by Mark Perlmutter   My wife sadly told the builder she loved his house but her husband would never agree to buy it because it didn’t have space for a media room. "No problem," the builder said. "I can build him one in the back yard."

My wife called to tell me she was going to buy a house and I had better come if I wanted to see it first. On arrival, I hurried through the house–skipping the second story–straight to the back yard, whereupon the builder and I began pacing off the media-room-to-be. "Fine," I said. "Your price is about the maximum that I had intended to spend. Will you include the media room at that price?"

"Well, I had intended to build a garage out there anyway. I think I can make the deal work," he said.

He prepared a rough sketch with "specs" that consisted only of his statement that the quality would be equivalent to the main house. I said I actually wanted 12-foot ceilings, central air and heat, and some special wiring. He gave me a price and said that I could bargain him down, but he wished that I wouldn’t. Having already checked with a longtime builder-acquaintance of mine, I knew his price was fair. I replied, "OK. Let’s get our contract signed."

That night we met at his home, signed the contract, drank some fine burgundy, and six months later, we’re still socializing with our builder-friend, Kelly, and his wife, Lizzie.

Before I tell you how this story ends, I’d like to share several principles for successful negotiations. Some of these principles are widely used in mediation, a process for facilitating the settlement of disputes, and others come from my experience representing clients as a trial lawyer and dispute resolution advocate.

It’s always somethin’
Many clients have the misperception that once the deal is struck, they will never have to deal with the other side again. Any agent knows that this couldn’t be further from the truth. In almost any real estate deal, the increasing complexity (feasibility studies, inspections, repairs, environmental impact statements, etc.) means that unforeseen contingencies may arise after the initial signing of the contract. Listening to my father, a commercial broker, discuss the problems that come up between contract signing and closing reminds me of the old Saturday Night Live skit when Roseanne Roseannadanna would intone, "It’s always somethin’." And after the deal is closed, how many times does lingering mistrust from the initial negotiations ignite a buyer’s litigious instincts when the property condition turns out not to be exactly as they had expected?

Wouldn’t it be better if you could negotiate with a friend?
No longer is a real estate deal necessarily a one-time, short-term relationship. Most assuredly, some deals might be one-time negotiations, but the problem is that you can’t tell one from the other up front. Therefore, the safest course from a business point of view (and certainly more satisfying from an emotional and spiritual standpoint) is to treat and educate clients to treat the other parties as friends you hope to make.

The problem is that the other party may be going for the jugular. I don’t want the other side to know that my spouse is drooling for the house if I think the seller will take me for all I’m worth. How, then, can we learn whether it’s safe to negotiate as you would with a friend?

After only a short acquaintance, my builder and I realized we shared a common unspoken commitment to working together so that each of us got his needs met, and that we hoped to become friends. This same understanding may be shared by colleagues who know one another or who have had previous interactions.

Define your relationships with agreements
When dealing with strangers, relationship agreements can similarly establish a safe context for a successful negotiation. A relationship agreement embodies the understandings of how parties will relate to each other throughout their dealings. An example of a relationship agreement is an agreement to "work together to arrive at a fair value and to make the transaction work for all parties." Often, an informal discussion with the other agent will provide such a frame-work for mutual cooperation. Discussing this article and faxing it to the clients may also be useful. A short letter will suffice to confirm the terms for cooperation.

Negotiate principles, not pride
Agreeing to simple ground rules such as principle-based negotiation is another form of relationship agreement. Principle-based negotiation, as its name implies, is negotiation based on principle rather than on a contest of wills. The typical contest of wills negotiation is the flea-market haggle. There, we’ve been taught that to get the best deal, you must get the vendor down to his lowest price then show your willingness to walk away in order to push him even lower yet.

There’s no independent rationale for the price; whether you pay more or less depends entirely on who’s more desperate to make the deal–you or the vendor. On the other hand, in principle-based negotiation, price is determined by a rationale independent of the will of the parties, such as comparable sales data or principles of fair dealing: (e.g., "If after applying comparable sales data, we have a good-faith difference of opinion on value, we will split the difference.")

When a negotiation becomes a contest of wills, it tends to get personal and provocative. By definition, in a contest of wills, there is a loser, and none of us wants to be that person. Rather than focusing on making a deal, all efforts shift to winning. The risk of flaring anger in turn increases the chances of blowing the deal.

In deciding the price for my media room, the focus was on the fair value of the work itself, not my taking advantage of the builder’s need to sell the house or his trying to gain advantage because of my wife’s excitement.

