Negotiation Starts with Common Ground (LA 1147)
Transcript: Steven: Steve and Jill here.
Steven: Welcome to the Land Academy show, entertaining land investment talk. I’m Steven Jack Butala.
Jill: I’m Jill DeWit, broadcasting from sunny Southern California.
Steven: Today Jill and I talk about negotiation, and how it starts with a common ground.
Steven: I found myself last week talking to a vendor for a pretty expensive machine for offers to owners. We had, what I think, is a pretty diametrical disagreement. It doesn’t matter. You always disagree with vendors and stuff. The whole goal for everybody is to try to get it back to center so they get what they want, we get what we want. Where does that start when everybody’s going like this and arguing?
Jill: I can’t wait to hear the whole story.
Steven: It starts with some type of common ground. I got the idea from a politician a lot of years ago who was talking about how to be … Good politicians bring everybody together. They don’t make people mad, or alienate people. They try to … I read and I watched this thing about reaching a common ground first, and then moving forward from there. For instance, we all have kids, and all of us, we don’t want them to die via nuclear Holocaust. Yeah, you hate me? Yeah. I’m not a real big fan of yours, but maybe we can make some legislation here where the kids don’t die.
Jill: That’s great, babe. That was my first example too. Shoot! I was just going to toss that one out. Darn. Funny how we think alike.
Steven: I honestly did. I was looking forward to … I mean, I am looking forward to doing this show with Jill, because I hear her doing this all the time. I like to blindside Jill on this show.
Jill: Yes, you do.
Steven: I hear her say this stuff to these sellers. Every time I walk by her office, sellers or buyers, and she’s saying this stuff. What she’s doing is bringing them back to a center. “Hey, look. You want to sell it, I want to buy it.”
Jill: What’s going to make you happy?
Steven: Yeah. I guess really the thing is just kind of price, right? This is the kind of stuff she says. “If the only issue that you and I have is price, everything else we have, all this worked out, we can figure this out.” that’s the kind of stuff she says. How can you say no to that?
Steven: Before we get into it, let’s take a question posted by one of our members on the landinvestors.com online community. It’s free.
Jill: Ivan asks, “Hi. Has anyone dealt with a rollback tax, and are these enforced? Are they addressed at closing, or will I get a large tax bill in the future?” Then it says, “If your land qualified for agriculture appraisal ,and you change its use to a non-agricultural use, you will owe a rollback tax for each of the previous five years once your land received a lower appraisal. The rollback tax is the difference between the taxes you paid on your land’s agricultural value and the taxes you would pay if the land had been taxed on its higher market value, plus some percent interest is charged for each year from the date that taxes would have been due.” So this was clearly-
Steven: End quote.
Jill: Right, end quote. The notice that he got. Then here he goes on to say-
Steven: Here’s the story to this question.
Jill: Right. Where did this come from? Well, Ivan says, “I bought 50 acres that are ag exempt, but plan on selling smaller lots that are already plotted, some less than the required ag exemption size line limit, but now worried about this potential tax. Had a real estate agent bring this up, which has killed some of his deals in the past. I didn’t believe it at first, but the above tax is directly from the county. Thanks, Ivan.”
Steven: So let me put this in layman’s terms. He’s saying rollback tax. I’m sure that’s some legitimate term from somewhere. What it means is taxes in arrears. There’s huge tax breaks for farms for agricultural property, because everybody benefits when people grow crops. We need to eat.
Steven: It’s the same way, by the way, with nonprofit owned real estate. When you look at these hospitals or universities, they don’t pay any taxes. If you’re a legitimate 501C3 and you own a hospital, a nonprofit hospital, or a teaching institution, you don’t pay any property taxes at all. It’s millions and millions of dollars a month. Harvard, the university, doesn’t pay any taxes. It’s technically nonprofit exempt. That campus isn’t … If that were a for profit university, millions-
Jill: I think they do okay anyway, last time I checked. It’s not like, “I can’t afford to put food on the table. I’m a professor at Harvard.” You never hear that saying.
