When it comes to negotiations, I’m often asked: “How much should we move in a negotiation after we open? And how much should we move later, and when and how?
I usually respond with the following story. John had just filed for divorce and was representing himself in negotiations with the attorney for his soon-to-be ex-wife.
In preparing, John first analyzed their property. Based on an independent expert’s evaluation, he decided a truly fair property settlement would be for him to pay his wife $500,000.
However, he also determined he could somewhat justify a $100,000 offer and his wife could somewhat justify a $1 million offer.
So what did John do?
After receiving a $1 million settlement offer from his wife’s attorney, whom he didn’t know, he decided to “cut to the chase” and get the negotiation done quickly and relatively painlessly.
John thus countered with a “very reasonable $450,000,” stating he didn’t “have much room to move.”
His wife’s attorney countered at $900,000, calling it “reasonable, too.” John then offered $460,000, at which point his wife’s attorney accused him of “negotiating in bad faith” by only moving $10,000 to his wife’s $100,000 move. The negotiations then quickly broke down.
Over one year later, after an expensive, protracted negotiation and litigation process, they settled for $540,000.
What negotiation lessons does this story highlight?
First, it’s risky and often unwise to represent yourself. The more you care about the issues and the more you show how much you care, the less likely the other side will believe you’ll walk. If they know you won’t walk, they’ve got the leverage.
Plus, you’re at a disadvantage if you represent yourself and an agent represents the other side. Studies show agents concede less per unit time than you would.
Second, recognize the independent value of the negotiation process. John tried to “cut to the chase.” It didn’t work. In fact, it made the negotiation more contentious and lengthy.
The process of give and take in a negotiation makes an independent difference.
Oftentimes, regardless of an item’s objective value, both sides need to feel the other side gave up something significant to achieve the result. Only then will both sides accept the result as “fair.”
Third, understand the concession dynamics inherent in many negotiations. In our culture, most negotiations start out with two fairly divergent offers.
Concessions on both sides then often begin with (a) relatively big jumps, and (b) substantial time between jumps. Near the end, concessions often come fast and furious and in smaller chunks.
We also generally tend to move toward the center of our starting points. If I’ve listed an antique clock for $100, and you offer me $60, we will likely gravitate toward $80 – regardless of the clock’s true market value. Understand these dynamics.
Fourth, base your concessions on fair independent standards. If you offered $135,000 for a 2000 square foot house listed at $150,000 and wanted to increase your offer by $5,000, don’t just say “we’ll offer $140,000.”
Instead, say “we’ll offer $140,000 because a comparable 2000 square foot house one block down just sold for $140,000.” You’ll be more effective if you provide an objectively fair reason for your moves.
Finally, be specific, direct, promote an air of finality and increasing rigidity in your offers and concessions, and avoid ranges. If I say “I’ll sell this painting for, oh, I don’t know, maybe somewhere between $500 and $1000,” most potential buyers will interpret this to mean I’d accept $500 and maybe even less.
Contrast this with the statement, “I’ll sell this painting to you for $1000 because …”
So where should you start and how much should you concede and when? In most cases, if you don’t know your opponent, start out with your highest realistic expectation and utilize small, systematic concessions based on objective independent standards.
If you know your opponent, adjust your strategy accordingly.
John failed to understand and apply these negotiation dynamics.
And while he ended up with a relatively fair result, his offer and concession strategy created substantial and unnecessary pain.
Of course, this might have been his ex-wife’s goal. But that’s a story for another day.
Published March 24, 2000 The Business Journal