Thursday, October 24, 2013

5 Things Most People Don't Know About Negotiating


VICTORIA PYNCHONTHE DAILY MUSE OCT. 22, 2013, 4:42 PM 

Many of us often shy away from asking for more and better. More money. Better working arrangements. A larger team. Better access to material resources. Higher fees. Better prices.


Some of us are afraid to ask. Some of us, especially women, have been taught not to ask — we’ve been taught to be self-sacrificing, not self-serving. Some of us do ask, but stop short of asking for what we really want or what we’re truly worth.
But whatever your reason, I probably don’t have to tell you that, by not asking, you’re missing out on more than just money; you’re putting your long-term opportunities and earning potential at stake.
If you’ve ever stopped before negotiating your true market value, read on for five things most people don’t know about negotiating that will change the way you think about asking — and give you a strong leg up when you do.

1. The Negotiation Doesn’t Start Until Someone Says “No”
One of the greatest inhibitions my clients have is risking rejection. This is particularly true in the post-’08 meltdown and continuing jobless recovery from the worst economic calamity since the Great Depression.
Our reluctance to negotiate past “no” is even harder because both men and women miss the key point: It’s not really a negotiation if we’re asking for something we know our bargaining partner also wants. Negotiation is a conversation whose goal is to reach an agreement with someone whose interests are not perfectly aligned with yours.
And let’s be honest, who has relationships with people who always want what we want? No one! So if we want to get what we’re entitled to get or capable of getting, we either have to negotiate past “no” or spend the rest of our work lives being victimized by people who are happy to place themselves and their needs ahead of ours.
“No” signals an opportunity to problem-solve the conflicting and overlapping interests both parties want to serve. Invite your bargaining partner to your side of the table to figure out how both of you can get as much as each of you wants as possible.


2. Your Bargaining Partner Will Be Happier if You Make Several Concessions Than if He Gets What He Thinks He Wants

This is true in the same way that “the earth is round” or “the universe is expanding” or “high heels hurt your feet” are true. In experiment after experiment, social scientists have proven that people are not particularly happy when they get what they think they want. They’re happier when their bargaining partner says “no” a couple of times before he or she says “yes.”
Why? Because negotiators are more afraid of leaving money on the table than they are about getting what they think they want. If I ask for a 5% raise and my boss says “yes” without hesitation, I generally suffer from buyer’s remorse, certain that if I’d asked for 7% or maybe even 10%, my bargaining partner would have given it to me.
This is just one of the many reasons why it’s important to ask for more than you actually want. The other reason to do so is the proven influence of the first number put on the table. Negotiators call that number an “anchor” because it sets one end of the bargaining range and moves your negotiation counterpart in its direction throughout the course of the bargaining session.
If you’ve adequately researched your negotiation partner’s interests and your own market value, you needn’t fear making the first offer, hoping that his or her first offer will be far more than you’re expecting. Waiting for the “other guy” to make the first offer is the mark of a negotiation amateur. Anchor first and anchor high, and you’ll be playing in the big leagues.

3. It’s Never About Money

Though we seldom reflect on our relationship with money, if asked we’d have to admit that money itself — in its tangible form — can neither sustain life nor enhance it. Cash, checks, credit, money orders, and wire transfers cannot themselves be consumed. Grant deeds and lease agreements cannot be inhabited. Stock certificates cannot create warmth in winter nor illuminate the dark of night.
That being the case, there is no relationship and every relationship between any given sum of money and what it can buy. With $20 in my wallet, I can purchase dinner for five at McDonalds or a bottle of cheap Bordeaux at a local restaurant. I can pick up a pair of sandals at Payless; subscribe to Time magazine for six months; rent a surfboard at the beach; fill half my tank with gas; hire a day laborer to do odd jobs on a Saturday afternoon; or, according to my Sunday magazine, save a child in a developing country from starvation. Sentimental pop songs to the contrary, enough 20s can even buy me love.
Before negotiating any deal, take a look at the way in which you “value” money. Is it status you’re seeking? Security in your elder years? Education for your children? A meaningful break from work that takes you to a foreign country or high-end spa? Then ask your negotiation partner what she values, prefers, needs, fears, prioritizes, or desires. You’re apt to find yourself on the same page of value once you stop treating money as an objective measure of worth and start seeing it for what it is — a subjective experience that can make $1,000 act in the world as if it were $10,000.

