When we go into a negotiation, we do our best to collect all of the available information. However, there will always be times that there may be things that we don’t know. One interesting situation that we may find ourselves in is a situation in which the price of what we are talking about is not known. As you can well imagine, this changes everything. If we are going to make an offer for it, where do we start? If we are selling it, how do we get the discussions started? A hidden price can change everything when it comes to a negotiation…
Just for a moment, imagine yourself in a dilemma that only a privileged few get to experience: While looking for your next home you’ve fallen in love with a one-of-a-kind home that is on the market; however, it currently doesn’t have a listing price. Instead of using the anchoring effects of a high price tag to elicit a strong bid from you, the seller’s broker is encouraging you to name what you’re willing to pay. In a case like this, an offer well into the millions seems expected, but how high will you need to bid in order to secure your dream home? Without an asking price, you feel unmoored and don’t know where to begin. However, you are desperate to win this prize.
Refusing to attach a sale price to a property is unusual but it is not an unheard-of practice in luxury real estate. For particularly desirable or unique properties, sellers and their brokers may decide to let buyers make the opening bid rather than anchoring with a list price. In the world of real estate, sellers can advertise the price as “available upon request,” meaning only potential buyers who have visited the property and are seriously interested should inquire.
Beyond the world of high-end real estate, the decision to keep price under wraps raises interesting questions about when sellers should disclose price and when they should keep it hidden. At first glance, it would seem that a home seller who fails to disclose a home’s price has gotten it all wrong. Research on the anchoring effects of an initial offer shows that the first number suggested in a negotiation serves as an anchor that has a strong impact on the final agreement. For this reason, negotiators are often advised to try to gain an advantage by making the first offer.
To Reveal A Price Or Not
Negotiators need to realize that leaving a home unpriced limits the pool of buyers. When this is done it cannot be listed on popular online real-estate websites, such as Zillow, Trulia, and Realtor.com. A lot of negotiators believe that not naming a price is “like being half pregnant” and can reflect owners’ ambivalence about whether or not they really want to sell. It turns out that the answer to the question of whether to make the first offer is more nuanced than a just deciding on a clear yes or no. A negotiator is going to have to conduct an in-depth analysis of their bargaining position and that of the other party in order to determine the best course of action, given their situation.
When you find yourself in a situation like this, you need to assess your best alternative to a negotiated agreement, or BATNA; your target; and your reservation price – your point of indifference between accepting a deal and pursuing your BATNA. The next thing that you’ll have to do is to estimate the other side’s BATNA, target, and reservation price. Completing this analysis will help you identify the zone of possible agreement, or ZOPA – the range of options that both sides would find acceptable. When you believe you know more about the ZOPA than the other side, you generally should feel comfortable using the anchoring effects of an aggressive offer, one near the top of the ZOPA. This is will be typically the case for sellers who know a great deal about what they’re selling – and likely more than the buyer does.
By contrast, when your counterpart knows more about the ZOPA than you do, it will be difficult for you to select an effective anchor. For example, a job candidate may be in the dark about the possible salary range for a given job relative to the recruiter. Because of the risk of asking for too little, the candidate might be wise to let the recruiter make an initial salary offer. Similarly, homeowners may choose not to name their home’s price because they simply aren’t sure of their property’s market value.
What All Of This Means For You
This negotiating thing has had its rules worked out for a long time. When we want to buy something, we find out how much it costs and then we can start to negotiate with the owner in order to find a price that we can both live with. However, there are some cases in which the person who is selling something may not tell us how much they are selling it for. When this happens, they are expecting us to make them an offer and they will either accept or reject it. What should a negotiator do?
Not naming a price for something that is being sold is actually somewhat common when it comes to real estate. When it comes to other types of products there are many questions about when sellers should disclose price and when they should keep it hidden. If a seller chooses to keep the price of their product hidden, it may limit the pool of available buyers. If you are buying a product that has no price, make sure that you know your BATNA and your ZOPA. If the other side knows more about the ZOPA then it may be difficult for you to set an anchor in the negotiations.
I think that we can all agree that not knowing the asking price for a product makes the process of negotiating a deal for it all that more challenging. As negotiators we need to understand that if we find ourselves in a situation like this, we need to take the time to sit down and map out the BATNAs and ZOPA that are part of this negotiation. Only by doing this will we be able to understand what the correct way forward is.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™
Question For You: If you are involved in a negotiation where the price is not stated, how can you determine what kind of initial offer to make?
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What We’ll Be Talking About Next Time
When we enter into a negotiation, our goal is to get a deal that we can live with. We spend a lot of time thinking about what we want the other side to give us as a result of the negotiations. However, we also have to keep in mind that they are probably thinking the same things. What this means for us is that we need to start planning on what we are going to be willing to give up in order to get what we really want. These concessions are the things that are going to get us the deal that we want. We need to know how to go about making concessions in the right way.