Negotiating Complex Real Estate Deals

Successful real estate negotiations:

It is challenging and rewarding to negotiate and contract for the very best terms possible in a real estate deal. The art of negotiation isn’t just confined to real estate, deal making happens in almost every business; but in real estate there seems to be more flexibility - you can make deals with binding contracts for almost anything as long as it is legal!

Negotiations in business:

Negotiations are about reaching a mutually acceptable agreement and the mutually acceptable part is where some of us seem to get mixed up. How so? Think of the blow hard that boasts about how he went into a room and walked out with everything he wanted and more. Good for him if he really did that, but in my experience negotiations are about give and take. Walking into a real estate deal and walking out with everything you want means you already had a strategic power advantage over your adversary. This is dictating the terms, and let’s be clear - that is not negotiating. In true negotiations each of the parties have to give up something to get something. Eventually a consensus has to be reached or negotiations dry up.

Negotiating when others hold the advantage:

In 1993 my first land development investor decided to sell his personal home and he tasked me to sell it for him as his Special Power of Attorney (engaged without compensation). He moved his personal belongings out, left all the custom furnishings and took off to the South Pacific for months. He wanted $15 million for it (which was a lot back in 1993) and it wasn’t your average residential home. In fact, it was a 14,000 sq. ft. home / estate on over 1,000 private acres, with it’s own regulation golf course, miles long 1/4 scale railroad with trestles and tunnels, helicopter pad & hanger, fishing and boating lake, go-cart track and so on…

He did a really tasteful job on it too and it was beyond impressive to show. A lot of these types of properties can be overdone in my opinion - I call them “personal mausoleums” - but not this one. Everyone who took the day-long private tour loved it and the ultra-rich crowd is not the easiest to impress.

I marketed it worldwide and met some really interesting and totally qualified potential buyers! Professional sports stars, tech billionaires, retail heirs, big names in golf, Trustees of huge private trusts - names you would definitely know even today.

Before anyone gets stars in their eyes about what a great opportunity it was for me, just know this - I was brand new, inexperienced, green as spring grass and it took 2 1/2 years to sell and close. Not only that, I was managing (and learning) land development in my investors real estate development businesses while getting paid for that on his speculative dime. He called me constantly from Bora Bora, Fiji, New Caledonia or wherever the hell he could find a phone because he was itchy to stop spending huge maintenance sums on a luxury property that he wasn’t interested in anymore. Lets’s be clear: He wanted it sold yesterday…every day.

Word eventually got around the ultra rich world and 3 billionaires finally locked into a geostationary orbit around the property in a serious way. After I met with them a few times they said they were sure they wanted it and assigned me to their real estate firm for negotiations. This was pre-contract - nothing in writing.

The best negotiator I have ever met:

The firm was a “boutique“ which is what you call it when the outfit works with big shots only. They handled all the acquisition, development and management details for monster real estate holdings worldwide - office buildings, land, high-end commercial, massive mixed-use etc. The head of the firm was my new “friend” Steve, who I later came to find had developed and now owned the tower and commercial plaza we were meeting at. He was top floor, SW facing corner office - the one with the water and mountain views you only get from floor 43.

Back then I was 38 and Steve was a probably a little older but looked like he came off the cover of GQ. His office tower digs looked like the place GQ would pick for the photo shoot too. He and his gorgeous wife (photo front and center on his desk) were doing their fifth Iron Man in another month. That was the small talk. I asked him about his background and he eventually got around to mentioning he was an attorney, which figures. Remember, I was new and green, but I didn’t lack confidence sitting in that tucked and rolled leather chair. I probably should have.

Details matter in complex negotiations:

Steve had never been to the property but knew it thoroughly because he had unlimited resources and had done ALL of his homework. We started with his concern about the cost of public water extensions to the property, topographic and drainage issues, environmental and past permitting. We never discussed the selling price and I think it’s important to note that price is only a single element of successful negotiations.

After several meetings and site visits with him, they finally drew up the contract. $10 million for the real property and $1.5 million for personal property on a bill of sale. $11.5 all in. My investor was totally absent and not going to get involved at all, so I called my attorney for a professionally advised opinion. The seller eventually called me and at $15 million asking price, he wasn’t happy with the offer.

Negotiating terms, not just price:

So, I had a seller who was not happy with the offer and a buyer’s representative that was a negotiation expert giving me a low ball offer. What to do?

Over the next month and several more meetings I couldn’t get them to budge on the offer price. The contract was about 40 pages long with a bunch of seller paid contingencies to fulfill prior to closing. If you added than all up it was about $1.5 million, so I went to work on that.

I got them to bend on a 15” water main extension that was written in and several other costly adjustments like a modification to the back 9 on the golf course. In the end the buyers agreed to strike all of the costly contingencies. My position was no deal unless they did.

Negotiating Complex Real Estate Deals:

The deal closed and the moral of the story is that when negotiating real estate deals it’s not just price. I was able to successfully negotiate costly contingencies, condition precedents for closing, excise tax and closing costs. They also closed in the property “As Is” so there were no post closing unsettled disclosures or warranties, other than the deed.

Although the seller was never happy with the deal (at the time it was the largest residential sale in the history of the state) - I did the best I could. That’s all you can do too, just stay sharp and focused. Good luck!

For more on negotiations read this: Negotiations In Real Estate — Land Development Realities

Contact me at: ldr@landdevelopmentrealities.com

Blog photos courtesy of Unsplash.com - Bahador, Vivek Doshi and Austin Distel - Thank you!