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Effective negotiation strategies: when do you hire help?

Posted by admin on September 29, 2009 in Negotiations

Just a reminder that today is the last day to enter the contest to win free stuff. All you have to do is post a comment on this post.  Your odds of winning are pretty good. Entries end at 9:00 EST (to be fair to PST readers)

I have often described a lawyer’s job function as:  “someone you hire to say what you want but can’t and do what you want but won’t.” On some level, lawyers, and other people who negotiate for a living, are blunt instruments for what needs to be done. Get a deal completed while having the other side not hate you (too much) at the end.

Lawyers are expensive though. Same with accountants (if you have a dispute with the tax authorities), real estate agents or other professionals who negotiate for you. Thus, the question becomes when do you hire help and how do you use them?

On one extreme, one should seriously consider hiring help for negotiations which are extremely technical in nature or for subject areas in which you have little to no experience (e.g. buying your first home). In such cases, feeling your way around is not a very practical manner to obtain a good deal.

On the other extreme, subject areas which are quite general (e.g. buying a used chair from Craig’s List) or negotiations for subject matters you have entered into multiple times may not require help or the help is hired only to paper the transaction over once the primary business terms are negotiated. For example, I am not sure it makes much sense for a seasoned real estate investor to use a real estate agent to negotiate terms; they probably have conducted more analysis than the agent and know what their deal parameters are.  Associates for law firms who represent big corporations often view their position as more bureaucratic than deal-making since their clients are so sophisticated that they require little to no business advice and the instructions are often “just paper this over.”

The question of how you use your hired talent is just as important as whether to hire that help. My general observation is that few people use their professionals effectively because they have little to no experience.  The result is that there is an abdication of responsibility which can result in two negative consequences: (i) the professional negotiates the deal in a manner they want rather than what you want (the typical example would be a real estate agent pushing up the top price a client may be willing to buy a property for); or (ii) the professional racks up large fees by not working efficiently (the typical example are lawyers who over-staff files and do a lot of un-necessary work on a file).

By no means am I suggesting professionals are out to plunder their clients in fees and commissions. Instead, let us remember that everyone needs to make a living and you cannot expect someone to provide value without paying for it. The question is whether what you are paying for falls under the category of value or is  unnecessary.

More often than not, unnecessary fees are caused by both sides. In my experience, clients often come unprepared with what they want or the instructions are not clear. A lot of “feeling your way around” ensues which costs time and money.

To give you an example, pretend you want to purchase a home. If the real estate agent asks you: “what do you want to buy?” the answer cannot simply by “something cheap.” It has to be more specific as to area, price range, new/fixer-upper and then you have to adjust and continue to give instructions. If the agent is not following instructions which are reasonable, they may not be the agent for you. But if there are no instructions as to the upper limit you are willing to buy, can you blame the agent for negotiating a purchase which is too steep if the instructions are “we are willing to go as high as we feel is right”?

Granted, since I am a lawyer by training, I have first hand experience of what constitutes a good use of hiring professionals having been hired effectively and ineffectively in the past. To give you an example of how I use a professional, when I purchased a home, I gave my real estate agent a 2 page memo of what I wanted (price, area, how many bedrooms, order of priorities, conditions). When we looked at places, I would share with my real estate agent my comments which I had placed in an excel spreadsheet indicating what I liked and did not like in the places we saw.

I only saw 12 places. Place 1-5 was to get some feelers. By place 7-8, I had a good sense of what I did not want. By place 9, I had readjusted the memo given what we had seen and instructed my real estate agent to downplay certain criteria and focus on other criteria (I gave up the extra bedroom/home office for location). I ended up purchasing a place I love.

This sounds like a lot of work doesn’t it? It is but, at the end of the day, the real estate agent is not living at my place and paying my mortgage.  I am. What he did do which I found to be of value was review the memo, review the spreadsheets, give me a reality check, conduct due diligence based on the parameters I gave him, did all the leg work and had him negotiate given a specific budget (since I was being paid by the billable hour, time was literally money to me).

By no means is this the absolute best way to use a professional but it made both of us turn our minds to the issue at hand and focus. The key point is that even if you hire professions to negotiate, you have to be active in formulating what you want and don’t want. Good luck.