How to Negotiate Effectively
Negotiation is an art that takes practice to perfect. Chances are that most homeowners are not master negotiators, but that should not keep them from employing the techniques outlined below to help them obtain a favorable loan modification or other mortgage workout agreement. A homeowner will definitely see positive results from using even just one or two of these negotiation methods.
Negotiating a Loan Modification or Pre-Foreclosure Workout Agreement
By the time that you are ready to negotiate with the lender on your loan modification or workout agreement you should have already completed all of the preparatory paperwork and any application that has been requested by the bank, lender or loan servicer. This paperwork should contain some sort of financial statement and a written explanation detailing why you are experiencing the hardship. This is useful because it helps you prepare your case which you will present to the bank or lender representative.
Understand what it is that you are trying to accomplish, whether you are looking for a temporary solution or a long term fix. This will help you focus your negotiation on the appropriate solutions that will address your hardship and prevent you from relapsing into default again.
In preparing for your negotiations you should also get an estimate of the value of your home. You can use Zillow or Cyberhomes for this. The idea behind this is that you can provide the lender with a friendly reminder of how much your home is worth and compare that to what is currently owed. During the discussion with your lender, you should make it a point to bring up anything that might make your home less desirable from their point of view, all of this putting into perspective how hard it will be for the bank to sell your home at a foreclosure sale, if it came to that.
Finally, a homeowner will enter into the negotiation with an advantage if they begin the loan modification process or the attempt at a workout agreement early rather than later because there will be less pressure to get a “deal” done if the homeowner has time on their side, as opposed to having a foreclosure sale date looming over the next few days. If a foreclosure sale date is imminent, the negotiation should focus on postponing that date while a workout is arranged.
The Art of Negotiating
It’s important to remember that when you are negotiating, you are dealing with another person on the other end, in this case a human representative of the bank, lender or servicer. It’s very advantageous that a homeowner is dealing with a human since humans are susceptible to human emotions and human needs.
Dale Carnegie’s famous book, “How to Win Friends and Influence People,” provides a few clues on how to deal with people in general so that you establish a good rapport that will set the stage for you to negotiate effectively. The following are a few of his points.
Ways to Make People Like You
- Use people’s names.
- Be genuinely interested in other people.
- Smile, even if over the phone, the person on the other end can sense this.
- Encourage others to talk about themselves and listen to them.
- Discuss what the other person is interested in.
- Make the other person feel important.
Ways to Win People to Your Way of Thinking
- Begin in a friendly way.
- Avoid arguments.
- Show respect for the other person’s opinions. Never tell someone they are wrong.
- If you’re wrong, admit it quickly and emphatically.
- Ask questions instead of giving direct orders.
- Start with questions the other person will answer yes to.
- Let the other person do the talking.
- Let the other person feel the idea is his/hers.
- Try honestly to see things from the other person’s point of view.
- Sympathize with the other person.
- Appeal to noble motives.
When negotiating a workout plan or loan modification, the homeowner is really trying to persuade the lender or bank to accept a solution that is most favorable to the homeowner. To effectively persuade the other person that you are negotiating with, keeping in mind the following laws of human behavior should be useful.
Laws of Human Behavior to Help You Persuade
- Principle of Reciprocation – I am obligated to give back to you what you do for me. In the setting of a negotiation, this means that any concessions given must be reciprocated. For this to work, you must offer a concession immediately when the other party has said no to your offer. After offering the concession, you can then expect and even ask for something in return. Keep in mind that you should always start off on the high end of your demands so that you have enough “room” to retreat by giving a concession.
- Principle of Consistency and Commitment – People are more likely to say yes to a request that is consistent with something that they have already said or done. This is why it is important to phrase your demands in the form of a question.
- Principle of Liking – People tend to say yes to those that they know and like. Factors that increase your likability are similarities between you and your counterpart, cooperative efforts and by giving compliments.
