4 1/2 Mistakes When Negotiating Something Big

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Last week, my wife and I bought a house near Boston. The negotiations lasted a week, then ended badly.

Let’s talk mistakes.

1) Not negotiating

Ever wonder whether something’s negotiable? The higher the price, the more wiggle room. Houses and cars are negotiable; your dry cleaning bill isn’t (unless the job got botched). That leaves a lot in-between. Consider hotel rooms. The rates must be negotiable; no two people ever pay the same thing, and no one ever pays the price that’s listed on the door of their room. Why not ask, “Is there any flexibility?” That’s a good negotiating question for lots of ambiguous situations. Flexibility sounds like a virtue. Who doesn’t want to be flexible? But with houses, you assume flexibility. No one takes the asking price literally.

The house we bought was priced at X. I wish I could tell you more about X, but I can’t because X is a ridiculous number, unless you live in a place like Boston where everyone is insanely convinced that a price like X is a steal. Actually, the price was X + $34,900. The $34,900 part seemed negotiable. We bid X minus $35,000. That allowed the seller to say, “Let’s just split the difference.” Unfortunately, the seller must have had a different script; he only lowered his price by $1,000. Our plan wasn’t going well.

2) No reservation price

Your reservation price is your limit. If you’re buying a house, it’s the most you’ll spend; if selling, it’s the least you’ll accept. Without a reservation price, you’ll be swept away by emotion, and buy something you can’t afford. Then, years later, when you have no money, and there’s another housing crisis, and the entire U.S. economy collapses, it will all be your fault. In addition to knowing your reservation price, it’s good to estimate the seller’s. That tells you about the zone of agreement, the range where you can strike a deal. In our case, the zone of agreement was razor thin.

3) No leverage

Who’s got power? Because the housing market is so bad, we assumed we did. On the other hand, the seller had just listed the house that day. And it was a great house. Also, he turned out to be a real estate attorney. He knew some tricks. Mid-week, the seller increased his leverage by scheduling an “open house.” That attracted buyers, and netted him two more offers. So much for leverage.

4) Deadlines and ultimatums

If you need drama, deadlines are good. Recently, the U.S. threatened to shut down the government unless there was a budget agreement—by midnight. It worked. But sometimes deadlines just annoy people. After the seller got more offers, he notified all the bidders: “Final offers due by noon tomorrow.” We offered our reservation price: X + $5,000. Then we waited. By 3 pm, we realized the seller might be using our offer to get a better deal from another bidder. So we set a deadline: our offer expired at 6 pm. At 6 pm, the seller accepted our offer; we signed some papers and felt good to be done. The next day, the seller backed out, then sold to someone else. So much for deadlines.

4½) Getting desperate

It’s good not to get too attached to things like houses. There can’t be just one house, or one job, or one __(whatever it is that you think will make you happy). I believe there’s always another house. And if you happen to be living in it, and it’s for sale, please let me know.

4 1/2 Mistakes When Negotiating Something Big was provided by CNBC.com