The Ultimate Guide to Pre-Negotiation Success with Roy Koppelmann

Hello, my friend, and welcome to another episode of Negotiate Anything. Thanks for spending time with us today. It's listeners like you in 181 different countries that have made Negotiate Anything the most popular negotiation and conflict resolution podcast in the world. I'm your host, Kwame Christian. I'm a business lawyer, mediator, professor, and the director of the American Negotiation Institute. Before we get started, I have two quick questions for you. Is negotiation a critical part of what you do need to resolve conflict and persuade at work? If you answered yes to both of those questions, visit our website to learn more about our negotiation workshops. We've traveled the country working with professionals just like you and we'd love to have the opportunity to work with you too. Check out the link in the description to learn more. Roy, thanks for joining us today.

Very pleased to be here. Thanks for having me on. I'm excited to talk a little negotiation today.

Absolutely. Well, how would you get us started? By telling us a little bit about yourself and what you do.

Yeah. So I'm a real estate investor and developer operating in North Carolina. My team and I do building projects in the Carolinas, so North and South Carolina. And we have a growth oriented goal. So we are kind of working on medium sized projects and pursuing larger and larger projects as, as the business and the team grows.

Fantastic. And listeners, my friend Roy is quite modest. There are two things that he failed to mention in his bio, actually three. So he has an incredible family and they are amazing. The other thing is Roy likes driving really fast cars really fast. I think, what, at least 120. I've seen you go, I don't know. And then the last thing is Roy has some amazing dance moves. I've seen them all.

Now you're embarrassing me. Yeah. I think we're here to talk about.

Negotiation, not our fun times in Vegas. So let's refocus. So today we're going to talk about negotiation in the real estate space, but with a special focus on the term leverage and how to use leverage, how to understand it, what it means, all of those types of things. And so you might be listening and you might say, hey, I'm not in real estate and I don't have really hard negotiations that involve leverage. First of all, you might not be in real estate, but I guarantee you leverage plays a role in the simple everyday negotiations. Negotiations that you're having too. So we are going to make it really high level for the people who are in the real estate space and doing high level negotiation deals. But we're also going to Pull out some of the general gems of wisdom that we can learn and apply to all situations. And so let's just start off with kind of getting a better understanding of what leverage means in the context of negotiation. So in your world, when you think about leverage, what does it mean and what impact does it play in your negotiations?

Yeah, so in a real estate negotiation, the leverage swings between the buyer and seller. So one of the things that I do somewhat frequently is apartment deals. More interested in development deals now, but I do a number of apartment deals in the apartment deal context. You know, historically you've been able to put the property under contract and get some period of due diligence without cost. So you've tied up the property. You've not put any due diligence money down. Now, there's some exceptions to this that we'll get into, but in that early phase, the buyer has a lot of leverage because they basically tied up the property at no cost. As soon as the buyer's money, earnest money, so there's a due diligence period, kind of an earnest period. We'll just kind of keep it simple like that, that this isn't a hard money day one kind of scenario. So in that due diligence period, you've locked up the property and you don't have a lot of out of pocket cost during that period. Leverage is heavily favored to the buyer because there's no commitment, no financial commitment, and you're tied up to property. You get to a certain period in the transaction as an earnest money period. Historically, things have changed a little bit recently because real estate markets are hot. You get to the earnest money period. Now the money's committed. Now if the deal doesn't go through, the seller can just walk with your earnest money at no cost to them. They keep the property, they keep your earnest money. If the deal just doesn't go through. Well, that's the pendulum of leverage swinging from buyer to seller. And understanding where you're at in that leverage process. Who has the leverage at a given moment is vital to a successful transaction. So that's one of the things that we think about. And then a related element of that is the sophistication of your counterpart. I use the term counterpart to talk about the other side of the transaction. In my case, it's buyers and sellers could be, you know, a lot of times it's buyers and sellers could be other contexts, legal context, et cetera. But it's vital to know who's got the leverage. Right, because it's pretty embarrassing. To think you have the leverage and find that you don't. So that's a scenario that's obviously not acceptable. So ultimately, understanding where you're at in the back and forth of the leverage is pretty important. I'll take an example. But then also understanding your counterpart and their level of sophistication and their level of understanding about where they're at with the leverage and is key. Two recent deals. One was in downtown Charleston with an extremely sophisticated seller. So we needed a little additional time to close that transaction, and so we had to ask him for an extension. That was a challenging conversation. I'll just leave it at that. That was an extremely challenging conversation. Not one I want to have all the time. However, what was interesting is this is a function of understanding leverage. He said, hey, look, if I don't give you the time, you don't close, I walk away with your money. He understood where he was at in the back and forth of the leverage. So in order for us to get more time, he extracted additional compensation. So he understood because he was extremely sophisticated and been around the block many times. So he knew that basically we were going to lose 50,000 or give him the additional 25,000 that he asked for for the extra time. So he understood the leverage context that we were in, and we gave him what he wanted. We had no choice. You know, we gave him what he wanted. Otherwise, we lost $50,000. Not the end of the world. But I'll tell you what, if there's $50,000 sitting on the ground, I'm picking it up. And I don't like to lose $50,000 because that's not the way to make money in this business. So interestingly, and, you know, it's not typical, but it just happened back to back that we needed a little extra time. On another recent deal that we did. In this case, it wasn't. Respectfully, she was a wonderful real estate agent, and she was a pleasure and a delight to work with, but we need a lot of extra time, and she did not extract the. She did not extract the additional funds out of us. So it's just interesting to just know your counterparty, not know your counterpart, and understand, you know, if they're sophisticated and they've been around the block and they're a little rough and tumble, they're probably going to know what they can get out of you. And you don't want to probably call their bluff. You don't want to call their bluff. So we could have called his bluff. We could have said, hey, look, you know, what is what it is. We just need more time. You know, this guy, we weren't going to do that with this guy, we weren't going to do that with. We knew better than to do it with this guy. Respectfully, to Hank, and we'll just leave it at that.

