Negotiation, Negotiation, Negotiation

UK Property Investment news and comments from Mark Harrison of YourPropertyExpert.com

When should you stop pushing hard?

Posted by markharrison on January 18, 2007

At a talk I gave last week, I was asked a pertinent question – “when should you stop pushing hard?”

The question of how hard to push in a negotiation is one of balancing risks. On the one hand, you have the risk of pushing so hard you lose the deal completely, on the  other, you have the risk that you will leave rather too much on the table.

The answer has to do with whether you’re in the ZOPA or not…

A ZOPA is a “Zone of Possible Agreement” – though it’s worth noting that some authors use it to stand for  “Zone of Potential Agreement.” Whichever acronym you use, it means the same thing… the RANGE of values in which both parties would be happy to do a deal.

Let’s consider that Alice wants to buy a house, and Bob wants to sell his (to buy a bigger one.)

Bob has done his sums. In order to get enough money out to afford the house he’s now looking at, he needs to sell for a minimum of £165,000.

Alice has done her sums. In order for the property to meet her investment targets, she can pay at most £172,000.

The ZOPA is therefore the range £165,000 – £172,000. Potentially, Alice and Bob could agree on any number within that range.

Obviously, though, Bob would like more than £165,000, and Alice wants to pay less than £172,000. Hence there is a range of £7,000 in which the negotiation skills of the two parties will come into play (along with whether Bob has other interested buyers, and how many other deals Alice is looking at.)

If the parties had made a series of offers, leaving Alice offering £166,000, and Bob moving his asking price to £171,000, then I’d recommend that Alice start weighing her options very carefully. She’s now within the ZOPA (though, of course, she doesn’t know yet that Bob WOULD in this case, be able to accept her £166,000.)

However, the risk is that by pushing too hard, by giving away only £500 on the next offer (and asking for something like curtains to be left in return), she runs the risk that Bob may walk away. It’s at this point in the negotiation that observational skills really come into play – trying to “read” Bob could cost or save her £5,000 here.

The difference is obvious – if Bob were demanding £180,000 still, a sum way over what she’d be prepared to pay, then that IS the time for a hard-nosed low offer, and some tactics  to be deployed.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: