Posted by PZ on December 13, 2002 at 12:02:55:
Well, that is sound advice. And straight to the heart of the question. Thanks, Bill.
PZ
Strategy/Tactics - Posted by Paul Zankowski
Posted by Paul Zankowski on December 12, 2002 at 18:35:21:
I’m a lawyer, and I think I’m reasonably sophisticated about a lot of the stuff involved in the deals I do. And when I do a deal, I do not go out of my way to disguise these facts.
But, I’ve been wondering lately, should I (act less sophisticated than I am)? Is there any mileage to be gained from playing a sort of Colombo role?
I remember an episode of The Cosby Show, where Cliff Huxtable (Bill Cosby, of course) was buying a new car. He dressed in jeans and a reasonably worn but presentable sweatshirt. And he was acting sort of daft during the negotiations. Then a friend of his happened to come into the car dealership and mentioned to the salesman that Cliff was a doctor and that his life was a lawyer. And the message I took away from watching that segment was that – basically – Cliff’s negotiating leverage was shot by the revelation of his and his spouse’s station in life.
Is that true? Anybody have an experience in this regard – taking pains to conceal your sophistication from the counterparties in the transaction? Is it worth it?
For me, I’m concerned, it’s sort of an ego thing that doesn’t help me in negotiating. In other words, I flash my sophistication at the other side to make sure they know I’m reasonably intelligent just because (stupidly) I’m worried that otherwise they’ll think I’m not. And I can’t help but wonder if this ego trick costs me money (because maybe I could get away with more tricks by lulling the other side to sleep with apparent less-than-intelligence, for lack of a more artful description). To summarize – who cares if the other side thinks I’m dumb if (a) I’m not and (b) by them thinking I’m dumb I get more than I would if they thought I wasn’t?
Just curious. Any thoughts?
PZ
Re: Strategy/Tactics - Posted by GL(ON)
Posted by GL(ON) on January 07, 2003 at 12:46:13:
It depends what your goal is. If you are out to be a big shot and impress everyone with what a big lasagna you are then the only thing that matters is what you want. If you are out to make a deal what matters is what the other party wants.
I’m not being smart. I know people who get a kick out of going around acting like big shots yet never actually complete a deal. It finally dawned on me that they enjoy driving around, talking to people, bragging on themselves etc. but have no interest in anything as dreary and boring as completing a deal. That’s fine if that is what you want.
But if you want to make deals you have to pay attention to the other party, find out what they want or are interested in, then play on that.
Try this. Next time you meet with someone say to yourself “This is the most important person in the world. I want to find out all about this person and his needs so I can put together a deal that will tickle him to death”.
Here is an example: A man was looking to buy an apartment house. He found one he was interested in. In talking to the seller, an Italian immigrant, he found out the reason he was selling was that he was getting rid of everything he owned in preparing to return to the old country. It seems his father had recently died and he considered it his duty to go home and take care of his aging mother and his sisters.
When the buyer presented his offer, stapled to the top page was a pair of first class Air Italia tickets to Rome in the name of the seller and his wife.That was the down payment.
Legally, was the seller entitled to turn down that offer? Do you think did?
Re: Strategy/Tactics - Posted by Tjent
Posted by Tjent on December 15, 2002 at 14:27:22:
I agree with the “Be yourself” advice; but another rule of thumb is to provide information on a need-to-know basis only. I am both an attorney and a real estate broker although my main vocation is real estate investor. When I am acting as a principle, I rarely volunteer these other backgrounds at least until I am already under contract. First of all, “attorney” just makes people nervous, which is an effect I do not want. There are people who may actually pass on an offer because they fear the attorney will be litigation-prone. It is similar with announcing that your a broker: it may put a seller on guard of being taken advantage of since in their eyes you’re the savvy (sneaky) “professional.” I don’t hide these facts; I merely mention them only when there’s a reason to.
Re: Strategy/Tactics - Posted by ray@lcorn
Posted by ray@lcorn on December 14, 2002 at 14:44:27:
Paul,
I agree 100% with Bill, as far as he goes. I am always myself, and I do not play roles. I can spot someone playing a role a block away, and I mentally catalogue him or her as being less than genuine. That often negatively affects any later decision to be made involving trust with that person.
But I don’t think that answers the real question… when I am negotiating a deal, how much of my background and experience do I reveal, and when do I do that? To me there are two elements of the question; first there is a question of strategy, then a question of ethics. The latter can carry legal ramifications.
If a deal goes sour and winds up in court, the relative sophistication of the parties is always an issue. Should the court find that one party was highly experienced and sophisticated, and the counterparty relied on their representations because of that expertise, then there is a greater burden on the experienced party to protect the other party in the transaction. In some instances this can be equal to a fiduciary duty. In the case of being a lawyer, I would think that there would be some duty for you to disclose that fact to a less sophisticated party early on in the process.
But in the case of dealing with peers of relatively equal experience and knowledge, the strategic aspect of the question is more relevant. In my mind, the answer has to fit the playground and the players.
I’ve been in some aspect of this business all of my life, and along the way I have learned a lot. My career has given me deep experience in sales, construction, development, finance and law. I bring that knowledge and experience to the table in every deal that I participate, whether the other side knows it or not. The strategic decision for me is how to use that knowledge to best serve my interests.
I assume this is the stage that you’re asking about? do you disclose now or later that you are a lawyer and experienced investor? I think later is better, assuming there are no ethical or legal issues to grapple with. There’s an old saw in the South? “Watch out for dogs that don’t bark.” That’s because a dog that stands and barks at you will rarely bite. The dangerous ones are clamped on your leg before you ever know they’re there. Savvy investors don’t do a lot of barking, they just go for the heart of the deal.
There is a necessity in the initial stages of any deal to establish the parties are qualified to be there. The deals I do are for the most part with people that have as much or more experience than I do. That’s partly by design, because I am not happy doing the same type of deal over and over again… I prefer to always be reaching for the next level. So usually in the course of communicating with the players, we each establish our “bona fides”, being qualified to be in the deal, with the initial flow of information.
But beyond qualifying myself to be in the deal, I find no advantage to talking about my background up front. If it matters, it will come out when it’s needed. My experience is that by going into detail about my background I am more likely to hurt myself than help.
In this business, information is the key to decisions. Usually I need to know more than the other side wants me to know in order to make the decision that best serves my interest. In a lot of cases, not all, my interests are opposed to the other party’s interest. So they are not going to volunteer information detrimental to their interests, yet that is the very information I need to have. By letting the other party know I am very knowledgeable their own guard goes up a bit higher. That may affect what information they willingly disclose.
I try to take a low-key approach. I can be myself as an individual and usually establish a rapport with almost anybody. Once the conversation is underway, then I am listening very closely, asking leading questions, and never assuming I know the answer. I do my best to make sure I am the one asking questions, and they are the ones answering, not the other way around. I like to let an answer lead into the next question. I often use phrases like, “help me to understand”, “help me to explain”, and “does this mean so and so?”
I am reminded that if I’m talking I can only find out what I know. If I’m listening I can find out what everyone else knows.
Usually what reveals the sophistication of the parties is the first draft of a contract. I almost always use my own contract, even if the other party offers their draft first. I’ve learned through the years that every contract is biased, and regardless of how you amend it, it never loses the original bias. Anyone that’s been around and sees my contract knows I’m not a beginner.
But as deals get more complex there comes a point where nothing is held back. The deal demands every bit of knowledge that both sides possess to make the deal work. I just closed a deal yesterday with a merchant developer who is a “non-practicing” lawyer. She told me very early on about her background, and was also very open about the fact she is learning the development business. She also let me know that her partner is a very experienced developer and that he had to approve the deal as well. I never for a minute thought that because she was a “non-practicing” attorney it meant she parked her legal training at the door. I knew I was dealing with a very intelligent and savvy buyer.
Did that affect how I dealt with her? You bet it did. I didn’t make a point of telling her my background, but it didn’t take long for her to figure out she wasn’t dealing with a rookie. I kept in mind every step of the way that she had legal training. I scrutinized every document for language that worked in her favor. We negotiated our way through what became a very long and complicated deal. I was always wary and always on guard, and I paid very close attention. I did nothing in a hurry. I took time to review and digest every turn of the deal, way beyond what I would have done with an inexperienced buyer. It does make a difference.
As a result I learned many new nuances in structuring contracts and agreements, and she learned a lot about development strategy and deal structure. It became a multi-stage deal, and will be very profitable for both sides. We came to trust and respect each other, and got the first leg of the deal done yesterday. By then we both knew completely what the other was capable of, and made our experience work for the benefit of all parties. No amount of feigned ignorance would have lasted long because trust cannot be established unless the parties are dealing honestly with each other. Had either of us tried subterfuge the deal would have never closed.
ray
Re: Strategy/Tactics - Posted by RobertTX
Posted by RobertTX on December 14, 2002 at 08:36:00:
I am an MAI appraiser and a licensed Realtor and have always disclosed these facts to the other party in a transaction. Legally I’m required to disclose the real estate license, but I feel that these disclosures have in fact helped me in my negotiations. The other party tends to defer to my “experience” and “knowledge” when I get into some of the more creative aspects of the deal.
Re: Strategy/Tactics - Posted by Bill
Posted by Bill on December 12, 2002 at 19:24:14:
Just be yourself. You won’t go wrong and you won’t have to remember any lies.