Negotiating 101: Yes, You SHOULD Make the First Offer. Here’s Why.

by Andrew Syrios

It is almost taken as a fundamental truth of negotiating that he who speaks first loses. It is axiomatic among many in business that you should try to get the other party to state their price first, no matter how awkward it becomes. The reason for this is because it acts effectively as the first concession and perhaps tilts the deck in the other party’s favor.

For example, the first offer could be way lower than the other would pay and thereby provide a huge boon. One business professional gives the example of a garage sale to illustrate this kind of thinking in an article titled “Negotiating Tips: The person who makes the first offer always loses:”

“OK, now we’ve met the seller. There’s no pricetag on the table, so here’s how negotiations could go.

Scenario one:

You: I’ll offer you $20 for this table.

Them: I’d like to get $35 for it.

You: Would you take $25?

Them: $30 and you’ve got a deal.

You: OK, deal.

Scenario two:

You: How much are you asking for this table?

Them: I’d like to get $35 for it.

You: I can’t pay more than $20.

Them: Well, I could come down to $25.

You: Great, I’ll take it.”

Now, there’s certainly a time and place for this. Sometimes you don’t want to make the first offer, but it’s not true that you never want to make the first offer. In fact, I would argue that when the seller is motivated, you usually do.

The reason for this boils down to two things: 1) Many sellers, even those who are motivated, have a completely unrealistic view of what their house is worth. When they throw out a number, it almost kills the deal before it even starts, as you are so far below them that for them to come down to your price would not only be a huge financial hit, but it would also be a huge hit to the ego. And 2) The funny way the human brain works.

Anchoring

Nobel prize laureate Daniel Kahneman in his absolutely fascinating book Thinking Fast and Slow tells us about a very interesting test he conducted that provides great insights to negotiating:

This is the power of what psychologists call anchoring. Think about this example for a moment. The same types of people, randomly selected, reduced the amount they were willing to pay by 75 percent when given a low anchor and more than doubled it when given a high anchor.

Indeed, some examples of the power of anchoring are almost surreal and rather disturbing. Kahneman again:

Kahneman provides an in depth explanation for this psychological phenomenon, but in brief, anchors trigger our more automatic thinking processes (System 1), such as recognizing familiar symbols or faces. System 1 then sets the plate for the more deliberate thinking processes (System 2), which operates when trying to do more difficult tasks such as arithmetic or abstract thought.

As we all know, System 2 is lazy and likes its job made easy. So System 1 obliges. Anchoring feeds System 1 something to hang onto, which proliferates up to System 2 and influences the rational mind when it comes time to buckle down and do some serious thinking.

In other words, making the first offer sets the ballpark for the negotiation.

Real Estate Negotiations

An effective tool I’ve found when negotiating with sellers (particularly those who have an inflated view of their home’s worth) is to make my case first before either of us has had a chance to throw out an offer. So, let’s say I just recently bought a similar house nearby, or better yet, more than one. Then I describe those purchases to the seller to explain where I’m deriving my valuation from. I could also discuss the defects of the house that will require rehab and an estimate for that. Or if I know of nearby comps or anything else that supports my offer, I can bring that forth as well.

I’m not a flipper, but I do explain that we only buy deals we could flip. Therefore, you can just lay out the whole process. If it needs repair, explain that it’s most likely investors will be the only ones interested. Describe to them the 70 percent Rule, or better yet, break out the expenses individually and show them what it will take to make the deal work for you. Then make the offer.

All of this will dissolve the delusions of grandeur many sellers are afflicted with, while simultaneously anchoring a realistic and profitable price for yourself in their mind.

But please note, while negotiating is an important skill to learn, it’s important to not use these tactics unethically or to become some sort of used car salesman-type. The goal is to dissuade overly optimistic sellers and provide a service by being able to purchase a motivated seller’s house quickly and easily at a price that will be profitable. It shouldn’t be to try and trick someone. If that’s the goal, you will gain a bad reputation, and deals may very well blow up in escrow as the seller starts to believe they are getting screwed and desperately tries to get out of it.

If You Are on the Receiving End

So let’s say you get beaten to the punch, and the other party makes the first offer. Kanheman describes the approach of psychologists Adam Galinsky and Thomas Mussweiler when someone makes an opening offer that is too high: “They instructed negotiators to focus their attention and search their memory for arguments against the anchor” (Pg. 126-127). If you are conscious of the anchoring effect, you can counteract its influence and bring yourself back to a neutral state. System 2 needs to actively fight off the unsolicited influence of System 1. The worst thing to do is get so caught up in the negotiation (and the anchor) that you buy or sell something at a price you shouldn’t have.

