIM Institute is incorporating the interest-based negotiation model into its education curriculum and currently offers a standalone two-day workshop under its new education initiative — the Robert L. Ward Center for Real Estate Studies. (See sidebar.)
Real-World Application
To assist CCIMs and other professionals in applying the interest-based approach in the workplace, the CCIM Institute provides the CCIM Workbook negotiation software, developed by Alignor, as part of its negotiation workshop. This intuitive software provides an organized and streamlined process for laying out all of the key areas involved in an interest-based negotiation.
A three-step analysis is completed using the CCIM Workbook negotiation software.
Step 1: Interests Analysis. This step identifies the stakeholders involved and the interests each stakeholder seeks to satisfy through a negotiation process. The analysis generates a comprehensive chart that includes a de-scription of each stakeholder’s interests, the relationships among stakeholder interests, and the importance of each interest to each stakeholder.
Step 2: Create Proposals. In this step, users brainstorm on all possible actions or negotiation proposals that might satisfy the interests of identified stakeholders. Users can evaluate the impact of those actions on stakeholders’ interests. The software helps users evaluate not only individual actions, but the aggregated impact of various combinations of actions that could be included in a proposal.
In addition, the software generates a “talking points” report via a printable Microsoft Word document that displays the data from the first two steps. The talking points form the core of a persuasive presentation on how a proposal will satisfy the interests of various stakeholders.
Step 3: Risk Analysis. This step supports a comprehensive risk analysis if the stakeholders are unable to come to agreement. The software helps users model what stakeholders may do to satisfy their interests unilaterally in the absence of a deal. It also looks at what stakeholders may do to impose consequences on one another.
Practitioners can use this risk analysis to determine an appropriate bottom line for the negotiation and to educate other stakeholders, such as negotiation counterparts or even clients, about the consequences of no agreement.
By learning different negotiation tactics such as the interest-based model, commercial real estate professionals can become more confident when entering into negotiations. Knowing, understanding, and utilizing the right strategy can set them apart and ultimately lead to a positive experience and completed transaction.
“The concept of projecting and tracking the needs and objectives of the various stakeholders is a good idea,” says Julie Broadbent, CCIM, a broker with Kingsley Group Commercial Real Estate in Springfield, Mo. “Revising the data as the negotiation process develops is even smarter. Since the majority of the negotiation changes happen at the finish line, it is a valuable reference tool for tracking the elements of the progression.”
Broadbent also values the system’s universality. “Many of my transactions involve a variety of stakeholders. When dealing with a government entity such as a city or county, individuals within the sphere of influence will have different objectives. The sample project [case study] that we utilized in the seminar was something I could specifically relate to and utilize for my personal situations. When I experienced the power of coming to the negotiation table with benefits identified, it changed the entire tone of the meeting.”