Using the Principles of Persuasion to Negotiate with Tenants

As the rental market continues to evolve, a new trend is emerging, one that might initially seem daunting but ultimately presents an opportunity for both landlords and tenants: the art of rent negotiation. In recent years, an increasing number of tenants are actively engaging in discussions about their lease, seeking more flexible terms or reduced rental rates. This changing landscape requires us, as landlords and property managers, to adapt and understand this trend better.

Negotiation is not a sign of disrespect or a lack of commitment to the lease. Instead, it is an indication of tenants taking an active role in their financial well-being and housing decisions. As such, embracing this trend with an open mind can lead to mutually beneficial outcomes and long-lasting tenant-landlord relationships.

In the past, I have often wondered why more tenants did not negotiate their lease terms, as this is something I always did as a tenant. Perhaps being “in the business” let me know this was possible, but I also believe the old adage: “It doesn’t hurt to ask.” 

It is now becoming a trend. Perhaps the pandemic and work-from-home arrangements awakened the concept of negotiations to tenants. As tenants started to move out of San Francisco seeking more space and lower rent, Landlords offered reduced rates to keep tenants from moving. As soon as these offers of discounted rent started to occur, tenants took notice.

Perhaps high San Francisco rents caused a demographic shift. As rents climb, we are likely seeing savvier, more educated tenants apply for our apartments. As their ability to earn high incomes and consequently ability to afford expensive San Francisco rents increases, so does their business acumen and financial intelligence. It may be the influx of articles on popular leasing websites such as Trulia and Zillow encouraging prospective tenants to negotiate. It may be the lingering effects of the COVID renters’ market. Whatever the reason, it is likely here to stay.

Some people negotiate daily, whether it is in their careers, when making a large personal purchase, or haggling for a lower souvenir price from a beach vendor while on vacation.

Some people are not comfortable negotiating at all and cringe at the prospect of asking for a discount. They would rather pay full price, than risk offending someone or being denied.

Whichever category you fall into, given that this is a growing phenomenon in the leasing industry, it is important you understand the principles of negotiation, how to do it well, and what tactics tenants may use.

One of the most interesting classes I took in college was Persuasion.  My university currently sums up the class as “Study and practice of persuasive communication. Examines social and psychological foundations, ethical issues, and contemporary theory and practice.”  I likely immediately used these newfound skills on my dad to various failures and successes.

But no matter what you are negotiating, the principles are the same.

There are six generally accepted Principles of Persuasion as outlined in the chart below. I have also identified how leasing agents would use these principles as well as how prospective tenants use them.  It is my goal to help you understand why a tenant may act as they are. Instead of being frustrated, or taking offense, you can understand these actions are all part of the negotiating process and take that information to make the best deal possible.

When asked how he felt about tenants negotiating, Deny Sepaher, managing member of Birch Tree Properties LLC, which owns multiple properties consisting of multi-family, mixed-use, and commercial buildings located in the Bay Area, Los Angeles, and Salt Lake City, replied, “It’s about time!  When times were good, we basked in multiple applications and increasing rents. It has been a tenant market for a while now and I am surprised [tenants] didn’t request discounts sooner. The market dictates our actions. No reason to be angry about this. Our business has transformed from solely being a housing provider to a housing provider focused on customer service. It is more important than ever to understand what tenants want. If you are a hands-off owner, you will feel the effects of a soft rental market more. If you are proactive, you can beat the averages.”

“Market price” is the price at which a product is sold. “Selling price” is the advertised price. When you list an apartment, you won’t know the actual market price until someone signs a lease. If an apartment has been vacant for any period of time, it likely isn’t being offered at market rent. Your “selling prices” mean nothing if an apartment is sitting vacant and you are losing income daily.

As Mr. Sepaher points out, tenants ultimately determine market price. To minimize downtime and maximize rental income, you must remain flexible. Instead of rejecting a potential tenant who is negotiating for a lower price, consider working with them. Time is of the essence, as it could take days or even weeks for another prospect to express interest. By that point, you might need to lower the advertised price even further, or have a later lease start date. You may end up with a total return below what the initial prospect was willing to negotiate.

Even if you eventually find a tenant with better lease terms, the income will likely not cover the vacancy loss you already endured.  I’ve done the math. Even if you have a long-term tenant, the annual increases on a base rent that is $50 to 100 higher simply isn’t enough for you to make up months of vacancy. 

Landlord investment math becomes a critical factor when tenants seek to negotiate rent prices. It’s a complex equation where every variable is carefully weighed. The primary factors in this mathematical dance are rent versus vacancy loss. To strike a deal, a landlord might consider various options. First, they could decrease the rent in exchange for an earlier lease start date, ensuring that the property doesn’t stay vacant for long. Alternatively, they can maintain the rent rate while lowering other fees like parking or pet rent, which keeps the total rent high but provides the tenant with an appealing, discounted package. Another strategy is to retain a high rent but offer a discount on the security deposit, allowing tenants to keep more money in their pockets up front. Often, tenants may focus on one number, neglecting the bigger picture. By thoughtfully implementing these tactics and conducting the necessary mathematical analysis, landlords can ensure that tenant negotiations work in their favor, avoiding lost opportunities and maximizing the profitability of their investments.

As a landlord, if you are not currently negotiating, you can take a lesson from tenants.  In your follow-up with prospective tenants, if you sense you are losing them, it is good practice to let them know there might be room for negotiation. I typically include in my follow-up, “Please feel free to share if anything is a deal breaker for you. I can relay that information to my client to explore potential adjustments. Additionally, we’d appreciate any feedback that could aid our marketing efforts.” This approach encourages a dialogue to understand what the prospect liked or disliked, allowing you to make necessary adjustments based on their feedback.

Negotiating does not require you to commit to specific terms, but there might be a minor price or term adjustment you can make to attract a tenant. It could also be something as simple as addressing aesthetic concerns like window coverings. Investing in new window coverings is a small cost to quickly rent out the apartment at a premium rate. If you prematurely close the negotiation just because they did not agree to your exact terms, your property might remain vacant until your ad reflects terms that are less favorable than what you could have agreed upon with an earlier prospect.

Once you see the benefits of negotiating, you might take it to your daily life. Ask a vendor for a discount, haggle for your vegetables at the farmer’s market. Do not think of it is as being “cheap.”  Think of it as benefiting your financial well-being.

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