- Try not to make the first offer. The party who makes the first offer establishes the upper or lower limit of the negotiation, depending upon whether they are selling or buying. If you are a buyer, and you make the first offer, you will almost always pay more than that offer. But you will never know if the seller would have sold for less than your first offer. Give the other guy a chance to surprise you.
- Set your maximum or minimum price in advance and stick to it. This is another way of saying that sometimes the best deals are the ones that you don’t make. If you can set a price goal in advance on an informed basis and dispassionately, you stand a better chance of making a fair deal. Make your own evaluation of the value of the transaction and do not let outside influences during negotiations affect your judgment.
- Try to understand how the other side evaluates the deal. Too often we evaluate a transaction based upon how we feel about it and without having a clear understanding how the other side feels about it. Knowledge is the key to successful negotiation. If a seller undervalues an asset the buyer is presented with a huge opportunity. Likewise, if the buyer overvalues the asset the seller is likely to do better. Look for opportunities where the other side has not properly evaluated the deal.
- Avoid situations with multiple bidders. Deals involving multiple bidders usually result in inflated prices. The best example of this can be seen on e-Bay. The same article sold at auction generally sells for more than articles sold at a fixed price. In a fixed price sale, the seller determines the price and may ask too little. In an auction sale, the buyer determines the price, and is likely to drive the price up if there are multiple bidders. “Winning” an auction does not equate to winning a good deal.
- Look for opportunities to change the terms of the deal to your advantage. Sometimes you can tailor a deal to fit the needs of the other side, resulting in favorable changes to the price. For example, a buyer might be willing to pay a little bit more if the seller would take back some financing. A buyer might also get a lower price in exchange for paying in cash. Perhaps a volume discount is available. A warranty by the seller might bring a higher price or help close the deal. These are just a few of the variables that can increase the chance of a successful negotiation.
- Maximum or minimum price is not always the only goal. Sometimes a seller is willing to sell for less to a regular customer to preserve a longstanding and reliable relationship. Likewise, buyers sometimes are willing to pay more to insure a regular and reliable source of supply. The point is that price is not the only variable in a negotiation. Reliability, service and accountability are sometimes just as important.
In these trying economic times there will still be opportunities to make deals on favorable terms. How you go about negotiating a deal can have a significant impact on the end result of the negotiation. Major assets will continue to be bought and sold in the current environment where cash may be king and buyers with cash may have the final say. But this is only temporary, and the negotiating tips set forth above apply regardless of which way the economic winds are blowing.
– Kevin Palmer