Yep, makes sense. And I think those examples that you gave are really powerful because when you think about the book definition of leverage, it's the degree to which you can extract a concession from another party without getting a commensurate concession in return. Right. And so if you have power and leverage, and you are the person with the power and leverage, you can make people give you things without you having to give them things. Right. And so in that situation, he had the leverage, he had your money, and you didn't have any other options. Options at that, at that juncture. And he knew it. And so he said, hey, give me $25,000 or else I'm going to take your $50,000.

Pretty much how it went down.

So essentially it was, it was, you know, it was kind of a shakedown, but he knew that he could do it because he had the leverage. So going to what you said, you have to really get an understanding of the psychological profile of the person that you're dealing with, because some people, like the other person in the subsequent negotiation, they had the leverage, but they chose to rule with benevolence in that situation.

I think, I think it's interesting because the fact pattern was a little different. For what it's worth, you know, in the, in the case of our downtown Charleston deal where the 25,000 was extracted, we're dealing with the principal, you know, the owner, presumably the most sophisticated of the bunch in the. And the most vested. The most vested in the case of the other deal, which won't give a lot of specifics about, but in the case of the other deal, we're dealing with an agent, not the principal. So her level of vesting and her level of vesting was different. She's a little, little less vested. Again, I don't want to call out the specific transaction because I'm not trying to paint her in a non favorable light. Ultimately, there was another dimension which was that her property had sat a little longer. So we jumped on our downtown Charleston opportunity because we get to build new construction in downtown Charleston, which is not an opportunity that presents itself all the time. The other opportunity is an attractive Charlotte based opportunity, which we're very excited about. But we had a different plan than others had. And because of that, you know, kind of had sat a while. So the context is a little different and it's just interesting to see, like, hey, look, I'm dealing with a principal here versus I'm dealing with an agent. You know, there's nothing wrong with agents and oftentimes agents can actually be more sophisticated than the principal. But it's a principal in a real estate business. If it's a principal in a real estate business who's, you know, in the transactions all the time, that guy's going to be pretty knowledgeable. And so in any event, I think it was just different, but the principal definitely understood where we were at in the back and forth of the leverage.

Does your company invest in professional development training? If you believe that your team would benefit from a negotiation workshop, all you need to do is go to our website, fill out the workshop request form, and then we'll set up a time to chat. These workshops are completely customizable and we've done them all around the country. Negotiation and conflict resolution skills are beneficial across all professions, but they're especially useful in procurement, purchasing, sales, sourcing, and contract management. Our calendar is filling up quickly and we even have some workshops scheduled for next year if you think you might want one. I'd suggest reaching out soon so you don't miss out. Check out the link in the description to learn more. And now back to the show. Yes. Okay, so let's break this down a little bit because now the case studies became a lot more interesting because number one, in the example where they extracted $25,000, like you said, you're dealing with the principal. And so for people who aren't familiar with that term, that's the person who actually owns the property, that he's not represented by anybody in that capacity. And so for him, $25,000 means, let's, let's say hypothetically, to keep it simple, if he is the person who own everything, let's just say he owns everything. In this situation, $25,000 means $25,000 for me in my pocket, right? And for the real estate agent, $25,000 for her means I'm going to have to spend time in a difficult conversation and potentially a protracted negotiation. And I'm only going to get a fraction of that, which of which might be like a multi million dollar deal. So a win for her getting an extra $25,000 means just a couple of thousand dollars or maybe a few hundred given the the am expend. And so for her, listen, I need quick transactions. And so me Spending more time to get an extra 25k for my client benefits them much more than it benefits me.