4. Your Bargaining Strength is All in Your Head

The person who is perceived to have the least to lose is the person with the greatest bargaining advantage. If you’re negotiating—that is, having a conversation leading to agreement, there is always something at stake for both parties.
A good example: Many say the Los Angeles or San Francisco or New York City real estate markets are over-heated and that everything is over-priced. It’s a seller’s market. It seems as if there are an unlimited number of people willing to pay “over asking” and many of them “all cash” for every home or condo or co-op for sale. Doesn’t that mean that all buyers are in a weak negotiating position and all sellers in a great one?
Not necessarily. Every seller is selling for a different reason. A considerable number of homeowners are retiring. Their kids are gone and they don’t need so much space anymore. Some of them have already signed up for a place in a retirement village or a condo in Palm Springs. They are pressured by time. They could pay for both residences for a month or two, but if it takes them six months to get the price they want, they will have spent the extra purchase price on rent or mortgage payments or homeowner fees in their new home.
The more knowledge you have of the hidden interests and constraints under which your bargaining partner is operating, the more negotiation power you have, even in a “seller’s” market.
But there’s even better news than that! If you act as if you are prepared to walk away from a deal unless you achieve your desired goal, your bargaining partner will be far more incentivized to meet your requirements or make serious problem solving efforts to create enough value so that both of you get what you most want.

5. Any Reason is Far Better Than No Reason and Nearly as Good as an Excellent One

When people estimate their value to their company by the results that their work has produced, they often hesitate sharing that information. “I can’t prove that,” they say, and being unable to “prove” it, they feel unable or unwilling to take credit for it.
Here’s the super secret of all great negotiators: You don’t have to prove something that justifies what you want; all you have to do is say it. When you’re negotiating, you’re not in a court of law. You’re rarely making statements of fact that could land you in hot water for fraud if they prove to be untrue. You’re stating an opinion, and no less an authority than the Supreme Court of the United States has said there is no such thing as a false opinion.
In common parlance, you’re puffing.
The social science research confirms that appearances are reality.
In one experiment, students were asked to cut in line at a local Kinkos. One group was told to give no reason, one a nonsensical reason, and one a good reason.
  1. Can I cut in line?
  2. Can I cut in line? My mother’s in the hospital, and I need to get these papers copied before I can go see her.
  3. Can I cut in line? I need to.
Here are the compliance rates:
  1. No reason: 40%
  2. A good reason: 98%
  3. A nonsensical reason: 97%
So, go ahead. Take credit for last quarter’s increase in net profits even if you can’t prove it. You don’t have to file a declaration under penalty of perjury or testify under oath on the witness stand. You’re highly unlikely to be cross-examined because your negotiation partner can’t prove that your causal assertion is untrue. Millions of years of “common sense” support your assertion that correlation is causation.
It’s not. But it might as well be.
Feel free to try out these strategies and tactics at home with the people closest to you. Can’t agree on a movie? Be willing to walk away if your choice isn’t met. Give a reason, any reason, why your choice would be better for everyone, not just for yourself. Understand that the push-back you’re getting is just an opportunity to problem-solve in a way that satisfies your interests and your roommate’s or spouse’s interests at the same time. Do this at home, and then try it out with that raise you haven’t gotten for the past five years. Then, let me know how it went!
Happy negotiating!



