Improve Your Negotiations With The 5 Golden Rules.   LEARN THEM

The new home was listed at about $500,000, and the builder held a live auction to sell it. It sold for $383,000 — the buyer received almost 25 percent off.

“What a deal,” you might say.

Personally, I don’t know if the buyer received a good deal. It depends on many factors, including the buyer’s alternatives (similar homes for sale in the area), how much time the house sat on the market, how long the buyer had been looking, the price of recently sold comparable homes, etc.

Yet many probably feel the buyer did well. Why? Largely because of the significant discount on the list price.

Here’s the problem with that analysis: It presumes the list price was based on objective criteria such as market value or experts’ opinions of value. It may have been — or not.

This is one challenge for buyers in live auctions: They may not have full information about the auction item. In fact, auctions most often favor sellers because buyers rarely have full information, and the dynamic is designed to feed competitive buyers’ egos and need to “win.” Anyone caught in a bidding war on eBay or elsewhere knows this feeling well.

So how do you avoid this trap and achieve your goals in auctions?

1. Write your goal down before the auction.

Do your strategic homework before you start bidding, and before your ego has jumped in. Your due diligence should include going through my “five golden rules of negotiation” to ensure you hit all the critical elements:

1. Information is power — so get it!

2. Maximize your leverage.

3. Employ “fair” objective criteria.

4. Design an offer-concession strategy.

5. Control the agenda.

In auctions especially, focus on your written goal and its objective basis. This includes the item’s independently determined market value, its possible subjective value to you (an item may have sentimental value to you alone), and what true experts might assess as its value.

2. Beware of bidding more based on others’ behavior.

It’s easy to get caught up in the moment and bid more when seeing other presumably sophisticated buyers willing to pay more than your written goal for the auction item.

This natural tendency is fueled in part by our perception that other bidders may know something we don’t, or that they are similarly situated. Neither may be accurate.

First, remember they may have assessed the item as having some unique subjective value to them. The item might have belonged to their long-lost uncle, for example.

Or, as noted in Harvard’s January 2008 Negotiation newsletter article, “How to win an auction — and avoid the sinking feeling that you overbid,” their assessment of value may be highly specific to their needs or situation. In a 2000 auction, Simon & Schuster paid $8 million for Hillary Clinton’s memoir based in part on its belief that “its superior distribution network and marketing capabilities relative to other publishers likely gave (it) confidence that the Clinton book provided unique private value.”

Second, the additional marginal cost to a Bill Gates for an item will be substantially different than for the rest of us. In other words, those other bidders may not be similarly situated; an additional $10,000 for the super-rich is a lot less to them than it is to the rest of us.

3. Take a breath before you bid.

There’s a reason auctioneers talk fast and promote a gamelike atmosphere: They don’t really want rational, reasonable bidding. It’s their job to get your ego, competitive spirit and emotions involved and lose track of your purely fact-based evaluation.

Counteract this by taking a breath or two before bidding, and referring back to your written goal. Also, as Harvard’s newsletter notes, “look forward and reason back” by considering “how you will feel if it turns out to be the winning bid.”

If you think you will feel excited and happy, bid away. But if you think you will wonder why you valued the item more than everyone else in the room (or on the Internet), keep your hand down.

I have to confess, I rarely bid in live auctions.

It’s not that you can’t get a great deal if you’ve done your homework. It’s just that the odds usually favor the seller, and there’s a good reason the seller is using an auction.

I far prefer being the seller.

Published March 7, 2008 The Business Journal

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