Negotiation Basics, Part 1 (Renewing Your Lease)

Use Negotiating Techniques to Get A Better Deal on Your Lease. Potential Savings: Hundreds to Thousands of Dollars. Difficulty Level: Moderate

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This is the first of a two-part series on negotiation, inspired by conversations with friends and neighbors about frustrating negotiations with landlords. In the first post, I’ll discuss some basics, and in the second, I’ll share specific examples. Most of these techniques are broadly applicable far beyond real estate to life in general.

I am not a natural negotiator (I’m quite introverted and conflict-averse), but negotiation has changed my life for the better. Plus, I have some related experiences I hope will be helpful to readers. As a graduate student, I edited an academic journal on negotiation. And as an adult, I have never paid the asking rent on an apartment lease or renewal, through strong, normal, and weak rental markets. Let’s get started!

There are two types of people - people who like to (or are willing to) negotiate, and people who will do anything to avoid it. Unfortunately, the latter group suffers, receiving slimmer compensation packages, paying more than necessary, and often getting the short end of the stick in life. It is very common for salaries for the same role in the same organization to vary widely, and consumers paying the highest price often pay as much as 3x more than consumers paying the lowest price for the same product.[1]

It’s important to define what negotiation is, and what negotiation isn’t. Negotiation is not “haggling” or being obnoxious, obstinate or obstreperous. Pop culture (and political culture) idolizes the tough negotiator making unreasonable demands until he (almost always a he) “wins” the negotiation, getting a “great deal” and leaving the other side with little.[2] This image is particularly damaging to women, who may feel deterred from negotiation altogether, and who face an uphill battle in negotiation from existing biases that paint women as “tough or unlikable” when they try to assert themselves.[3]

In truth, scorched-earth negotiation styles routinely alienate people, burning bridges and destroying long-term value in exchange for a slightly better present outcome. Certainly, some very (in)famous negotiators use those kinds of tactics (with varying results) but that is just one style, and often ineffective at that. Getting to Yes, my favorite book on negotiation, defines negotiation as:

Back-and-forth communication designed to reach an agreement when you and the other side have some interests that are shared and others that are opposed.

A great example of this, and the focus of this post, is the relationship between renter and landlord. The landlord and renter both (usually) want the renter to be a long-term, reliable tenant. These are shared interests. The renter wants to pay as little as possible with lenient lease terms, the landlord wants the opposite. These are opposed interests.

Maybe you have a really nice landlord who charges you a fair or below-market rent and never gives you renewal trouble. They do exist (they’re called “pushovers”), and if that’s your situation, you may not find this post helpful.

But more likely, you have a tough landlord or a large corporate landlord who tries to maximize revenue, and cares little about whether you are happy. This post is meant to help you use a few basic negotiation techniques to defend your rights and secure a fair (or favorable) result.

Both sides have some leverage. First, figure out who has more.

The range of outcomes you can expect will depend in large part on your negotiating strength.

The landlord owns the apartment, and at the end of the lease term, the tenant must find a new place to live, a costly process involving significant moving costs, hassle, and worry.

But the tenant has power too. A vacated apartment must be cleaned, probably repainted, taken off the market for some time (a week or two in a hot market, longer in a slow one), and shown to prospective tenants. Finding a new tenant may not be easy, and may require the landlord to offer concessions, such as a free month or two of rent, or covering a broker’s fee.

The power balance depends on a number of factors. How strong is the rental market in your city? How many vacancies are there in your building? How easily could you find a comparable apartment at similar or lower rent? How good a tenant are you? How easily can you move? Think objectively about the relative power balance, because it may determine your best strategy and what you can reasonably expect.[4]

Next, understand the rules of the game.

In some cities and for certain types of apartments, a landlord is required to offer a renewal lease to every tenant a certain number of days before lease expiration (often 60 or 90 days). In others, the landlord need not do anything and may play a waiting game with you, or may proactively contact you. In some cities, particularly as a result of new laws, rent increases are capped at a certain threshold, which is good for existing tenants, but may lead most landlords to make a first offer equal to the maximum permitted increase (even if the resulting offer is not particularly reasonable).

Understand who has to make the first move and what it might look like. Most importantly, do not assume the other side is acting reasonably, or even rationally.