Steven: Those guys make … Tenured professors make $3 and $4 million a year.
Jill: Yeah, see? I’m sorry. I’m not going to go there right now because it’s not the discussion, but I have a little beef about the for profit nonprofit thing like that.
Steven: So do I.
Jill: Anyway …
Steven: That’s something you and I would agree on.
Jill: Let’s just call a spade a spade.
Steven: Why … Go ahead. I want to vent here too.
Jill: I’m sorry. Newman’s dressing. Is he not getting anything out of this? I’ve got to wonder.
Steven: Here’s my big complaints. You’re staring at two pieces of real estate. You’re looking at … You’re standing at the street, looking at two pieces of real estate. They look exactly the same. One of them gets taxed fully, gets taxed at, let’s say in California, this isn’t uncommon, $50,000 a month. The other one is $300 a year. Now let’s forget about why. This is real. Let’s forget about why. Is that okay? On what planet is that okay?
Steven: I don’t see it. We have all these crazy real estate tax laws in California, and this non … Again, okay, take the same thing I just said. Here’s a hospital that pays no taxes, because it’s nonprofit. Here’s a for profit hospital across town that pays $24 million a month in property taxes. How is that a level playing field for competition? It’s not. So property taxes, I believe that real estate, I mean, income taxes are relatively level, or at least our legislators think that. I think that property taxes are leftover from 1750, and totally cockeyed.
Jill: I don’t disagree at all.
Steven: Anyway, back to Ivan’s thing.
Steven: Rollback, or taxes in arrears, are because a property changed statuses. He’s going from agriculturally assessed property, or nonprofit assessed property, and it’s transferring ownership to a different use. Same thing, let’s say you buy a nonprofit hospital. A for profit hospital buys that nonprofit hospital. In the statutes, and he was nice enough to quote it for us, there’s rules. They say, for whatever reason this made sense to some legislator in the past, we’re going to go back five years and charge you.
Jill: And 7% interest.
Steven: Right. So his question is, has anybody ever heard of this? Obviously we have, because we’re real angry about it, you and I.
Steven: It’s something you’ve really got to look into when you start moving uses around. Here’s the dangling carrot. Here’s the kicker. We always sit and talk about agricultural property is the greatest thing you can buy ever. You can zone down from there to do anything, make subdivisions is what Ivan’s doing, put his trailer on it, which is a great situation for the business that we’re in. You just have to be super careful with the next assessor how they look at that.
Jill: Mm-hmm (affirmative). I have two things to say. You asked one of his questions. Are they enforced? I think at some point they will be, so be ready for it. They’ll catch up with you. Trust me. They’ll catch up with you, especially if you’re in California.
Jill: The second thing is, what’s funny is if you go through a title agent and they catch it, they will try to throw it in there, a good title agent will. A lot of title agents won’t catch it, and you’ll find out later down the road. It will catch up with you.
Steven: Yeah. A vast majority won’t. That’s my opinion, but you’re closer to it.
Jill: Yeah. I had one just recently where there was a lien. There was a flat out water lien and some other lien on a property, and we bought it through title and we closed through title. When I bought it through title, they didn’t catch it. When I closed through title, they caught it on the sell side. I’m like, “Where did this come from?” Which really made me mad, because it should have been a lien on the prior owner. It should have been dealt with when I bought it, but it didn’t, so guess who got the $4,000 bill? I did.
Steven: What did you do?
Jill: There’s nothing I could do.
Steven: Oh, you [crosstalk 00:08:32] the deal.
Jill: I fought it. I did. I fought it. Well, I made enough so that was fine anyway. I didn’t change the deal at all, because we’re good people. I didn’t say, “Oops, you owe me an extra $4,000,” or something like that. No, we had enough to cover it, so it’s no big deal. But it is a big deal. I was mad, because I went back to the prior agent, tried to fight it, and they’re, of course, fighting back.
Steven: We could actually … That’s an insurance claim. It’s not even a lawsuit.
Jill: I know. I could-
Steven: How long ago was this?
