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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. |