This is probably the first pitfall. Landlords, particularly large corporate landlords, are often extremely unrealistic when making their first renewal offer. I have seen attempted rent increases of 10% or more in flat to declining rental markets. These are just attempts to occasionally pick off an unwary tenant, or one that is afraid of moving or unwilling to negotiate.

Understand the value of signaling.

In a negotiation, each side subconsciously assesses the other side’s bargaining power. This often means each side’s “BATNA” or “best alternative to a negotiated agreement”. This means what each side’s options are if negotiation is unsuccessful.

As a tenant, do your best to signal that you have a good BATNA. Some examples of this might be to cite comparable rents in the building and in the neighborhood (as well as incentives for new tenants, which are often a sign of a weak rental market) when rejecting or pushing back on an initial lease offer. It might also mean avoiding strong expressions of desire or need to renew, instead merely expressing that you’d be interested in renewing in neutral and objective terms.

This is also critical when leasing a new apartment (or buying a property). It is very easy to fall in love with a particular house or apartment, particularly as we picture ourselves living there, and we often express this to the other party. But a seller or landlord seeing that may interpret it as weakness and need, often leading to a bad outcome. I’ve heard people argue that it’s important to express strong interest, as the seller/landlord may favor someone who truly “loves” the place over others. In practice, I’ve been through 2 or 3 situations myself, as well as witnessed situations with many others, in which we (or a friend) seemed to “hit it off” with the owner and thought that might give us a leg up relative to others. In practice, the owner took the higher offer…every…single…time. There are certainly exceptions, but they are exceedingly rare.

Part of signaling also means showing that you can walk away. This can be a somewhat risky game to play with a landlord, and you don’t want to say it straight out, but a good way to signal this is using phrasing like “we would prefer to stay” or citing other apartments in the neighborhood. It’s important to be careful, subtle, and polite when doing this.

Know when to compromise and when not to.

The natural tendency to compromise or “meet in the middle” is extremely strong. It avoids conflict, and most people have a natural desire to do it. Sometimes, offering to split the difference makes sense, particularly when your landlord has come to you with a reasonable offer. But other times, compromising with a counterparty who has made a completely unreasonable offer just leaves you with a slightly less bad outcome, and one that is objectively unfair. Understand when your landlord is being reasonable and compromise is logical, and when they’re still being unreasonable and you need to move them from an unreasonable position.

Look for alternative ways to create value for both sides

Think about whether there are ways to “expand the pie”, or get a better outcome for yourself, without asking much more of the other side. This is another classic negotiation tactic that can work to everyone’s benefit.

For example, perhaps your landlord strongly prefers a longer (or shorter) renewal term, and will offer you a better deal for their preferred term. In other cases, landlords are highly averse to lowering rent, but are much more willing to offer an incentive like a free month, or waived gym or storage fees. As with most things in life, you can’t get what you don’t ask for, and as long as you are polite (but firm), there’s unlikely to be any downside from just asking.

In next week’s post, I’ll walk you through our own lease renewal experiences and how we used each of these strategies to end up with fair outcomes for everyone. Hopefully, along the way you might pick up a few strategies that you can use in your next lease (or elsewhere in life).

I hope this has been helpful. If you liked it, please share it with a friend! Also, please send me your feedback, requests, and success stories. I’d love to know what you like, don’t like, and are looking for from this newsletter.

[1] Two examples from recent issues - cable and mobile phone service.

[2] I’ve promised to keep this newsletter a politics-free (or at least politics-light) zone, so I’ll leave the exact references to readers’ imagination.

[3] The New Yorker had a great article about this several years ago, shortly after the release of Lean In.

[4] How do you do this? I use a combination of local rental listing sites, such as Zillow, as well as popular city-specific sites like StreetEasy, both of which allow filters by neighborhood or address radius (both to look at apartments in the neighborhood and to look at rental history for our building), and then supplement through word of mouth and reading local real estate blogs to get a sense on market trends. I then went an extra step and made a spreadsheet of every listing of a comparable apartment in our building, and comparable apartments in the neighborhood, comparing price and amenities. Also keep in mind that most rental sites only tell you asking rents, and not the rents that were actually agreed, so this will give a somewhat inflated sense of where the market is.