Negotiating with Egocentric Old Dogs

[RealOG]

Hi All,

I am going into negotiations on an apartment building this week. I am looking for some tactics, ideas, or societal commentary on how to deal with my situation:

I have located a decent apartment building which I am willing to pay $2M-$2.2M. I will spare the due diligence I have done as this is not my issue. The issue is with the seller. He brought the opportunity to us, offering to sell the building for what he had in it - $2.1M according to him. We did our due diligence to assess the building's current value and what value it would pose to us. We realized the value to us is ~$3M (mainly due to his inability to manage it correctly).

Here is the string of communication we had with seller: when we approached the seller with our interest, he increased the price to $2.3M also citing that he had an interested party. We contacted him again later and he said the contract fell through, but the price was now $2.5M. We contacted the owner yesterday and said we would like to chat to discuss terms on an LOI. He told us he would get back to us because he is expecting an offer from someone else tomorrow, but will contact us if he doesnt like the terms of the offer.
:bgh:
Some things you might need to know about the seller:

• He is in his late 60's
• He runs a RE investment fund in CO worth about $80M
• This is the smallest building his company owns and is difficult for him to manage
• He is very egocentric and talks about how great he is (was)
• He is old school

I know what I am willing to pay, so his asking price is inconsequential. I believe he is old school and so is playing these stupid games trying to appear like he has tons of options. I also think he may not be as sharp as he once was. These seem like childish games, but I think he needs to be placated and feel like he is still a badass if this deal is going to get done. He brought the deal to us, wanting to sell and now he is trying to posture himself into a position of power.

My question is: how do I deal with this individual? I want to cut through the BS, get to the numbers, and see if a deal can be made - but I get the feeling he wants to go through this frickin charade...

 

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[yveskleinsky]

I suppose if you really want it, then stroke his ego and go through the "frickin charade".

 

[RealOG]

Sorry, should have been more clear. The fact that we are still playing the game with him means we have already committed to the charade.

But what can I give him to make him feel like a champ, without impacting the financial side of the deal for me?

Its one thing to tell him how great he is, but he is going to want proof...

 

[I85]

Why not just write up your offer and submit it? If he takes it, great...if he doesn't, then just move on(at least no more time would be wasted). There is nothing I hate more than playing games forever to end up getting nothing out of all that wasted time.

 

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[bflbob]

Try stroking his ego another way.

Offer him less ($1.8mil?), but name it after him.

Petigrew Estates, H.G. Johnson Arms, The Filmore.

Do a mockup of the sign, or have an artist do a watercolor of the front of the building showing his name. If need be, offer to have a commemorative plaque of his likeness made and placed in the entry.

Make him feel like a hero, and he might just become one to you.

 

[yveskleinsky]

I agree with I85, but I also think compliments can go a long way to help grease the wheel and take very little time.

 

[andviv]

I agree, make the offer and let him come back to you.
Or, even better, don't make an offer, tell him that your price is $2.1 and to please come back to you if/when the other contract also falls and he is willing to talk to you in that price range.

And bflbob, your idea is great. Rep++

 

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[AroundTheWorld]

Try stroking his ego another way.

Offer him less ($1.8mil?), but name it after him.

Petigrew Estates, H.G. Johnson Arms, The Filmore.

Do a mockup of the sign, or have an artist do a watercolor of the front of the building showing his name. If need be, offer to have a commemorative plaque of his likeness made and placed in the entry.

Make him feel like a hero, and he might just become one to you.

+ Bob, that is awesome. You have a talent in the people department. The next time I have a people issue - - - I'm calling you!

 

[Jbellefeuille]

I would submit an offer of 2.1 m, I suspect he will reject it in expectation of your counter offer. Then I would wait a week (let him sweat a little), and then send in the same offer for 2.1 m and make sure he understands that this is your final offer.

 

[MJ DeMarco]

Try stroking his ego another way.

Offer him less ($1.8mil?), but name it after him.

Petigrew Estates, H.G. Johnson Arms, The Filmore.