Jill: Just recently, in the last 90 days. When I just got the … It’s funny you bring this up, because just this week I got the answer back from their counsel saying, “Oh, because of section I98 we’re not liable.”
Steven: Want me to get involved in this?
Jill: If you want to. It’s $2,000, about $4,000.
Steven: Is it $4,000?
Jill: I think it’s worth pushing a little bit.
Steven: It’s an insurance claim.
Jill: Yeah, that’s what I think.
Steven: That’s all it should be. You know what? I will get involved in this.
Jill: I said I want to open it formally. Would you?
Steven: If not for any other reason, it’s a good topic for this show.
Jill: Yeah. I tell them I’d like to open a formal thing, and they went back saying, “We’re not liable, but if you really want to push it, you can.”
Jill: I’m like, “I think we will then.”
Steven: You know what the problem is?
Steven: This is more you and I talking. We’re having a meeting right now, Jill and I.
Jill: Excuse us.
Steven: The issue is that theoretically the law firm …The legal fees would probably exceed what we’re actually going to … I’m sure you have a case. I’m sure of it, but the legal fees … You know really what I want to avoid, is them intimidating you because you’re a woman.
Steven: So if that’s going on, I’ll spend $25,000 to get $4,000.
Jill: I don’t think that’s it at all. It’s not that at all.
Steven: The protective Steve comes out.
Jill: For me, it’s the right thing to do. They screwed up. It’s the first time I’ve ever had a title agent make a mistake. Ha ha, just kidding.
Steven: What the heck is she saying? Today is the first time?
Jill: Could you imagine?
Steven: It’s the first mistake today.
Jill: First mistake today. That’d be hilarious. Ah, okay. Anyway.
Steven: Boy, it’s a good thing the topic today is light.
Jill: We’re just going off. This is our Monday vent, apparently.
Steven: Today’s topic? Negotiation starts with a common ground. This is the meat of the show. As I said earlier, all good negotiation starts .. Well, we send all these letters out, and people call us back. Jill is famous for saying … Some of them are really angry. They’re like, “How did you come up with this price?” Some of them just sign it, and we do the deal. Jill’s famous for saying, “If they call back, no matter how angry they are, they actually have an interest in selling. They just don’t know it yet.” That’s what this topic is really all about. I think, and I’m not saying that this show is not about how to convert angry callers on the mailer into sellers. That’s not what I’m saying. What I’m saying is, in any negotiation, I don’t care who you’re talking to whether it’s a vendor or an employee or your children, I think it’s very smart to start with some type of common ground. I would think you’d have a lot to say about this as a sales … Between the two of us, you’re the salesperson, so …
Jill: Well, let me back up. I do think that when they call … The majority of them, they’re calling back because they are interested. Not all of them are. Let’s call a spade, a spade. There are a few people that probably ream every pizza company that leaves a flyer on their door for wasting paper. They’re not calling them back because I really do … By the way, can I get two pizzas for $10.99 based on this flyer that I’m really mad about? They’re not going to do that. But there’s a lot of them, I think that’s the reason why. That’s the first, but you’re right. That’s the first common ground. All right, they’re calling me back. Do they even want to sell? If they do want to sell, we’re on common ground. I want to buy. You want to sell. Now we’ve just got to figure out what is the price.
Jill: I made some notes, and I was thinking about negotiation. First of all, I don’t like it either. I really don’t. The only time I like negotiating is when I’m in Mexico. It’s kind of fun, and we’re just goofing off. I kind of want the silver bracelet. I don’t really want the silver bracelet, so I’ll throw out some numbers. He throws out some numbers. We all laugh, and then I might get a silver bracelet out of it. I might not. I might walk away, because I didn’t want it that bad. That’s the kind of negotiation that I like. I’m good with all that.
Jill: The other kind I don’t really want to do, because I really know that there is a number that I’m happy with, and they’re happy with, period. We’ve just got to figure that out. I, as the buyer, and Mr. Jones, as the seller, is trying to … I’m trying to get the best purchase price I can, and he’s trying to sell at the highest price he can. Who wouldn’t? We all would. That’s just life.