Not worth. Not. Not worth her. Not worth a fight to her. Not worth a fight to her, but worth a fight to him. So I think that's interesting in. In the broader context of negotiation, if you're interacting with an agent in any capacity. Right. In any capacity, the agent is going to get a percentage of the whole. They get zero of zero. I mean, as does everybody. As does everybody on some level. But they have an incentive to get the transaction done. But they have a diminishing incentive to ask for more.

Yep.

Diminishing incentive to ask for more. You know, if you're gonna get 3% on 1.5, 45,000, say, for example, that's not exact numbers, but, but, but close. For just the land, get 45,000, but you add extra 25,000 of that, what are you getting? Like $750. You know, you're just not going to. You're not going to jeopardize. You're not going to jeopardize the 45,000 for the 750. I mean, that's just not smart. And largely, by and large, agents don't do it. Agents don't do it.

Yeah. Yep. And so this impacts the way that we approach these negotiations. Right. Because let's add that other layer of leverage to the fact that her property was sitting for a while, which means that she has fewer options with the other deal, where they extracted the 25,000 in a very popular space in Charleston where you don't have the opportunity to build like that very much. He understands there's these. He's a rare commodity. And so if you didn't get the deal, Roy, it probably wouldn't have been particularly challenging for him to find somebody else who got the deal. So he really was in a position where he could say, oh, you know what? I have your 50,000. Give me 25,000, or I'll just get another deal with somebody else in pocket.

Exactly.

That really has an impact when you understand, like, the dynamics of all of it. It has an impact on the entire. Of negotiation, of course, but also how much resistance you put up, because you saw the writing on the wall there. You said, okay, I see what's happening in this first scenario. But with the second one, let's say, hypothetically, if the agent were to push back and say, hey, $25,000, you can think about the different incentives that she has, and then you could just say, you know what? In this situation, she's asking for it, but I don't think she wants it that much. I'm going to resist. I'll make her work and then she'll realize it's not worth the work.

That's it. That's the key in that context. You must resist it. You must resist it. So, look, $25,000 means something to me. I mean, you know, maybe one day it won't, but it means something to me. Today it does. I just can't hand out 25,000. So if an agent comes to me and asks, I am going to resist, resist, resist. You know, after we've come to a settled upon price, after we come to a settle upon price, I think this is, like, interesting for anybody who would, you know, interesting from a negotiation perspective. For anybody who deal an agent. If an agent comes to you and asks, it is logical to try to resist. In my mind, it is logical to try to resist because the added incentive is small for them. And if there's an agent, there's a reason why there's an agent involved. You know, either the principal doesn't want to do it, or the principal is not equipped to do it. So it is probably logical to resist an agent, but to think twice about resisting a principle. And I think that might be a takeaway, you know, I mean, for, for the audience, a subtlety. A subtlety that, that, you know, is maybe not at the forefront as somebody's thinking, but, you know, where there's an agent. Try to resist. See what, see what happens. Resist. You maybe may not say no, but, like, try to find a way to give a gentle, I don't think so. I don't think so. Try it out. I don't think so.

It reminds me about in law sometimes when I'm talking to my clients and we're engaging in settlement negotiations, if I recognize that the other party is most likely paying their lawyer on a contingency fee, meaning that if there's a settlement, then the lawyer is probably going to get a third of that settlement. What I tell my client is this. I say, first of all, it needs to be a healthy settlement for the lawyer to be at all interested in doing this. And a simple mantra I have in a lot of these cases is make them work. Just make them work. Because lawyers are thinking about time in terms of hours. And so they're going to want to try to get that lump sum for as few hours as possible. But if you show them, hey, I'm going to make you work, and it's going to take a Lot of hours they're doing this math in their head and seeing how their hourly rate is diminishing as time goes down. Right.

It's efficient efficiency. Right. They are driven by efficiency, a logical desire for efficiency. In the same way that extrapolating out, we all are, right. We want to get paid as much as possible for as little amount of effort as possible. And so that attorney doesn't want to make $50 an hour. He wants to make much, much more than that. Obviously, if he's working on contingency, he probably has a much bigger number in mind. A much bigger number in mind. So I think that's. That' fascinating. Extrapolating it to the, to the legal context and in the contingency scenario, I think that's. You're obviously giving people good guidance.