Do a mockup of the sign, or have an artist do a watercolor of the front of the building showing his name. If need be, offer to have a commemorative plaque of his likeness made and placed in the entry.

Make him feel like a hero, and he might just become one to you.

Awesome idea that adds value to the deal! Speed+++

 

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[RealOG]

Bob, didnt consider that. Thanks for your input, speed++!

 

[Russ H]

We've done this twice now, once for a 10 unit @ 1.5M, and another eensy weensy duplex @ 517K. Two different guys, slightly different MO, but similar to what you describe.

Here's what I can pass on:

-I always gave him respect. ALWAYS. Even if it meant spending an hour I didn't have listening to his great suggestions about how to repair things that violated code.

-Once we were locked in and had been doing things for a few weeks, I'd say things like "I know you're a man of your word, so . . ." and I'd just reiterate what he'd said earlier. Note that this was NOT for anything we were contesting- it was showing him I'd listened to what he'd said, and was respecting his POV.

-When giving him the contractor's reports, I presented them saying, "I realize that you probably have great contractors who will do this same work for half as much. But these are 3 different estimates, all from contractors we've worked with before and know. If there are people you know of that can work w/the building dept to pull permits and give us estimates, I'd really appreciate the references (NONE of the guys he worked w/were licensed contractors-- no one ever pulled permits-- which meant no referrals, and further substantiated our code violations when they came up in the DD phase).

-We did our initial offer as: We will meet your asking price ($1.65M), but this is based on the property being in excellent condition. We need to do further due diligence to confirm this. If the property needs any repairs/corrections, we will not go below $1.5M, EVEN IF CORRECTIONS/REPAIRS ARE MORE THAN THIS.

We propose the following:

$1,650K purchase price ($1,500K min)
$ 800-950KK Bank Loan
$ 400 K Seller carry loan (@ 8%, interest only, due in fulll @ 3 years from COE)
$ 300K downpayment (cash).

We both knew there were lots of $$ worth of things that needed doing (so he knew we were all talking about the $1.5M offer), but this was our way of telling him we respected his asking price, and wouldn't be nickel and diming him all the way to COE.

To our surprise, he agreed (he had turned down a number of other offers).

He was an absolute *stickler* for meeting deadlines-- always moved forward w/pulling out of the deal if we didn't release or meet contingencies by the exact day specified in the contracts.

Closing on time was a mother. But we did it, incl getting an SBA 7a loan in 15 days.

We also paid off his note early, when we refied the prop 20 mos later for $2.5M.

-Russ H.

 

[lightning]

Nice work Russ, alot of good information in that post. Its nice to see how smooth a deal can go when you handle the seller carefully!!! Speed+!!

 

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[ChrisS417]

Try stroking his ego another way.

Offer him less ($1.8mil?), but name it after him.

Petigrew Estates, H.G. Johnson Arms, The Filmore.

Do a mockup of the sign, or have an artist do a watercolor of the front of the building showing his name. If need be, offer to have a commemorative plaque of his likeness made and placed in the entry.

Make him feel like a hero, and he might just become one to you.

NICE

Reading a little "How to Win Friends and Influence People" are we?

 

[randallg99]

a few years back I was in negotiations for a deed that housed an olive garden restaurant and a large electronics retailer on one of the busiest roads in the country. The owner was collecting 350k income annually and was considered an old new york "cocker" who made it very clear that he knew alot more than anyone else who crossed his path...

he laughed at my offer and tell me that he had all the time in the world to get his asking price. I snickered back that his great grandkids won't even get his asking price.
anyway, he was right: he hit the motherlode and sold this piece for 7mil while he sold the adjacent strip mall for another 30mil, both were sold to REITs.

the short of this story is that the deal has to make sense in all aspects: risk, capital outlay, etc...

 

[unicon]

Negotiating is the highest skill

I tell my lawyers they must understand the primary order of skills in any legal setting:
1) Negotiation
2) Business (the timing and generation of cash)
3) Legal (technical criteria)
They think I'm from another planet, negotiation is a forwarding concept meaning it can solve all the lower end problems ie business and legal in one fell swoop. Negotiation starts with a story.