As for Kanheman… well, I will end with his rather colorful advice:

In other words, use the patented “Toddler Tantrum” method of negotiating.

Weigh in: In your experience, do you like making the first offer, or would you rather counter? What’s your best advice when it comes to negotiating?

Leave a comment below!

Interested in Finding out More? Reach out below

Shawn Ireland

Phone: 913-225-6231

Email: Ireland_Investments@yahoo.com

Address: 1415 Main St. #823, Grandview, MO 64030


Website: www.irelandinvestmentsllc.com/

Facebook: @IrelandInvestmentsLLC/

Instagram: @irelandinvestmentsllc

Twitter: @IrelandLlc

Tumblr: ireland-investments.tumblr.com/


Ireland Investments llc

This information is intended only for the use of the intended recipient(s) and it may be privileged and confidential. Please note that any views or opinions presented in this post are solely those of the author and do not necessarily represent those of the company. This is reposted information and is not original thought of Ireland Investments or anyone associated with the business.

Popular areas we service;


Kansas city Missouri, Overland Park Kansas, Kansas city Kansas, Olathe Kansas, Independence Missouri, Shawnee Kansas, Blue Springs Missouri, Lenexa Kansas, Leavenworth, Kansas, Leawood Kansas, Liberty Missouri, Raytown Missouri, Gladstone Missouri, Grandview Missouri, Belton Missouri, Prairie Village Kansas, Gardner Kansas, Raymore Missouri, Grain Valley Missouri, Ottawa, Kansas, Lansing Kansas, Excelsior Springs Missouri, Merriam Kansas, Harrisonville Missouri, Cameron Missouri, Mission Kansas, Kearney Missouri, Smithville Missouri, Pleasant Hill Missouri, Oak Grove Missouri, Bonner Springs Kansas, Roeland Park Kansas, Parkville Missouri, De Soto Kansas, Richmond Missouri, Greenwood Missouri, Paola Kansas, Basehor Kansas, Tonganoxie Kansas, Odessa Missouri, Peculiar Missouri, Platte City, Missouri, Higginsville Missouri, Lexington Missouri, Edwardsville Kansas, North Kansas City Missouri, Osawatomie Kansas, Louisburg Kansas, Fairway Kansas, Mission Hills Kansas, Sugar Creek Missouri, Riverside Missouri, Buckner Missouri, Pleasant Valley Missouri, Lawson Missouri, Plattsburg Missouri, Lake Lotawana Missouri, Weatherby Lake Missouri, Wellsville Kansas, Edgerton Kansas, Westwood Kansas, Garden City Missouri, Gower Missouri, Claycomo Missouri, Lone Jack Missouri, Drexel Missouri, Lake Tapawingo Missouri, Glenaire Missouri, Dearborn Missouri, Avondale Missouri, Osborn Missouri, Sibley Missouri, Oaks Missouri, Unity Village Missouri, Levasy Missouri, Randolf Missouri, River Bend Missouri, Jackson County Missouri, Johnson County Kansas, Clay County Missouri, Wyandotte County Kansas, Cass County Missouri, Platte County Missouri, Leavenworth County Kansas, Miami county Kansas, Lafayette County Missouri, Ray County Missouri, Clinton County Missouri, Bates County Missouri, Linn County Kansas, Caldwell County Missouri, Crossroads Real estate, 18th and vine Real estate, Hospital Hill real estate, library district real estate, longfellow real estate, dutch hill real estate, quality hill real estate, river market real estate union hill real estate, Greater downtown KCMO real estate, East Side KCMO real estate, Midtown KCMO real estate, Westport Real estate, Hyde Park real estate, Northeast KCMO real estate, Northland real estate, Plaza Real estate, South Kansas City Real estate, Fairway Kansas real estate, Kansas city Kansas real estate, Lake Quivira Kansas real estate, Lenexa Kansas real estate, Mission hills Kansas real estate, overland park Kansas real estate, prairie village Kansas real estate, Shawnee Kansas real estate, weatherby lake Missouri real estate, westwood Kansas real estate

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 )

Google photo

You are commenting using your Google 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 )

Connecting to %s

WordPress.com.

Up ↑

%d bloggers like this: