Negotiating Price: Walking Through A Successful Deal

negotiatingNegotiation is a funny thing. In a perfect world we would all put up our numbers and say, “This is the number, here is the deal structure and this is how we want it to work.”

Unfortunately, things just aren’t like that here in North America. We like to negotiate because it makes us feel better. Whether you’re negotiating for real estate, a car or whatever…there is always negotiating on the price.

Forget The Price, Focus On The Value

Everybody focuses on the price and the first thing I’m going to say is that if you focus solely on the price you are always going to lose. If it’s all about price to you, you aren’t going to get there.

You have to consider:

  • Value
  • Terms of the agreement
  • Flexibility

If it’s all about price then one party is likely going to be unhappy about the deal and you won’t have a deal unless you can make it work for both parties.

Negotiating Price: Talking Numbers

When we look at negotiating price, the first thing you want to do is to get an idea what the other person wants. You may not know the exact number that is on their mind but you need to know approximately where they are going and you have to be able to let them know approximately where you are willing to go.

Let’s just throw a deal out there as an example. There are exceptions to all these “rules” but this is really just a set of guidelines that I want to talk about.

Let’s say you wanted to buy a piece of property listed at $110,000 and that you think you would settle somewhere in the $90,000 range for your purchase price. Through your assessment you’ve determined that your number is reasonable.

When you go in to negotiate, you start with offering $80,000 because you can never go into the deal with exactly the number you’re expecting them to accept. We just don’t do that in North America. I wish we did but it just doesn’t happen so we have to be realistic and play the game.

The Counteroffer

So you’ve put in your offer of $80,000 and the person you’re negotiating comes back and says they will lower their price to $108,000 from $110,000.

That’s only a $2000 decrease.

At this point you would go somewhere around 85K for a counter offer.

Sometimes in situations like these they might come back and go down to 100K. This is where you’ve got to put your radar up.

If the first price drop was only $2000 but their second drop was $8000, you don’t have any idea where they’re coming from. There is no dependable way to determine their bottom-line so you might as well keep negotiating.

Come In Strong On The First Offer

I always advise my clients to start with a really solid first offer then look to where you want to end up. Make sure that when you counteroffer that your offers are getting closer and closer together. If you’re going to give 10K on the first offer, the next offer should be less than 10K and then even less for the next offer.

Going back to our example where the asking price is $110,000.

Let’s say the first offer is $80K. The second offer would be around $85K. Your next offer would be $88K. Your next offer would be $90K.

You see how I’m getting lower and lower with the amount I increase by? I’m pointing the person I’m negotiating with to an approximate range where I’m drawing the line in the sand.

Be Prepared To Walk Away

All of this advice is based on the assumption that you are prepared to walk away. If you aren’t prepared to walk away, then everything I said just went out the window.

You draw your line in the sand.

If you’re not in a walk away position then you’re truly not in a great negotiating position. Of course if you’re not in a walkaway position, you better NEVER let anyone know that. If that gets back to the other party, you’ve blown it.

It’s an interesting discussion and doesn’t work every time because you need to be flexible. Decide from the get-go…are you going in with your heart or your wallet?

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