The vehicle for negotiation is letter writing, getting the other side into a FORMAL process, a good CEO writes alot of letters. You must keep the communication going at all costs and look for any concessions even miniscule. You must substantiate everything. You must be adept in throwing the ball in the other court. You must understand all intangibles (as mentioned above) that you are on the side of responsibility and that by osmosis means the other side must tag along or be on the other side (wrong side). You must put in the work to lower a price and you will fall out of your chair when it is accepted.

I have spent weeks composing an offer letter with every word precisely analyzed. I also knew the whole history of the property. I knew the strengths and weaknesses of both spouses and their children. I knew their professions, their banker, and what their banker wanted who actually was on my side in getting the deal done.

When this particular offer was made $130K it was at the bottom of the scale in that 129K would have tipped it over the edge. This number may sound small but let me mentioned that these people had over $380k in hard dollars invested in 20 year ago dollars. There was 19,000 feet of buildings on 2 acres with two living areas. This is in a pocket community on the west coast between two large cities (best of both worlds). If this was in Calif it would be in the million range.

This letter was so well written it was accepted on the first try, and complementing me at the same time as "we think you are a very honest man and we are going to accept your offer" - Talk about falling out of my chair -

It was a difficult close as expected but I had already prepared for all contingencies. The real estate market took off a few months after closing (perfect timing). It should be noted I had been watching the property for 2 years which gave me the in depth knowledge. The property is easily worth 4 times what I paid if I had to sell next friday.

All intangible (most powerful) resources were leveraged in this deal for almost perfect results. These deals reaffirm what others cannot comprehend is possible. This one even shocked myself.

 

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[unicon]

Negotiating is the highest skill

I tell my lawyers they must understand the primary order of skills in any legal setting:
1) Negotiation
2) Business (the timing and generation of cash)
3) Legal (technical criteria)
They think I'm from another planet, negotiation is a forwarding concept meaning it can solve all the lower end problems ie business and legal in one fell swoop. Negotiation starts with a story.

The vehicle for negotiation is letter writing, getting the other side into a FORMAL process, a good CEO writes alot of letters. You must keep the communication going at all costs and look for any concessions even miniscule. You must substantiate everything. You must be adept in throwing the ball in the other court. You must understand all intangibles (as mentioned above) that you are on the side of responsibility and that by osmosis means the other side must tag along or be on the other side (wrong side). You must put in the work to lower a price and you will fall out of your chair when it is accepted.

I have spent weeks composing an offer letter with every word precisely analyzed. I also knew the whole history of the property. I knew the strengths and weaknesses of both spouses and their children. I knew their professions, their banker, and what their banker wanted who actually was on my side in getting the deal done.

When this particular offer was made $130K it was at the bottom of the scale in that 129K would have tipped it over the edge. This number may sound small but let me mentioned that these people had over $380k in hard dollars invested in 20 year ago dollars. There was 19,000 feet of buildings on 2 acres with two living areas. This is in a pocket community on the west coast between two large cities (best of both worlds). If this was in Calif it would be in the million range.

This letter was so well written it was accepted on the first try, and complementing me at the same time as "we think you are a very honest man and we are going to accept your offer" - Talk about falling out of my chair -

It was a difficult close as expected but I had already prepared for all contingencies. The real estate market took off a few months after closing (perfect timing). It should be noted I had been watching the property for 2 years which gave me the in depth knowledge. The property is easily worth 4 times what I paid if I had to sell next friday.

All intangible (most powerful) resources were leveraged in this deal for almost perfect results. These deals reaffirm what others cannot comprehend is possible. This one even shocked myself.

 

[SteveO]

There are more deals out there than this one. If this is truly the smallest holding in the portfolio, he will not give it a lot of attention.

Move on but keep it on the radar. You can make your deal when he is ready to sell. In the meantime, keep looking.

I have seen many deals like this. The best seller is the one that wants your help or doesn't care anymore.

Toss out a phone call every few days to see where he is at. Some deals happen months after first contact is made.

I have lost a lot of deals to someone that bid higher than me.

Sometimes a higher offer is in order though. You need to determine your price.