When I was around seven years old, I loved my oldest brother’s microscope and was constantly sneaking into his room to play with it.
My brother did not want me in his room nor did he want me to play with his microscope, so he decided to sell it to me.
I can’t remember the price, but I do remember the terms he offered – they allowed him to use the microscope whenever he wanted, to keep it in his room if he wanted, to deny me usage if he wanted, and to pretty much keep all the rights he had prior to the sale.
My ignorance aside, I soon learned to never do deals with my brother :).
I was reminded of this story as I finished Sam Zell’s excellent book Am I Being Too Subtle? Mr. Zell is an eccentric, frank-talking billionaire investor whose primary rules for success include leaving money on the table.
Zell tells a story about selling approximately $200 million of securities to Merrill Lynch. An all too serious Merrill banker came to the negotiation ready to pay Zell a set price – and no more. Zell then responded to the perplexed banker by saying he wanted LESS than what Merrill was offering to ensure everyone was convinced they were getting a great deal.
Zell did the same thing when he was on the buyside too, often offering to pay more than what the sellers wanted, much to the frustration of his staff. But Zell knew that people would come to him with more deals if he always left money on the table.
Billionaire financier Kirk Kerkorian (who we highlighted in our blog last week) was also famous for leaving money on the table. Kerkorian once fired his top executive and had his attorney negotiate the severance package. When the attorney proudly showed off the aggressive terms he won for Kerkorian in the negotiation, Kerkorian got mad and sent the attorney back to offer a much more generous package to the departing executive.
EXTREMELY SUCCESSFUL HOMEBUILDER
I blogged about this same topic several years ago when I told a story about the founder of one of America’s largest homebuilders. He was asked in the waning months of his life to what he attributed his success and he too said it was his willingness to leave money on the table when he negotiated deals.
CHAIRMAN OF JET BLUE
Lastly, I listened to a great story on the Econ Talk Podcast with the Chairman of Jet Blue, Joel Peterson. When he was a young associate at Trammel Crowe he provided some numbers to his boss, and his boss used them to negotiate a large transaction. Peterson later discovered that he made a major error that caused his boss and employer to overpay for a project.
Instead of asking his boss to fix the problem, Peterson called the seller (a guy he’d never met) himself to explain the error and to see if Trammel Crowe could renegotiate based on the correct numbers. The seller could have of course told him to go pound sand, enforced the deal “as is” and kept his extra profits. The seller instead agreed to renegotiate, and he and Peterson became lifelong friends who have done numerous additional deals.
How many people in real estate do you know who would do that?
Anyway – please consider these stories the next time your clients are quibbling over $1,000 in the midst of a $1 million transaction :).
P.S. My older brother is now a successful attorney with his own practice and much friendlier negotiating tactics. I think he still has the microscope though, and is more than willing to sell his rights to it. Let me know if you’re interested.
Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646