Tips to better understand leverage

Roy Koppelmann is a North Carolina real estate investor and developer. His area of ​​expertise: understanding and applying the levers for successful real estate negotiations. For this article, he expands on his biggest trading lessons and offers tips for using leverage effectively, while maintaining positive relationships.

What is leverage?

Depending on the context or the industry, the concept of leverage can be explained in different ways. When it comes to trading, even in real estate, leverage is basically how much you can get a concession from another party without getting a commensurate concession in return. Basically, it’s the power to influence your counterpart to get the outcome in your favor, without having to give up too much.

According to Koppelmann, in real estate, leverage often swings between buyer and seller. For example, in the early stages of a transaction, the buyer usually has more leverage than the seller, as they can lock in a property with little money or due diligence. On the other hand, at some point in the transaction (usually the deposit period), the buyer’s money is committed. If the deal doesn’t go through, the seller can walk away with the buyer’s money and the original property – the seller now has all the leverage.

The Importance of Knowing Who Has the Leverage

According to Koppelmann, this is essential for successfully completing real estate negotiations. Two things to pay attention to: the psychological profile of your interlocutor and his level of investment.

The first step to understanding your opponent’s leverage is to assess their level of sophistication: does they seem to know their power and demonstrate an intention to use it? For example, a senior owner, with extensive experience, selling a high-end property in a downtown metro area will likely understand the weight of its negotiation value. If the transaction were to take longer than expected, this seller understands that by asking for more money to stay in the transaction, they have the most influence. The buyer would probably rather spend a little more money than lose the entire transaction, including their initial investment.

“If they’re sophisticated and seem to have more experience, it’s probably best not to call their bluff,” Koppelmann shares. “They probably know what they can get out of you.”

On the other hand, it is equally important to understand the level of investment of your counterpart. A primary owner will likely have more invested and therefore may be more inclined to leverage. An agent, on the other hand, receives a percentage of the commission and will likely be more focused on closing the deal. In the example above where the transaction starts to take longer than expected, it could mean that the seller has more leverage, as the agent may be inclined to do whatever it takes to close the sale.

“If you interact with the agent – in any capacity – he will get a percentage of the whole thing,” says Koppelmann. “They have an incentive to close the deal, but a diminishing incentive to ask for more – if it means risking the deal falling through.”

Balancing leverage with relationship management

While understanding and exercising your influence is important, Koppelmann also stresses the importance of relationship management in these negotiations.

For Koppelmann, it’s all about fairness. He understands that a “scorched earth strategy” will only lead to a negative reputation for him and his business. Reputation plays a huge role in all future trading opportunities, as peers can automatically show up with an unyielding approach to reporting what they’ve heard about your strategy. This is the best case scenario, because a bad reputation can also mean that there is no activity at all.

“We try to find advantages [in our negotiations] but also trying to make realistic and fair offers for attractive plots that will allow us to build profitable projects that everyone is proud of.

To learn more about Roy Koppelmann and his Charlotte-based company, visit www.accorddevelopmentgroup.net.

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