Rules of Engagement:
Negotiate with the Best of Them
Paul Evans CGA, CAPS, CGP is a native Texan with over 40 years in the construction industry. He is the VP of Millwork, Growth & Innovation for Builders First Source/BMC. Paul is licensed as an engineer in Texas and Louisiana and holds GC licenses in 17 states. He has been an instructor with the NAHB University Housing for over 15 years and is one of only a handful of Master Instructors for the NAHB in the country. He travels the country teaching Sales & Marketing, Customer Service and Negotiating Skills and has authored numerous articles and published three books on these subjects. Paul also owns and operates a fully sustainable farm and is a licensed professional race car driver.
Editor’s Note:
In Texas, a builders’ decision to exercise the “termination for convenience” clause in the building contract made recent news headlines. Termination for convenience clauses in building contracts give either party the right to terminate the contract without a default as long as they act in good faith. The builder cited that the buyers had become too difficult to work with, even to the point of being combative in demanding unreasonable changes and fixes.
While in today’s environment, the builder was able to quickly resell the home for a higher price than the original contracted amount, most would agree that, while having this language in the contract is a good risk management tool, exercising the option to use it should be a last resort. We chose to rerun this article with Paul Evan’s tips for negotiating as a timely reminder that might prove helpful in these times of unequalled challenges and unusual circumstances that our industry finds itself in.
Some people might think that negotiating is arguing. That is entirely wrong! At the end of any successful negotiation, there must be a Win-Win resolution.
Here are my HOW TO’s for negotiating sticky issues with customers:
Do your homework before you start off on any negotiation. Get as much info on the issue and the current situation that you can. So armed with the facts, you are ready to meet with the customer and work out any differences.
Make sure that all parties are present and in a cooperative state of mind. Don’t meet separately with the husband and wife. Get them both to the table. Start the meeting off with small talk to find out the mood of the day. If they want to get right into it, you will need to be on your toes, because it is a real issue with them. Once you know the tone of the customer you will then know where to head next.
Keep an open mind. Consider the possibility that the facts as you saw them may not be the reality. This is not to say that you shouldn’t make sure you get your point across as well. Just do not be so stringent with your point that you don’t hear both sides, nor should you be so accommodating that you fold at the onslaught. Remember one rule that needs to apply: If you give up something, you must get something of equal or greater value in return.
Stay calm and on task. Studies have shown that the person that stays calm in any situation wins at the end. Some people will get easier to work when you calmly respond to anything that comes up. Be polite but steadfast in your comments. Always stay on task and on point. If the conversation veers off task, bring it back. Don’t combine issues unless they are related. The issue that you have with the faucet in the master bath has nothing to do with the issue about the color of the house not being green.
Speak in layman’s terms. Remember also that you are the expert in your field and that not all folks will understand what certain terms mean. I was with a salesman one time making a call when he asked the homeowner what type of material that he wanted to use as the soffit of the house. I saw the customer had a funny look on his face. The salesman caught that the customer didn’t understand and said I am sorry, I meant the material running horizontally between the frieze board and the fascia. Now if the customer was lost on soffit, then he was thoroughly lost on the rest. Make sure the customer understands what you a saying or meaning.
Listening and asking the right questions is critical. Listen carefully to what the customer is saying to formulate the questions you need to ask next. Always remember what you learned in your research about the situation and formulate that in your questions. Consider what you are now hearing from the customer and from what you know about the situation and form the next question. Most of the time you should preface each question with, “Let me make sure I understand. You want the house painted green and we have painted it white per the contract?” Just that statement alone will get the party started.
Find common ground. “Now I understand that you like the color white and that you knew it was in the contact. Is this correct?” This is common ground that you want to clarify and make sure that both sides are in agreement about it. Common ground is a stepping stone to the next question. “So since we painted the house the color in the contract you understand that there will be a cost in re-painting the entire house?” or “Since you like the color white, what if we used your new green color as an accent?” These common grounds checkpoints can make the process flow and keep everyone confident that you are trying to be a team player. They need to understand that you are not the enemy here; while you want to please them, they have to do their part in remembering the last paragraph in the business book: You must make a profit to stay in business.
Finish with a closing statement. At the end of the negotiation, you will use the common ground you established to frame your “closing statement.” Whether you have a conclusion or not, you must have a closing statement to get a “yes” answer in agreement of where to go from there. If you don’t have a final conclusion yet, at least you now have a starting place for the next meeting. “So let me make sure I understand where we need to go from here…” Recap what has been accomplished, agree and get them to agree to consider some resolutions, and set the next meeting to decide on a solution.
Get a verbal then a written statement on what was decided. Now is the time to get a Yes or No. You want to first get a verbal agreement. Then once back at your office, follow-up with an e-mail to state the outcome of the negotiation and what was agreed upon. Always put it in writing. A simple email might be OK for something small as long as you get a reply of agreement back from the other party. Larger items may need to be addressed with a contract or change order signed and agreed upon by both parties.
Follow up after the transaction is completed. The follow up needs to be both verbal and in writing. Make a phone call to say the task is completed, and then send an e-mail stating that it is done. The verbal and written completion needs to include the original agreement statement: “Ms. Jones, thanks for the opportunity that you have entrusted in me to complete said project. As you remember, this project was to re-paint the east and west side of your home in the green color #1234. Attached is my invoice showing completion of said project. Please acknowledge that you received this invoice. Thanks again for the opportunity.”
Send an Invoice. Even if you negotiated to change something out and involving no exchange of money, don’t conclude that no invoice is needed. Follow the same procedure. Invoice for zero dollars owed. Fill out your invoice as you always would, including the overhead costs and any fees that would normally be on the invoice. Then zero the invoice out and add, “Thanks for your business.” If you have one of those customers that accuses you never giving an inch on anything, you can gracefully remind them of all the “zero balance invoices.” When you do need to invoice them for something, they won’t be surprised about the overhead or supervisor charges included on the invoice.
If all else fails. It would be naïve to think that there is never a time when you and the customer will come to an impasse, and you and/or the customer feel the need to bring attorneys into the discussion. If there is no way to find a workable solution, try to go through a third-party mediator first. Understand the difference between a mediator and an arbitrator. A mediator will moderate the negotiations and help both parties come to a mutual agreement, whereas an arbitrator will make a ruling, which is usually binding as well. If the customer insists on an arbitrator and won’t go the mediator route, then you might as well just go to court. An arbitrator is less costly than the court system, but it is just one person making the call instead of 6 or 12.
Negotiation can be used with any situation– from your son wanting a new baseball glove to a $100 million buyout. Stay true to the process. If you miss a step, it will jump up and bite you at the end! The process can take 20 minutes or 20 days, but the process must always stay the same.