Jill: I try to figure out what is that number? I’m not here to go back and forth and back and forth all day. That’s ridiculous. I like to think I’ve gotten better at it. I know I have. I’ve really got to the point where I really have this conversation with them, and I’m not trying to negotiate, but I say, “Here’s the deal. This is who I am. This is how I roll. This is how the transaction will go. Please keep in mind there are no agents involved, no commissions. This, this, this and this. I’ll pay for this, I’ll pay for this, I’ll pay for this, so you know I’m not negotiating. I’m putting it all out there. All I’m trying to find out from you is this; what is, keeping all that in mind, what is the bottom number that you would accept for this property?”
Jill: I tell them too, “Please don’t answer me right now, unless you know what … you are done. You have it in your head, and you’ll die unless you get that number.” There are people that will do that. Then they don’t really want to sell. That’s what you just uncovered.
Jill: I try to find out what it is, and then I let them come back to me. They may call me back, they may email me back, whatever it is. I’ll tell them … I just did this with LA County, big $2 million deals. I said, “Just let me know. I don’t want to waste your time. I don’t want to waste my time. Please come back to me with a number. I will give you a yes or a no, and we will just go our separate ways whether we’re going to do the deal or not.” That’s kind of it.
Jill: Then as the buyer, sometimes, not often … I’m trying to think of an example. Say they come back with a number, and it was $1.2 million. I knew I wouldn’t go above $950,000. I would not budget $950,000. Depending on the situation, when they come back with a $1.2 million, I’m walking. I know I’m walking. I’m not going to meet them there. But they might say, “What would you pay?” Their $1.2 million is not in stone.
Jill: I’ll go, “You know what? I’ll be honest with you. My highest and best would have been $950,000, and that’s it,” then I walk away. Even then sometimes, I might come back. Would you call that negotiating?
Steven: I would absolutely call that negotiating.
Steven: But this topic, we veered off to negotiation here.
Jill: Oh, sorry.
Steven: No, no. It’s totally fine. You know what? I’ll get back to a common ground in a second. I’ll tell you what stops negotiation for me in a really good way. We look at mailers … I look at mailers as projects. All right, this is a South Carolina project, or this is the Mojave County Arizona project, or whatever, or we’re trying to buy tons of forties in Iron County, Wyoming, or Montana. I look at them like projects, so in all these projects, every single one of them for me, before I even sit down to do a mailer and pick a county, starts with, “All right. How much money can I sell these properties for? I know if I send a mailer out for 40 acre properties in XYZ County …” Carbon County, Wyoming, let’s say. I’m just pulling a county out. We had a very successful 40 acre campaign there a long time ago.
Steven: “I know I can sell these properties for about $20,000, and I can sell them within hours. Am I going to sit around and negotiate? I sent an offer campaign out for eight, and somebody comes back at 10 and says, ‘I’ve got 10 properties to sell you.'” This happened. “‘Ten properties to sell you at $10,000 each.’
Steven: “Do I sit around and say, ‘Well, I sent you an offer for eight. What’s the problem with eight?’ Do I get into it with them? No. I know I’m going to double my money, and I’m going to do it quickly.” That’s what you do. I’ve seen more people … We have gone through more transaction coordinators for this exact reason than any other reason, because for some reason in their soul, they believe that they’re going to be a hero if they pick up that extra $2,000 a deal. I could care less. I just want to get a deal done. I would rather do 10 properties at $10,000 each. That’s a $100,000 payday in two weeks.
Steven: This became about negotiation for whatever reason. My point is, when somebody … About common ground, and I’ll wrap it up on this, there has to be for my common ground, and it’s worked for me throughout my whole career in commercial real estate and with land, specifically with houses, Mrs. Jones, you want to sell your house, clearly. I want to buy your house. The thing for me that really matters is price. What I’m hearing you say, the thing for you that really matters is that you don’t want to have to clean out the basement, or do any of this stuff. You want to go visit. Your granddaughter said you can come and live with her in Arizona, so how can we make this work together? I want you to feel good about the price that we’re purchasing it for, but at the same time, I’m going to do all this other stuff for you. I’m going to clean the basement out. You can just walk away, if you want. I want you to know we’re not paying you top dollar for the house, but it doesn’t seem to matter to you anyway.
