chapter 9 negotiation, ethics and risk management in the contracting process
DESCRIPTION
Chapter 9 Negotiation, Ethics and Risk Management in the Contracting Process. Major Topics. Principles of successful negotiation styles How ethical perspectives influence negotiating styles Adversarial versus cooperative negotiation Aligning Principal and Agent Incentives - PowerPoint PPT PresentationTRANSCRIPT
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Chapter 9
Negotiation, Ethics and Risk Management in the Contracting Process
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Major Topics
Principles of successful negotiation styles
How ethical perspectives influence negotiating styles
Adversarial versus cooperative negotiation
Aligning Principal and Agent Incentives
Traits of successful negotiations
The process of negotiation
Principal and agent issues in negotiation
Risk management in contracting context
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Negotiation
“ The process of contracting for an exchange, a way to achieve cooperation for some type of trade that will meet our objectives”
Methods of negotiation are varied and include:1. Manipulation, or guilt2. Obligation and loyalty3. Incentives 4. Penalties5. Logic and empathy
Negotiation used in real estate include:Lease, Contract to buy or sell or rehab, mortgage commitment, etc.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
General Negotiation Philosophy: Extreme Views
The Competitive Approach
Principled Negotiation
Factors influencing Degree of Cooperation Versus Competition in Negotiating Styles
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Ethics are not universal and do influence style
Presenting a misleading picture will be considered unethical by many business people
Most Americans consider predatory pricing unethical, but most Japanese consider gaining market share good business
Historically, the Japanese have considered leveraged buyouts or massive layoffs unethical, but some Americans view these as sound business practice
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Ethics are not universal and do influence style
Musashi’s Book of Five Rings
Sun Tzu
Riklis
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Successful Negotiation Traits
1. Self-Confidence is Critical
2. Patience is Important and Listening is critical
3. Information and Knowledge are Power
4. Stay Objective and Know your True Interests
5. Know your Options at All Times
6. Consider Everything Negotiable
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Negotiation: The Process
Negotiation starts before actual meeting and continues after all meetings
“Posturing” is the presentation of positions that are generally extreme or positional in nature.
“Claiming” behavior is an attempt by one negotiating party to claim contractual agreement or commitment on an individual issue, where the other party has presented an attractive position.
Integrative Negotiation
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Role of Communication Skills in Negotiations
Commonly perceived indicators of confidence and power, that can influence flow of negotiation:
Voice Tone
Framing - Art of Tactful Communication
The Importance of Non-Verbal Communication
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Aligning Principal and Agent Incentives Prior to Negotiation
An agent has a fiduciary obligation to the principal with very specific duties
Agent must be clear about the terms of employment
The objective of the principal (often the owner) is to set up incentives in such a way that an agent will maximize what is best for the principal as well as the agent.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Ethics, Agency and Appropriate Behavior in the Contracting Process
Ethics – “proper or appropriate behavior”
What is proper or appropriate?
Is Ethics the same as doing the right thing?
Cicero First: do what is legal Second: Do what is honest, open and fair Last: Always keep your word, no matter
what the consequences
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Contact Negotiation in a Risk Management Framework
Risk Shifting
Risks are shifted from one party to another through contractual arrangements
Parties involved could be the buyer, seller, landlord, property manager, tenant, agent or banker
In exchange of accepting risk the party might receive higher return or be able to accomplish another objective
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Risk Management
Examples Economic risk based on dependency on
others Management risks: the rent paid in cash Exchange rate risks Vacancy risk: keeping key tenants Operating risks: utility expenses Seller financing: refinancing interest rate
risk Repair risks: several items need to be
replaced Buyer requires an empty building (no
tenants) Other issues: Tie it up then work it out Moral Dilemma: Tenants are old and on
social security; rents are below marketExtra Material not covered in Text
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
END