Most people think that negotiating has to do with price only, and do not realize that every word spoken as part of putting a deal together is part of the negotiation.

In this case my negotiating skills were of the utmost importance in that I had blown it on the math.

Situation: In the early 1970s I owned a one-story office building at 822 Figueroa Street, about a block up from the Hilton Hotel in down-town Los Angeles. (Don't tell me about how rich I would be if I owned that land today. At that point and time in life I was so interested in making quick profits that I thought long term was six months.)

I needed to sell the building that I had obtained in a very complex exchange. I had a buyer for a note and not a buyer for the office building. If I could get the building sold I could cash out of the note.

At an L.A. exchange meeting I presented my property.

Ed Savon, a local broker, approached me after my presentation. There was a man who owned an office supply and stationery company who was losing his lease. He and his father had been on Figueroa Street for forty years with the same business and if they were going to move it would be perfect to move down the block. (Isn't it amazing how things come together when they are supposed to?)

He said the only thing to overcome was that his client was looking for a new place to rent, not to buy. However, if the payments could be kept extremely low, somewhat in line with the rent he was currently paying at least initially, he might be willing to pop for enough money to cover the down payment.

In my euphoria I drafted a quick offer for him to take to his client. I asked for only enough cash to cover closing cost, the down payment, and a normal market rate interest rate, and I said I would carry back a wraparound and stated the amount of the payments. I did not have a financial calculator and took a wild guess at what the payments should be to amortize the loan.

Lo and behold the contract came back signed, without a single change.  When I got back to my room I got out my financial calculator and started figuring out the amortization period. 

Voila! I found out my problem. I quoted him a monthly payment amount that was less than interest!

Now you can do this if you have somebody pay less than interest then the interest adds to principal and the note keeps getting bigger and bigger and bigger. However, in most of these situations, at some point in time the payments increase so that the note doesn't explode! 

Well, I had designed an exploding note. How was I going to go back to this man and get him to pay far more per month than what he had initially agreed to?

I got out my calculator and figured out several possibilities. I waited till the next day to give him a call. I wanted to give him more time to tell three or four more people that he was buying his own office building in downtown L.A. Then I gave him the call.

"Hello, Mr. Buyer, this is Barney Zick, the man who is selling you your new store and corporate headquarters.

"I wanted to go over the details of the contract and see if there is any way to make it better for you."

He, in a non-emotional voice, asked, "How so?"

"Well, most people like to get out of debt as quickly as possible.  Are you one of those people?"

"Yes I am, I don't like borrowing money; that is the reason I hesitated about signing to buy this place," said the potential buyer.

"I agree with you and I was looking at your monthly payment here. I did some calculations and if you will triple the amount that you are paying on a monthly basis you will be out of debt in absolutely no time what so ever. If you double the payment you will have the thing paid off in 25 years. At the rate you are paying now, WHO KNOWS how long it will take to get the thing paid off. I know you have the desire, but would you be in a position to pay more per month?"

I avoided telling him that there would be no payoff ever with the last choice. I know if he decided to stick with that, I would have to expose that fact. Hopefully, I could appeal to his interest of having the property free and clear rather than having to dwell on the mistake I had made.

He thought for a while and said he would call me right back. He called back and picked a number that was slightly more than double the payment we had agreed upon. I was flabbergasted, but I had managed to hit right on the mark. He knew how long he could be comfort-able in paying for such a building and did not want the interest to accumulate for such a long period of time.

This of course is another example of a trade out. I pointed out to him the benefit of paying off early which is debt reduction in exchange for the benefit I was receiving of a higher payment. And, saying this in terms of benefits to the other party rather than calling up and saying I'm not going to close with you unless you pay me more, got the job done.

Copyright (Reprint Terms)
Copyright© 2002, Bernard Hale.Zick. All right reserved. For information contact Frog Pond at 800.704.FROG(3764) or email susie@frogpond.com.

Author Information
Bernard  Hale  Zick
Bernard Zick is one of North America’s most respected real estate experts. His over 1,500 real estate related speaking engagements over 20 years benefits audiences because of his depth of experience. He has run residential and investment brokerage operation, been an apartment developer, a CCIM, a mortgage broker, a syndicator and more. His talks are laced with humor and insights. He is best known for his ability to give concise and useful answer to question from the floor. For information about Bernard as a keynoter, a trainer, a consultant or a convention break out speaker, contact the Frog Pond at 800.704.FROG(3764) or email susie@frogpond.com