During a question and answer session at a recent industry conference, a home builder asked Moody’s Analytics chief economist Mark Zandi for his thoughts about the labor
The Art of Negotiation
When Stephen Shaw, president of Shaw Built Homes, a small-tract builder in Boonton, N.J., received a four-page checklist from a customer detailing how the customer perceived their relationship would unfold during construction, he knew he had a problem....
In response, Shaw had in-hand the customer's signed agreement for the $1 million home, the kind of agreement Shaw Built always has signed long before commencing construction. But after more than two decades in home building, Shaw knew that closing this home on time would require more than a contract. It ultimately took all of his considerable negotiating talents.
From the initial agreement through change orders and even at final walk-through, successful builders know the importance of reaching consensus with customers who have been lectured by the media to distrust the documentation builders have them sign, as well as to question the prices they are given for every item. Even builders with the highest integrity must get frustrated by the public's perception of them and how they might get treated by customers who started as "model" home buyers.
But negotiating strategies for builders don't begin or end with customers. Relationships with architects, subcontractors, suppliers, building inspectors, municipal engineers and assorted state and municipal officials require skills that can be acquired only over time. But builders also can learn about the art of negotiation from experts in other fields.
Getting to Yes
In Getting to Yes: Negotiating Agreement Without Giving In, authors Roger Fisher, William Ury and Bruce Patton note, "Any method of negotiation may be fairly judged by three criteria: It should produce a wise agreement* if agreement is possible. It should be efficient. And it should improve or at least not damage the relationship between the two parties. (*A wise agreement can be defined as one that meets the legitimate interests of each side to the extent possible, resolves conflicting interests fairly, is durable and takes community interests into account.)"
Note that winning is not necessarily part of a successful negotiation. Refusing to budge from a position might prove successful in the short term but probably will lead to more conflict. Think back: Have you ever demonstrated expertise about building codes to a building inspector? Did winning that argument help you on your next job with that inspector?
It's also important to note the difference between negotiating and controlling. Not every business relationship involves negotiating. Sometimes a subcontractor, much like an employee, must be directed to perform a task. And sometimes a supplier must be coerced into delivering materials at a certain time to a certain job. Such directives are necessary from a managerial perspective because once you lose control of the construction process, your costs rise considerably.
On other occasions, especially those involving a customer or an official over whom you have no direct control or leverage, negotiation must be used. If you've dealt with a customer from hell, you're aware of how anxious you were before meetings with that customer. You probably became adamant. Experts say adamancy is a losing approach.
10 Tips for Successful Negotiation
Barbara Braham, co-author of Be Your Own Coach: Your Pathway to Possibility, advocates the following negotiating strategies.
1. Know thyself: If you dislike negotiating, you might want the process to end rapidly and could be apt to give in too easily. Conversely, if you want to win at all costs, you might become adversarial and damage the relationship.
Michael Weiner, associate general counsel of the Major League Baseball Players Association, has handled enough high-pressure negotiations to qualify as an expert on the subject from anyone's perspective. Add his insight into the building industry - his father and uncle started a construction company 40 years ago, and it currently employs his brother - and lessons learned from Weiner might benefit any builder.
Negotiating strategy begins with choosing the location of the initial meeting, Weiner says. Where practical, he recommends that builders have it in their office so they can show evidence of previous work and because the office might impress potential customers. Builders lacking a suitable office can offer to meet at the customer's home or office, thus demonstrating the lengths to which they will go to serve customers.
Weiner says "getting the last nickel" should not necessarily be your goal. While you might try to cut the best deal for yourself, each customer meeting during the home construction process is merely one in a series of deals. To keep the process moving, Weiner says, you might have to disclose more to your customer than you would if the relationship were to last for only one meeting.
Although builders typically construct only one home per customer, they still should want to be perceived as fair. Weiner says that's really all a person should want from a negotiating session. And that sort of reputation can lead to more business.
When dealing with contractual or other matters, a builder should let a customer unwilling to budge from a position beat his chest and establish himself, Weiner advises. Only when such behavior has run its course can serious negotiating begin. But Weiner acknowledges that sometimes it's preferable to walk away, especially if an equitable agreement is unlikely.
Regarding use of a proxy (e.g., an attorney or a Realtor) to negotiate, Weiner argues that sometimes the builder and the customer both need to step aside to reach an agreement. While that might entail "taking an ego shot," it allows the project to continue or a contract to be drafted.
Weiner also thinks builders should see themselves as customers do. Most buyers don't understand construction, so they likely are insecure in their positions. They might consider the whole process expensive and inefficient. If builders empathize, they can put clients at ease by raising concerns before the buyers do.
Some think body language is an integral part of negotiating, but Weiner advises against putting too much emphasis on it, especially in a first meeting. While he says builders should learn to read people, just because someone stands with arms crossed doesn't necessarily mean he objects to what you're saying. He might stand that way because it's comfortable. Weiner thinks body language applies more to people you deal with regularly, people whose mannerisms you learn to know.
Once a builder reaches agreement with a buyer, Weiner says any modifications by the buyer's attorney should be taken personally. An attorney might have to adjust legal issues, but changing negotiated matters such as price is entirely different because the buyer is not keeping his word. "If a lawyer can convince your customer he has a bad deal, how well will his word stick during the building process?" Weiner says.
When dealing with suppliers, subs, inspectors, etc., remember that those relationships are ongoing, Weiner says. Also, it should be easier and take less time to get to the point. And, he notes, "sometimes you have to send a message and correct an imbalance between the two parties," but there's no need for excess. "If you are already seen as a force to be reckoned with, you don't have to be a bully at each subsequent meeting."
Stan Ehrlich can be reached at email@example.com.