Steven: This stuff really happens all the time, so we’ve reached a common ground. Probably 50% of the deals that I’ve seen that fall apart are for some peeing contest between two people over … It could be … In health care a lot of years ago, I had a deal collapse because it was a for profit group buying it from a nonprofit group. The nonprofit group had a longtime resident in a longterm care facility who had some type of religious things that they wanted to keep there. There was just this huge debate about … and it killed the deal. Where’s the common ground in that?
Steven: It’s silly, negotiation silliness. The modern version of that is people trying, for whatever reason, hanging their hat on, “I soaked every single penny out of that seller that there was left. In fact, they’re walking away with no shirt.” I don’t know where that comes from. Do you?
Steven: I don’t think you’re going to be around in business very long if you do those kinds of things. I don’t think if you … I always use the car dealership as … I don’t think that when a person buys a car, and they sign all this stuff and they drive away, and the salesperson runs in the back of the shop and high fives everybody, says, “God, man, I absolutely took that guy. I just nailed him.”
Jill: So your common ground is figuring out, they want to sell. What are all the terms and things around that, and price is last?
Steven: Well, price is very important for us, but getting the rock bottom dollar price is less important than getting a deal done where you’re doing okay.
Steven: I think to get to that point, you have to find out what the common ground is. They obviously want to sell. If price is their absolute … You’re a perfect person to do this episode with, and I know we’re over on time. If you get a call back from a guy who’s in the real estate business, who’s got 22 properties. He received your letter or letters, and he says, “I got your letter for $10,000 a property. My rock bottom number, and I’m in this business just like you are, is $12,500, because I bought them for $7,000 18 years ago. If you can accept that, and you know they’re worth $20,000, if you can accept that, we can get a deal done very quickly.” Then I think that everybody met a common ground, and that’s how price is going to work. But what I see more often than that is somebody is in the business, usually an older person, way older than us, and says, “Is that all you’ve got, $10,000?”
Steven: “That’s not going to work for me.”
Steven: “Well, Mr. Jones, what’s going to work?”
Steven: “I don’t know. What else can you pay?” That’s not a common ground. That’s a little negotiation game where everybody’s maybe bored with whatever they’re doing that day, and they’re not really interested in getting a deal done. The next thing makes me a little angry thinking about it right now.
Jill: I understand.
Steven: Does it make you angry?
Jill: It does. Thank you.
Steven: It’s a waste of time.
Jill: Happy you could join us today. Every Monday, Wednesday, and Friday you can find us right here on the Land Academy Show. Tuesdays and Thursdays, we are over next door on the House Academy Show.
Steven: Tomorrow the episode on the House Academy Show is called Affordable Housing: Solutions for Affordable Housing. Just ask us. You are not alone in your real estate ambition.
Jill: Well, this was a perfect example of-
Steven: I think it’s great.
Jill: … we don’t talk about these topics before we sit down, clearly, because we both have different directions on the same topic. They did not really relate at all, but hopefully you got a lot out of that.
Steven: You know what this should’ve been called? Real world examples of why-
Jill: Steven hates negotiating?
Steven: Self-serving negotiation doesn’t work.
Jill: There you go.
Steven: That’s what this should be called.
Steven: Self-serving negotiation.
Jill: There we go. That would’ve been a little different. That wouldn’t be okay. The Land Academy Show remains commercial-free for you, our loyal listener, so wherever you’re watching, wherever you are listening, please subscribe and rate us there. We’re Steve and Jill.
Jill: And inspiration.
Steven: To buy undervalued property.
If you have any questions or comments, please feel free to email me directly at steven@BuWit.com.
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