So how did all these lofty ideas work on the rest of my homebuying experience? When Lexi and I decided to move into our new dream home before the media room was finished, I asked Kelly whether I needed to withhold some funds to encourage him to finish the room expeditiously. I told him I’d be willing to take his word instead. He gave me his word, but suggested that I also withhold a couple thousand dollars that we had agreed he would be owed for some change orders. I did so. He worked diligently and built my media room with the same exquisite workmanship he’d put into the main house. Lexi and I are highly satisfied customers, and we have a new friend. More importantly, my wife and I never even came close to divorce during the construction!

Buying our dream house was only half the equation; we had to sell our existing residence in short order. While we set our initial asking price based on comparables, we soon resigned ourselves to discounting that price for much-needed repairs. I held firm at the discounted price and received an offer for that amount with the normal provision for the seller to pay for a title policy. I had not counted on having to pay for a title policy because we had just gotten one the previous year when we secured a home-improvement loan. My understanding was that the buyers were paying cash, wouldn’t need a loan, and therefore might be satisfied with an abstract of title on the home. (The buyers were both lawyers.)

I learned that, in fact, the buyers did need a loan and would be required by the mortgage company to have a title policy. Their Realtor^® called me and said that, after all, the husband had met our price, was "a guy, too," and didn’t want to feel that he was being taken advantage of. Although I knew they really wanted the house and probably would have swallowed the entire title policy charge, I told their agent that I wanted them to feel good about the deal and agreed to meet them half way. The deal was inked.

In agreeing to split the cost of the title policy, I realized that the buyer and I each had an equal and opposite desire to avoid the cost. Rather than holding firm, knowing that they would probably not allow their dream house to slip away over the price of a title policy, I agreed to compromise–based on the principle that each of us had a need to "win." Starting off on the right foot has enabled us to cooperate with Deborah and Kreage on the critical timing of our moves into our respective houses, transfer of telephone and mail service, and property tax issues. And, we’re still trying to find time with them to drink a champagne toast!

Keep interests at the top
Our continuing saga illustrates another important technique: it’s important to focus on interests– the reasons why people take positions, not the positions themselves. The classic illustration of this principle concerns the two children who each took the position that they were entitled to an orange. The wise parent learned that one wanted the juice to drink and the other wanted the zest from the rind for a cake recipe. The children backed off their positions, being content with their respective parts of the orange.

Oh, if it were always that simple! Nevertheless, this technique is at least worth a try to overcome impasses in negotiations, such as an impasse that could have developed from my insistence on the buyer paying for the title policy. Albeit unsuccessfully, I focused on interests when I tried to see if the buyers of my house could live with an abstract of title and save several thousand dollars in title policy fees. People get title policies for different reasons: because it has become routine, because a lender requires it, because they want to be sure they actually own the property. Knowing why someone wants something such as a title policy may unlock the door to an impasse.

A little preparation can temper expectations
Finally, it’s important to manage the expectations of the parties. Agents can inoculate clients against impending bad news like lawyers inoculate jurors against bad facts. When clients expect to obtain less than top-dollar for their houses because of termite damage or slab problems, they’re not surprised, insulted, or as resistant when the low offers come in. Similarly, when buyers know they’re operating in a sellers’ market, they won’t risk losing their dream home by trying to chisel a couple thousand dollars off a reasonable (considering the market conditions) asking price. Our listing agent, Audrey, told my wife and me that even in this seller’s market, where buyers snap up houses with full price-plus offers, we could expect to get less than our full price because of needed repairs. With that information, she effectively adjusted our expectations.

Along with her truly professional work and delightful personality, Audrey’s management of our expectations opened the way to an abiding friendship.

While the principles discussed here are by no means exhaustive, I’ve found them to be more useful than many of the so-called negotiating techniques widely taught in seminars. I hope what I’ve said will bring you success in negotiations and rewarding relationships.

Mark Perlmutter is a certified civil trial lawyer, mediator, and dispute resolution specialist in Austin. His first book, Why Lawyers (and the rest of us) Lie and Engage in Other Repugnant Behavior, is an acclaimed work on productive dispute resolution.

Photo by Steven Peters/Stone

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Like a child intoxicated by the aroma of freshly turned candy-store chocolates, my wife, Lexi, drooled at first sight of our dream home. The builder took in my wife’s guileless excitement. I’m sure he thought, "Her husband doesn’t have a prayer."

Although I knew they really wanted the house and probably would have swallowed the entire title policy charge, I told their agent that I wanted them to feel good about the deal and agreed to meet them half way.