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7 Tips for Better Negotiation
I love to negotiate! Whether it’s buying furniture off of Craigslist or being part of a multi-billion dollar corporate merger team (I’ve done both), I love the challenge of trying to get a great deal for myself while at the same time making the other person feel like they got a great deal too.
And while you may think that the skills required to negotiate small purchases are much different than the skills required to negotiate the purchase of big-ticket items (like cars, real estate and companies), in reality, the basics are the same.
While you can spend your entire lifetime trying to perfect the art of negotiation, learning a few key negotiation strategies can put you far ahead of most of your competition, and can help navigate those times when you’re up against an unmotivated seller, a savvy buyer or a head-strong contractor.
This article will offer seven powerful negotiating tips that you will likely find very useful while pursuing future real estate deals (or any other deals, for that matter):
Tip #1: Let the Other Party Speak First
You’ll often hear people say, “Never make the first offer…let the other party do it.” This is great advice, but do you know why that will help your negotiating position?
There are two reasons:
1. First, it allows you to define a mid-point. Many inexperienced negotiators will find themselves “splitting the difference” in their negotiations; for example, if one inexperienced negotiator starts by asking $200 in the negotiation and another inexperienced negotiator starts by offering $100 in the negotiation, the negotiation result generally will end up somewhere around $150 (the mid-point). This is human nature not to want to give more or less than you’re getting, so people tend to increase or decrease their offers by the same amount as the other party.
But, when the other party states their position first, you have the ability to define the mid-point of the negotiation!
In the example above, if the seller had stated the $200 ask first, the buyer could easily have offered $60, thereby reducing the mid-point of the negotiation (where they expect to end up) down to $130. On the other hand, had the buyer offered $100 to open the negotiation, the seller could have increased his ask to, say, $260, thereby increasing the midpoint to $180. As you can see, the person who states the first position is at a disadvantage to the person who waits, as the person who waits can define the mid-point.
2. Second, it’s quite possible that the other party’s first offer will be better than the first offer you would make. For example, let’s say you want to hire a plumber, and your budget is $500 for a particular project. While you could state upfront that you have $500 to spend on the plumbing work (in the hopes that the plumber doesn’t ask for more than that), what if the plumber was only planning to charge $300? You’ve now told him that you’re willing to pay $500, so he has little reason to quote you anything less than that. By stating your position first, you’ve given away valuable information to the other party (you maximum price), and he will use that information to extract the most money possible from you.
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