3 Rules of Negotiation
3 Rules of Negotiation
How many of you like to go car shopping? How about home shopping? How about_____?
You could fill-in that blank with any number of things that have a negotiable price, but the word “like” usually never comes to mind when doing what I call the Negotiation Dance.
Most are intimidated by it and try their best to avoid conflict or uncomfortable situations. To be a great negotiator, however, you must do your best to resist these human tendencies and realize you’re playing a huge game – a game with real money – your money – and you must do everything you can to keep as much of it as you can while purchasing the item you need.
That’s why I’m writing today’s post, to teach you the three simple rules I use when negotiating. I hope that it will save you the same tens of thousands of dollars it has saved me over the years.
Rule #1: Set a goal
The first step may be your easiest, and that is to set a goal or a target for a negotiation. This is a point at which if you walked away with a deal, you’d feel content in having not overpaid.
Be realistic in this. If you’re going to buy a vehicle with a $20,000 Kelly Blue Book current value, the chances of you walking away with that purchase for $3,000 are just not realistic. Yes, it may have happened to your cousin’s uncle’s friend that one time in a far away place you’ve never heard of, but you should always set a realistic target before entering a negotiation.
You may be asking, “How do I calculate my realistic target price?” You may not be an expert on the thing you’re buying, so paying a professional to help you come up with a reasonable price before you enter a negotiation could save you money by the time your deal concludes.
Furthermore, if you are unable to afford that realistic target, that’s an indicator you shouldn’t start shopping for that item quite yet. Instead, wait and build up your savings just a little more before starting that buying journey.
Once you have your eyes on something and you have a reasonable number identified, it’s time to go to Rule #2.
Rule #2: Never make the first offer
This one can be more difficult if you are the selling party, but no matter which side of the table you’re sitting on, here are some key words to use to start the negotiation process.
As a buyer, it is easy to get the other party to make the first offer. When on a car lot for example, the prices are typically advertised and posted. That would be considered the first offer. The same goes for real estate listed with a broker. The first offer is the asking price listed on the property.
If for some reason the price is not clearly marked, there’s nothing wrong with asking “How much are you looking to get out of it?”. This should get you the starting figure you’re looking for.
If they push back without a price, you can simply say, “I’m afraid of making you upset with too low of an offer, so I’d appreciate you tell me what you want for it.” This also plants the seed of doubt in their mind, and encourage them to start with a fair offering price.
An example of this might be if you approached a party about buying something that may not be up for sale. In this scenario, the seller may not have considered a price before, so it may take them some time to do so before they start negotiating. This is a good time to respectfully walk away, but provide your contact information should they come up with a first offer.
If you’re on the selling side, it’s harder to avoid making the first offer. But I often have success with simple questions like, “What’s your budget?” This phrase (or something like it) can make non-skilled negotiators start talking, giving you key information on how you can help to close the deal (i.e. budget limitations, requirements for purchase, etc.).
Once you have determined how much you’re willing to buy/sell the item for and gotten a first offer, it’s time for the final rule.
Rule #3: Always counteroffer
Here’s a real-life scenario from my own experience that will show you why you should always counteroffer.
When I owned my game business, I wanted to purchase the domain name that would go with our brand, Gamestation. I started my search with the people that owned gamestation.com. At that time, I knew I wanted to spend up to $10k. I reached out to the party that owned that domain and they responded with an initial offer of $85k! Far out of my price range, I counter-offered at $8k. They came down to $50k – a $35k reduction! But because that wasn’t in my realistic target, I politely walked away knowing this was a deal that wasn’t meant to be made.
To my surprise, they came down to $35k three days after I walked away, but because it still didn’t come close to my realistic target, I declined once more.
My next stop on this shopping trip was for the domain gamestation.net. When I asked how much they wanted for the domain, the reply was $6k. That price was well within my realistic target – success!
But instead of just saying yes, I told them I would think about it overnight and get back in touch with them the next day. That next morning, I sent them back an e-mail stating that I would pay $3,500. They agreed!
Being patient and making a counteroffer, even though I was happy with the initial offer, saved me an additional $2,500.
So, with patience and these three rules, you can turn your next negotiation into a game and have some fun with it, all while saving money in the process.