The Fine Art of Negotiating
Custom-home builder Tom Stephani recalls one of the first negotiation situations he encountered: a settlement with an irate client who felt that Stephani’s crew did not deliver what was promised. “It required me to step back, take a deep breath, review the situation and all documentation, and then create a strategy that would result in a 'win’ for both of us,” says Stephani. “Then we sat down and discussed the problem, examined the documentation and looked for common ground.” While no one really “won” the negotiation, he was able to resolve the dispute and move on to complete a successful project.
Stephani, a nationally recognized speaker and trainer as well as president of Custom Construction Concepts in Crystal Lake, Ill., believes custom builders have a lot to learn when it comes to negotiating. “Many are so personally involved in their business that they let their emotions show through in a negotiation,” he says. “They’re typically better at negotiating pricing, service and quality with trades than they are with homeowners.” The bottom line: Most builders fail to set realistic expectations before, during or after the sale.
Lisa Cornelius, director of sales and marketing for Tilton Group Signature Homes in Hilton Head, S.C., echoes Stephani’s words: “We have to be on the same page at all times. More than anything, negotiating is educating. We need clients to understand that the features that are standard in our homes aren’t necessarily standard in another builder’s homes.” Cornelius adds, “It’s important that clients know who they’re dealing with. They know who is keeping them updated. They know who is sending them pictures from the job site.”
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Naples, Fla.-based London Bay Homes’ President Mark Wilson has dealt with negotiations both large and small. In one community, the master developer got into financial difficulty and there was a real possibility the company would go bankrupt. Wilson says despite the environment, it was still important to get sales within this community. “All of the contracts ended up being negotiated by me so that I could address the real fears of the potential buyers,” he says. “In order to do this, there had to be some very straightforward conversations.”
Luckily, at the time approximately 70 percent of the homes in the community had been built. And because of the high level of resident support, it was apparent that there would be a solution that didn’t necessarily include bankruptcy. “Without talking truthfully and straightforwardly through this, and building confidence not only in the project but in London Bay, it would have been impossible to get contracts signed during the whole of 2009,” says Wilson.
Ultimately, he says, your negotiating style might depend on the personality of the client. It’s important to size them up and think about the manner in which you are going to talk to them. Followup from meetings should also be based on that style. For example, if the client has a more driven personality, there is a good chance that they will make fairly fast decisions, want to make a deal, and not get unnecessarily bogged down in the minutiae. On the other hand, says Wilson, if you have an analytical person on your hands, they’re going to take longer to go through the process and will want all the details, upfront and in writing, before they make a decision.
“I think anyone who runs a small business gets pretty good at [negotiating]. Everything that you’re doing is a discussion,” says David C. Payne of Payne & Payne Builders, Chardon, Ohio. “But we don’t like the word 'sales’ because of the connotation; we call it 'project development.’ We’ll know right away if we’re a good fit.”
Payne says negotiating doesn’t necessarily mean you need to get something out of someone. “I work with people all the time who use body language or don’t talk at all because they want the other guy to talk too much to see what they can get out of them,” he says. “I always say, 'Hey, let’s figure out if we’re a fit.’ I’m not trying to sell from the start.”
Over the last two years, Payne’s projects have been running a lot leaner. “It used to be that when clients came in and said 'Our budget is $350,000,’ we’d design a home for that price and they might ratchet it up to $400,000. [If] we hear that today, alarms go off. Now we try to leave some room in the budget for the future.” He adds that there’s little wiggle room for the project to get off track, especially in materials. “I’ve seen a lot more negotiating in the last two years. Until you talk through every facet of the house, you can’t go forward. The first thing I always try to do is figure out what they want to accomplish.”
Payne says much of the art of negotiation is in listening to your clients — really listening. He and all of his salespeople train under a system called the Sandler Sales Institute, run by sales trainer and author David Sandler’s national franchise program. Sandler thinks Columbo, from the detective TV series, is the ideal sales personality. With his disheveled look, Columbo seemed incompetent, but he would end up getting suspects to say things they normally wouldn’t because his appearance was so non-threatening.
One principle he’s taken to heart, says Payne, is “Never answer a question unless you know why they’re asking a question.”
“I have to know why they ask the question, ’When will this be done?’ Instead of committing to a date — say six months — I’ll ask them when they need it by,” he says. “You might not know what they’re up against. Maybe the lease they have now will run out in five months.”
“The success of our business can sometimes be measured in the work we do not take.” That’s a quote from David Payne’s father, F. Michael Payne. “If you can’t work with someone or if they’re not a good fit, sometimes it’s best to walk away. If you have a difficult client, you can do everything right and all you’ll do is kill yourself,” says Payne.
Wilson says proper preparation is very important, and in a tough market, it becomes more important than ever to have a thorough, well-organized sales process so that the final negotiation becomes easier. “At London Bay, we have chosen to use Bob Schultz & The New Home Specialists to train and organize the sales team. We’ve found this to be well worth the time and expense,” he says.
Builders should keep in mind that negotiating is often more about overcoming objections than giving up their price and margin, Wilson adds. “Objections from clients are not always real objections and can be overcome relatively easily. It’s important to be able to distinguish between questions that appear to be objections and true objections that are going to require some skill to overcome.”
Be wary of over-negotiating or chasing the bottom line, warns Cornelius. “You’d better believe that your clients will entertain many bidders,” she says. “But I think now the clients who had to pull back on their projects will take them off the shelf. The deals are out there.”