FAQ: Negotiating the Best Deal

FAQ: Negotiating the Best Deal

Negotiate: To confer with another or others in order to come to terms or reach an agreement

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Information

I hope you have all heard of the science of negotiating right?
OK, you are probably thinking this guy is crazy! -there is no science of negotiating!

There is only the art of negotiating!

The author of this FAQ has to admit to not having a great deal of experience in the way practical skills in the art of negotiating but I can give you the following ideas that I have found practical in regard to negotiating. ( in particular negotiating computer hardware prices from Japanese hardware vendors)

1. Knowledge is power: Before you start be clear about what you want. Research and ponder what the other person may want, your competition and the general market etc, before negotiating anything. Be very impressive with your knowledge of the market, conditions etc. I cannot stress this enough, know your stuff! Donft look so keen about the deal, show detached professional interest, ask a lot of "please explain" questions about this particular deal. Donft lie, donft say "the house around the corner sold for $250K" when it you know it didnft, if you are dealing with a professional I bet you 100 to 1 they know exactly how much the house around the corner sold for!
   
2. Forget betting up the other guy: Making the other person hostile only puts up barriers and reduces the chance of getting what you want. Do you best to figure out what is important to them, price, terms, conditions, you will have to trade some of what you want for this information.
   
   Try to always come away smelling like a rosecnot a bag of fresh fertilizer. In regard to dealing RE agents I think building a relationship with them as a professional manner is more likely to bring another deal your way next time.
   
3. Create a straw-man: Create an unspecified 3rd party that you work with eg. boss, wife, brother, sister, mother, father, partner, board of directors, accountant, financier, priest. Then get the other person to argue against the straw-man. "My partner/boss/priest thinks that $400K is all that this place is worth based on this and this and this", if your are discussing a deal as just you personally then it is too frequently too confrontational. Another bonus of the using a straw-man, is that it also lets you hang up/go outside etc to negotiate with your straw-man. Say "Let me talk with my partner about it, I will try to get them to come up to $440K, then come back and say "Sorry my partners doesnt accept and the $400K stands, what about a quick settlement?". This is non-confrontational and always let to come back to the table@if the strawman has changed his mind.
   
4. Create Win-Win: It is possible for "opposing" participants in a negotiation to both achieve a satisfactory result, where both parties are satisfied by the outcome. Find ways to help the participants get what they want. For example banks in Japan are liquidating properties based on bad loans. Lets say the current market price is $300M (with a non performing mortgage of $3000M!), since the banks know the government will probably gift them money, what banker really wants is to show big profit for his group. Thus you can negotiate $250M for the sale price of the property with a $25M consulting commission to the banker group. You pay $275M in total for a property worth $300M and banker can show a great $25M profit to his group! Win-Win (except for the tax payers and future tax-payers of Japan).
   
5. Don't name your price first: There is a rule that says that the first person to name a price loosescI am not sure this fits well with reality, if you must name a price however make sure you are low-balling it (but not so low as to look stupid or loose credibility). There are many RE Agents who also have found a way around this price naming issue, lets say you find a house which you think market price is $900K, you say how to the agent how much, agent says "The owner is looking for offers of over $800K, I discussed it with the owner an offer of $850K should be acceptable", after you say "I suppose I could stretch it to $850K" the Agent comes back with "Sorry the owner is being difficult with this, he is now looking for offers of over $1M, are you still interested?"
   
6. Show them the money: People like seeing cash and cheques, it shows you are serious, say you can sign now, but leave a "escape" clause (pending finance suitable to the purchaser)
   
7. Try for a little something at the end (a nibble): If you know the owners are trading down to a inner city unit try to take a little final bit "Itfs a deal , that does include the BBQ, Lawn mower etc. doesnft it ?"

Related Forum Threads

• This Thread
• This Thread
• This Thread

External Links, Books and Resources

• Online Documents: Sunstone posted This Five Principles Negotiating Document and This Negotiating How to Document
• Book: Not One Dollar More
• Book: "How to get the best deal every time", by Wayne Berry. It's on http://www.successcentre.com.au/cat...cur_titleID=335- an Australian book
• Book: "You Can Negotiate Anything", by Herb Cohen- written 1980, possibly available in a local library, it is a classic

[size=-2] Last Updated By: Always_Learning on 2003/June/10
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Hi AL,

Thanks for a terrific contribution again.

A couple of points.

• I don't know if it is just me- but I see some funnt characters where I expect quotes
• You have some good points on negotiating- but the point I find the most pwoerful of all is "win win". It is possible for "opposing" participants in a negotiation to both achieve a satisfactory result, where both parties are satisfied by the outcome
• A few more good references:
  -"You Can Negotiate Anything", by Herb Cohen- written 1980, possibly available in a local library, it is a classic
  -"How to get the best deal every time", by Wayne Berry. It's on http://www.successcentre.com.au/catalogue/titles.cfm?cur_titleID=335- an Australian book

There's also a thread on good books on http://www.somersoft.com/forums/showthread.php?

Thanks I will update it with your recommendations. FAQ are a group effort!

Originally posted by always_learning
Thanks I will update it with your recommendations. FAQ are a group effort!

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Hence your name!

I am enjoying reading "negotiation" a 'harvard business essentials' title. {I got it from the local library waysolid...}

Sure the book analyses to death, but sometimes this systematic paradigm overlaid on each negotiation opens options one wouldn't have thought of before.


Two key concepts it mentions are

1:
BATNA - best alternative to a negotiated agreement. They say it is imperative to know what your best option is to the negotiation in question. Many people are not clear what their batna is before going into a negotiation. And if you don't have one, then you should create one. They use a good illustration of a large US manufacturing company which kept getting screwed on power supply because there was only one power company servicing the area. The manufacturer decided to create its own BATNA, by doing a feasibility study to put in its own power infrastructure within the state. It asked for tenders from suppliers etc. As the process continued, the incumbent supplier obviously realized the manufacturer was serious, and progressively reduced their quote.

In real estate, one example would be to ensure you always find 2 or more properties at once, and make offers on all. (better if through the same agent as he can tell the vendor they are legit). Or just keep time on your side and remember there is a deal of the decade every week. I think some people who attend auctions get obsessed with one property and drive prices up. THis might be understandable if you are an owner occupier, but never an investor.

Improving your negotiation position can be accomplished with batna in 3 ways:
- improve your batna
(find other deals, properties, or investments at least as strong as the property in question)

- identify the other side's batna
(identify their options to dealing with you, their time frame for a sale, etc)

- weaken the other side's batna
(an example would be at an auction when you are bidding against one other party. You could physically approach that guy and negotiate one of you pulling out of the bidding for a price. nothing illegal about that)



2:
ZOPA
zone of possible agreement.
this is the price range that would potentially satisfy both parties. i.e. below your maximum bid but above the vendor's reserve.



THe book also distinguishes two types of negotiation:
1. distributive , where value is fought over. a gain by one side is made at the expense of the other.
2. integrative, where either or both parties try to create extra value and share. If you keep this value adding approach in your mind, negotiation becomes a more creative 'you help me and I'll help you' 'win win' scenario.

always_learning [* said:

Try for a little something at the end (a nibble): If you know the owners are trading down to a inner city unit try to take a little final bit "Itfs a deal , that does include the BBQ, Lawn mower etc. doesnft it ?"

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Years ago we tried adding that a old Ferrari poster (prob woth $15) was part of the chattels into the contract (old house worth about 300k) and backed down when the owner was happy about the price but not about the poster. My brother was having a bit of fun but it must of confused the vendor. Im not sure why we walked away but the deal fell apart due to the poster.