Thank you. Yes. And for listeners, remember this too. The only way that you can really get a good understanding of the leverage and the approach that you should use is if you take the time to prepare. So this is a reminder and every episode I give you the same reminder. Make sure to go download our guides. So americannegotiationinstitute.com you can download all of our free negotiation guides. It's up to 15 plus free guides that can help you prepare for your negotiations. And Roy, I know in your world it's really interesting because we're talking about transactions, so it's business, it's money, we're talking about those types of things. It's easier to see it in terms of wins and losses, but at the same time, relationships matter in the process. So for you and your team, how do you balance making sure that you're putting yourself in the best position to get the best deal with relationship manager.

So I think that's interesting. I feel I have two broad challenges that I have to kind of address in my role. And one is I have investors who come alongside us in our projects and we are very grateful to them, very grateful to the investors who come along into our projects. I like to believe that the core development group delivers an extremely solid return. And ultimately I am a steward of the resources that are entrusted to the team. What do I think that means in the context of the question asked? In the context of the question asked, that means that one, I have to be careful in the negotiations and I have to work hard to get the best deal for both me and the investors. But two, I believe that a return, that return that we offer is such that the investors will likely want to come back, so also cannot be known as a person that is difficult to work with, you know, so we try to be fair. Ultimately, we try to be fair. You know, if we settle upon a price, barring something completely unforeseen, we are good for our word on that price. We are easy to work with. We do what we say we're going to do. Those are the kinds of things that allow you to be a repeat participant in that real estate marketplace that we're working in a few select markets, Charlotte, Charleston, and we're hoping to expand into Greenville. So I think I'm answering the question in the sense that, you know, it cannot be a scorched earth strategy, because actually, I believe that that gets around. I believe that that gets around. Charlotte is known as the world's biggest small town. It's known as the world's biggest small town. It's so weird. Everybody knows everybody. That's primarily where we're. And you just can't be known to be exceedingly difficult or take this scorched earth strategy. Now, that changes if it's like a one and done deal. And, you know, whether you're in a one and done situation, you know, whether you're there. I think especially for, like, your attorney listeners. For your attorney listeners, they know if this is like a one and done negotiation, they can't really anticipate seeing this person, this counterpart or counterparty to the negotiation. They can't realistically see that happening again. Then, hey, you might go scorched earth, which is not something that we do in our business. We try to, you know, try to find advantages, but try to make realistic, fair offers for attractive parcels that will allow us to build profitable projects that everybody's proud of. So we got a sort of broader goal than just to win some negotiation with a seller of land. You know what I'm saying? We just have different constituents that I see, which is repeat sellers, potentially repeat agents, which we want to treat respectfully. But also we have an absolute, unwavering commitment to the investors who participate in our deals. So we do have to advance their best interests. So there's a couple of factors that we're trying to weigh, trying to balance as we pursue these projects. So ultimately, it can't be scorched earth in my business.

Absolutely. Yeah. And it's a delicate balance, like you said, because you want to make sure that you're getting the best returns possible. And at the same time, you want to make sure that you're engaging in some relationship management and reputation management, too, because your reputation by itself is persuasive, because if you're that guy, the, the bad guy, Roy, that nobody wants to deal with, then they're going to come into the negotiation with a completely different mindset and strategy. Saying Roy won't treat me fairly, so I need to protect myself. I am going to go harder against Roy. And so even if you use scorched earth and it works in one context and then you have to move to a different city.

Yeah, exactly. So you have to be careful in my business about approaching things in. It's okay to understand leverage. It's okay to some degree take advantage of the leverage that you have and understand where you're at in the process. But you have to be a person of your word. You have to commit to doing what you have to do what you commit to doing. So those are some of the things that you, that you do when you're repeat participant in a marketplace which you know might be different than some other contexts in which your listeners participate. You know, my context, I'm a repeat participant. So just can't be scorched earth. And I'm going to see these people on the other side of the closing table. And we have got to be able to work together and the reputation fundamentally matters. All the while the investors are first. The investors are first and their interests are first. But I don't think the investors are served. The investors are not served by a scorched earth strategy, frankly. Scorched the earth. They've committed their capital to a project, generously committed their capital project grant. We think we're going to give them a industry leading return. But they commit their capital to a project and then we scorch the earth with the seller and it doesn't happen. Well, then that's a big disappointment for everybody. So we don't want that scenario to occur. So, you know, just got to be cognizant and thoughtful and respect that we are repeat players in the business.

Absolutely. Roy, this has been fantastic. I really appreciate you coming on the show, sharing your wisdom with us. Before you go, can you remind the listeners again about your business and how they can get in touch with you?

Yeah, it's a cord development group. You can reach us at a cord developmentgroup.net that's our website. I can be reached via email@rkcordholdings.net appreciate the opportunity to be here. Appreciate the opportunity to talk a little negotiation. Hopefully the real estate context is something that might be of interest to the listeners and yeah, really enjoyed it. Thank you so much for having me.

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