Chris Stephens: Probing, testing and mistakes are all part of negotiating

Probing, testing and the occasional mistake are all part of negotiating real estate deals. Experienced negotiators handle all three as normal in the course of business. However, someone without negotiating experience is apt to misinterpret the other side's intent and cause major problems in negotiations.

Probing is simply asking for more information. You try to determine the reasons behind the other side's position. This is not prying into the other side's business. When you understand the other party's needs and reasoning, you can more effectively reach solutions.

For example, while I was negotiating a tenant's lease, the landlord would not agree to the tenant's offered rate, which matched the market. I probed and discovered the landlord's reasoning. A major lease was coming up for renewal at a higher rate, and the landlord was concerned that the tenant would use the lease we were negotiating for comparison to get a lower rate. We solved the problem by my party agreeing to the landlord's higher rate, but getting enough free rent so that the effective rate was the offered market rate.

Next is testing. That means finding out if the other side has any more give, even when they say they don't. Before my commercial real estate practice, I worked for a company where I did a lot of negotiating. My boss would invariably question something in the tentative agreement I had agreed to that he wanted me to go back and try again to get.

It got to the point where I would purposely ask for things in all my negotiations that I knew the other side would not agree to, so I could have documentation in the file to show my boss how hard I had tried to get all I could. I hoped this would slow him down from having me go back and try to get more.

I thought my boss was second-guessing me, but I now realize he was really testing the other side. How could we know the other side had no more to give unless we pushed the issue?

Testing happens all the time in all kinds of ways. I often find that a draft purchase agreement or lease term sheet will have provisions not previously discussed, or different from what I thought we had agreed to in our discussion.

You don't know who may be involved behind the scenes in the other side's negotiations. Perhaps the boss of the person you are negotiating with, or maybe his attorney, made the change -- like my previous boss did. Or maybe there was a misunderstanding of what was discussed. I think the best way to handle these situations is to simply say no to terms you cannot accept and try to work out something on those you can.

Realize that none of this back and forth indicates someone is being dishonest. They are just testing. Or, like I used to do, maybe papering the file so they can show their boss they tried.

I once experienced the ultimate test. I was working with a major corporation on a significant and complicated transaction. One component generated strong disagreement from the start but we thought we could reach agreement on the rest of the transaction.

We did not want to sour negotiations by trying to solve the most contentious issue first, so we put off addressing it until we reached agreement on the other elements. We also hoped that agreeing on everything else would put more pressure on the other side to compromise on this one issue.

Finally, we reached agreement on everything but the problem component. Nothing had changed. We were all on the phone when my client, the seller, again said he would not agree to the buyer's terms on this one issue. The buyer said the same thing about the seller's terms. We discussed the situation at length and both parties concluded that they could not agree. The deal was dead. That issue was a deal killer.

I got into "save the deal" mode and called the seller. He said he was sorry but he was not going to change his position. But he also told me not to worry, the buyer would come around. The next morning the buyer called and said he had reconsidered and would go ahead with the deal without that component.

When I told the seller, he said the buyer was testing us. The buyer had purposely pushed the deal to the breaking point to make sure there was no give on our side.

I don't recommend you use breaking a deal as a test. This was a situation where the parties were senior executives and very skilled negotiators. They knew what they were doing. But this does show how far a test can go.

About mistakes -- they do happen. If you are working with a reputable party, you have to give them the benefit of the doubt, at least the first time. I was once in a negotiation when a sentence on an important point in an agreement was mistakenly included in the final signature document. We had previously agreed to take it out. The mistake should not have happened, but it did. All you can do is explain what happened, apologize and hope the other party understands.

Chris Stephens, CCIM, is a local associate broker specializing in commercial and investment real estate. His column appears monthly in the Daily News.