Victoria Pynchon is an attorney who practiced commercial litigation for 25 years. Since 2004, she has been mediating and arbitrating commercial disputes — the former with ADR Services, Inc. in Century City and the latter with the American Arbitration Association in Los Angeles. In 2010, she founded She Negotiates Consulting and Training with her business partner Lisa Gates. In 2006, Victoria earned her legal masters degree (LL.M) in Dispute Resolution. She has been teaching negotiation and providing negotiation consulting services to lawyers, executives, professionals, managers and entrepreneurs ever since. She is the author of two books, The Grownups' ABCs of Conflict Resolution (Reason Press 2010) and Success as a Mediator for Dummies (Wiley, April, 2012).
This post originally appeared at The Daily Muse. Copyright 2013.







Saturday, October 19, 2013

How To Jump Through Condo-Lending Hoops


 

Whether buying or refinancing, getting a loan on a condo is hard. Here's what you should know.

By Michele Lerner of Bankrate.com
Borrowers run into two problems when getting a mortgage on a condominium: strict standards that make it hard to qualify for a condo loan and high costs.
These issues beset condo buyers who want to get mortgages as well as people who already own condos and want to refinance.
"Condos are like the canary in the coal mine, a leading indicator of the health of the real-estate market," says John McClellan, a branch manager with Supreme Lending in Austin, Texas. "Recently, lenders' biggest losses came from condos, so they are viewed as risky."
Some lenders reject condo loans altogether.
Condo loans have to jump through two hoops. First the borrower has to qualify. Then the condo association has to qualify, over which the borrower has little or no control.
"Condo financing is very situational because it depends not only on the borrower but also on the project itself," says Matt Ostrander, CEO of Parkside Lending LLC in San Francisco. "The guidelines have tightened because lenders want to see a financially healthy condo development. They want to see a higher concentration of owner-occupants, and they want to see that delinquency rates on condo fees are low."
Standards differ
Lenders follow guidelines from the Federal Housing Administration, Fannie Mae and Freddie Mac for condo mortgages.
Among Fannie Mae's requirements:
  • More than half of the condo units must be owner-occupied.
  • No owner may own more than 10% of the units.
  • No more than 15% of owners can be delinquent on condo dues.
  • All amenities must be completed if the development is more than 12 months old.
  • Buyers who make a down payment of less than 25% will pay an additional 0.75% of the loan amount at closing or an interest rate that is about 0.25% higher.
The FHA has much friendlier down-payment requirements but has strict guidelines for condo associations.
"It's a misconception on the part of the public that you can't buy a condo without a big down payment," says Ed Wilburn, a mortgage banker with FEMBi Mortgage in Miami. "The rules are stricter now, but if you find a building that has already earned an FHA approval, you can get in with a down payment of 3.5%.
"FHA approval depends on the financial health of the condo, so the condo association needs to prove that they have adequate insurance, a budget with reserves, no pending lawsuits and no anticipated special assessments."
Where to begin
Wilburn says condo buyers should start by checking to see if a building is approved for FHA loans. If not, they can ask the lender to see if the building meets Fannie Mae and Freddie Mac guidelines. Buyers can ask condominium managers if they have recently completed a homeowner-association certification or questionnaire, which provides information on condo-fee delinquencies, insurance and other factors that affect eligibility for loans.
"Even if the condo meets the Fannie Mae guidelines, buyers may find that they must make a down payment of 20% or more because mortgage-insurance companies are less willing to provide mortgage insurance on condo loans, (because) they are considered riskier," Wilburn says. "In fact, most mortgage-insurance companies won't insure a Florida condo. It may be easier in other markets."
McClellan says a local lender will know which local complexes have FHA or Fannie Mae approvals.
"Have a list of places you like and check the status of their approval" with the lender, he says.
Options thin out
Condos that are not approved for FHA or Fannie Mae financing are known as "non-warrantable" and offer few options for buyers or refinancers.
"Buyers can either pay cash, or they can look for a local bank that is willing to lend," McClellan says, "but they should be prepared with a hefty down payment of 50% or more, have excellent credit and still be prepared to pay a higher interest rate. They should expect to pay as much as 7.5% when rates are 4.5% for other loans."
Homeowners interested in refinancing will first need to face the potential problem of a lack of equity, because condo values have dropped in many areas.
"Condo owners can ask their management company if their complex is FHA- or Fannie Mae-approved, and if (the complex is) not, they may want to contact a local lender to see if they start the process for obtaining an approval," McClellan says. "It's in the best interest of all the owners to do what they can to meet FHA guidelines, (because) that approval can increase the value of all the homes in the development."









