Negotiating Your Lease

Negotiating Your Lease

In some societies negotiation is a way of life and an exciting challenge. People are offended if you accept their first offer. They want you to complain and to counteroffer. They love to haggle and to feel they have gotten the best deal they could get out of you.

This is generally not true in America. Most Americans hate haggling. Haggling means uncertainty and the possibility of rejection. We never know how high or how low to go and we always worry if we could have gotten a better deal. We would much rather know the bottom line so we can take it or leave it. 

Fortunately for Americans, not much negotiating is done in residential real estate rentals. Landlords offer their lease and tenants take it or leave it. The main factor of concern is the rental rate and many do not even realize that that may be negotiable.

But negotiation of a real estate lease can mean a profit or savings of thousands of dollars. The rule you should use in entering into a lease is "It can't hurt to ask." By using this motto you can reap considerable benefits. Sometimes this can be in monthly rent but it can also be made in other terms of the lease.

Best/Worst

First, you should figure out what is the best deal you can hope for (best supportable position) and what is the least that you would accept (worst acceptable position). With these figures you have a range within which to aim and you will know immediately if the deal is worthwhile. 

You should make a list of all the factors that support your best position and use them to support your position. When people aim high they often end up high. Asking a lot for something gives the other side the perception, correct or not, that it is worth a lot.

Note: The position must be supportable. Do not make a ridiculous offer that no one in their right mind would accept. Otherwise you might not be taken seriously, or they might not even bother negotiating with you.

If you ask for too much and the other side accepts, they may be unable to fulfill the deal. If you, as the landlord, demand too much rent for a store the tenant may not be able to afford to advertise and may go out of business. Or, if as a tenant you extract too many concessions from a landlord, the property may go into foreclosure and the bank may cancel your lease.

Keep in mind that your worst acceptable position may change. If an offer is made that meets some of your other needs, one part of your position may be worth changing.

Example: If you are looking for a place to open a restaurant and the most you want to pay is $1000 a month, you may reconsider a place offered for $1100 if the landlord offers to lock in the rent for five years, provide additional storage space, or give you the first two months rent-free.

Need versus Position

One of the biggest mistakes in negotiation is to concentrate on your position and ignore your need. Once people have stated a position it becomes a matter of pride to maintain that position. Instead of always holding fast to your position, you should analyze the situation, determine your need, and concentrate on that need.

Example: Your position may be that you want $1000 a month rent and you must refuse a tenant who offers $950. But your actual need may be to cover your expenses and not have negative cash flow. Therefore if you can get the tenant to take care of the lawn (saving you $50 a month) you can accept the $950 rent offer. If you concentrate only on your position-$ I000 a month minimum-you might lose a good deal.

Sometimes your goals may not be clear even to yourself. If you are interested in renting a certain apartment but the price is too high, perhaps getting the price down is not your only option. The landlord may have a lower priced unit in a building even closer to your job. Examine your position and decide exactly what is most important to you.

Understanding the Other Side

You can negotiate much better if you understand the other side's position and the motivation behind it. In other words, what is their need? If you are the tenant wanting to pay no more than $950 in rent and the landlord wants $1000, what is his need?

Figure out the other side's bottom line need and why that is it. Understand their interests and try to formulate your offer to fill their interests as well as yours.

Similarly you should not let the other side know your need. Otherwise they will figure out your worst possible position and hold you to it. You should concentrate on your best possible position and only provide the information requested by the other party.

Remember that the other side may feel it is important to protect his or her position. Make your offer in such a way as to make them happy to accept it. One way to do this is to make it look like you are making a big change in your position to accommodate them.

Emotional Involvement with the Deal

The best negotiators are those who do not need the deal, and the worst ones are those who must have it. If you are ready to walk away from the deal if you do not get what you want, and the other side feels it, that’s to your advantage. On the other hand if you have already decided that you must have this deal, then you are not in the best position for a negotiation.

If you are also considering other properties or other tenants, you will not be pressed to take this one. 

Taking Things Personally

Another mistake in negotiating is to get personally involved with the other side. After meeting with them a few times you may have developed a rapport, or found out that you have things in common, and you may feel awkward in not accepting whatever they offer. It is not easy to turn someone down, especially someone who has just become your friend. Do not lock into a position; otherwise each change will be difficult. Keep in mind the worst acceptable result that you have already established and do not worry about the intermediate steps. Be open to all possible options and any new suggestions the other side may have. There may be an alternative that you have not even considered.

Keep in mind that the other side may be taking his or her side personally. Do not criticize the other side personally or say anything that makes the other side more attached to their position.

Starting Position

Start at your best supportable position. This may sound obvious, but some people give away their worst acceptable position right away. Keep in mind that "it can't hurt to ask" and try your best supportable position. Many people have started with ridiculously high figures and have been surprised to have them accepted.

You only get one chance to state your opening position and you usually cannot go higher. Suppose you have a strip center with one store soon to be vacant. If you advertise it at $1000 a month and fifty people immediately offer to rent it you will know you started too low, but it will be hard to ask for more once you advertise it at $1000.

Whether you are the landlord or tenant, when you enter negotiations for a rental the other side will probably expect to do the screening. The landlord will want to screen for a good tenant and the tenant will want to be sure the unit meets his or her needs.

If you begin the negotiation by listing your needs and asking if the other side can meet them, then you have set expectations for the negotiations. The other side will be in the position of wondering if they can match your needs. Meeting your needs will then be the primary goal.

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