“I agreed to his requested discounts and his changes to the lease terms but he hasn’t signed yet. Then I got a call from another possible tenant – and I am pretty sure this one will pay our full rate without any discounts. What should I do from a negotiation standpoint?”
My answer? It sounds like you made a commitment to the first tenant and – while you should give him a short deadline to confirm – I would not recommend re-engaging with him even though your leverage has strengthened (your alternative tenant strengthens your leverage as he’s a better Plan B than you had before). Absent your commitment, I told him, you might have tried to get a bidding war going.
Why not re-engage?
Your reputation is too important to risk. A commitment is a commitment. My Dad told me years ago – and I’m sure many of us have heard this repeatedly, “your word is your bond.” It’s true.
If you lose credibility, then nothing you say in this negotiation or in future negotiations with this party andeveryone he knows andeveryone they know (the power of social media) will be negatively impacted.
“Wait,” you might say, “there does not appear to be a legally binding agreement yet, nothing has been signed, and a significant amount of money may still be on the table. Don’t be naïve. No hard-nosed successful businessman would walk away from a better offer.”
Actually, I know a lot of hard-nosed successful businessmen who would sign up the first tenant and feel good about it. Short- and long-term, it’s the right thing to do.
Keep in mind this is different than a sophisticated transaction with teams of lawyers where everyone knows that no deal is done until everything is signed and significant unresolved issues remain after the price is agreed upon. Examples abound where public companies for sale have a bidding war, sign a letter of intent with the winning bidder, and the losing bidder comes back later with a sweetened bid that eventually wins the day.
2. Future relationship value
This also makes sense from a practical perspective. There is a significant value to your future relationship with your tenant, who presumably will be sending you a monthly rent check and likely will have many other interactions with you over the course of that lease – and/or renewals.
A little equity in the relationship here may go a long way toward helping you in your future negotiations with them.
Finally, it is true that many will simply go for more cash. In fact, a New York Times article recently detailed numerous instances in its residential real estate market recently where home sellers had deals, got a better offer, and started the bidding again. Did they make more money? Many did.
But at what cost? I wouldn’t want my name in that article as an example of a seller who went back on their word.
Published August 2, 2013 The Arizona Republic