Wednesday, October 16, 2013

If The Debt Ceiling Does Not Pass: Mortgage Rates May Surge if Gov't Defaults

The clock is ticking for lawmakers to prevent the debt ceiling breach or the government could default on its debts. If the government does default, there likely be one consequence for home buyers that will soon emerge: skyrocketing borrowing costs. 
"Anytime there is a default, the borrower is going to get punished in terms of higher interest rates; if the government defaults, that means Treasury rates will also rise, and that also pushes up mortgage rates,” Lawrence Yun, chief economist for the National Association of REALTORS®, told Fox Business Network. “The housing market is highly sensitive to changes in interest rates.”
Home buyers may not be aware that there is a strong link between the government default and mortgage rates. 
The average rate on a 30-year fixed-rate mortgages was 4.23 percent last week, Freddie Mac reported. 
However, if the government defaults, mortgage rates could rise overnight by a full percentage point or more, says Anthony Hsieh, founder and CEO of LoanDepot, an online mortgage lender. Stu Feldstein, president of SMR Research, a mortgage research firm, predicts mortgage rates could rise by as much as two percentage points within a day or so. 
Hsieh believes the rise in rates would prompt more buyers to consider adjustable rate mortgages. 
"In the last three years or so, consumers have been spoiled with rates in the high threes to the mid-to-low fours,” Hsieh says. “If we climb into the 5 percent interest rate range, that will create psychological barriers and adjustable rate mortgages will become attractive -- even if they aren't."
Higher mortgage rates could make a big difference to buyers’ with their monthly payments. For example, a 30-year fixed-rate mortgage for a $300,000 loan could have about a $1,472 a month payment at a 4.23 percent mortgage rate. But if mortgage rates rise to 5.5 percent, that same mortgage would have about a $1,703 monthly payment and $83,160 extra in interest over the life of the loan. 
Source: “Could Government Default Send Homebuyers Racing to ARMs?” FOX Business (Oct. 15, 2013) and “Mortgage Rates Could Spike if U.S. Defaults,” The Wall Street Journal (Oct. 16, 2013)

Thursday, October 10, 2013

Is It Now Or Later?

Why it Might Be Cheaper to Buy Now


Mortgage rates are nearing the 5 percent mark, prompting many home buyers to rush to take advantage of rates while they’re still low. 
“Most people agree it is only a matter of time before rates hit 5 percent,” Peter Grabel, a mortgage loan originator at Luxury Mortgage Corp. in Stamford, Conn., told realtor.com®. “The housing market has clearly turned the corner in most areas. I think a year from now, people will look back and realize that this was a great buying opportunity.”
Some forecasts show rates could edge even higher to 5.5 percent or even 6 percent in 2014. The Federal Reserve has announced that it will soon start tapering its $85 billion monthly bond-purchasing program, which is expected to send mortgage rates rising from recent record lows. 
Currently, 30-year fixed-rate mortgages are averaging 4.2 percent, according to Freddie Mac. 
In a recent blog post, realtor.com® illustrates the effect of rising mortgage rates on buyers’ pocketbooks: 
  1. Example: A buyer gets a 30-year fixed-rate mortgage at a 5 percent interest rate on a $300,000 loan.
    Monthly payment: $1,610.46
    Total payment: $579,569.69
    Total interest: $279,769.69
  2. Example: A buyer gets a 30-year fixed-rate mortgage at 6 percent interest rate on a $300,000 loan.
    Monthly payment = $1,798.65
    Total payment = $647,515.44
    Total interest = $347,515.44
The buyer with a 6 percent interest rate would pay about $67,746 more over the life of a loan than the buyer who was able to get an interest rate at 5 percent. 
Source: “Buy a Home Now or Pay More Later?” realtor.com® (Oct. 8, 2013)