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Basic Terms
Dr. Jonathan E. Booth
29 July 2013
Dr. Jonathan Booth
2013 Summer School 2
Your greatest advantage
in any negotiation is
preparation
1. Purpose
2. Interests &
Priorities
3. BATNAs4. Options & Issues
5. Standards
6. Proposals
7. Intentions
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Dr. Jonathan Booth
2013 Summer School 3
Defining your interests:Purpose
Whats the purpose of a home sale negotiation?
Negotiations have a surface-level purpose that most
everybody can agree on.
It feels comfortable to talk about whats happening at the
surface.
Each negotiator has his/her own deep-level purpose,
which is why theyre really at the table to begin with. Finding a mutually attractive resolution often requires fulfilling
this level.
But revealing this level is hard work (even for ourselves) and
requires trust.
Dr. Jonathan Booth
2013 Summer School 4
Selling a house: Define interests
Interest
Profit
Minimize stress in closing deal
Avoid double mortgage
Put down offer on house in
Islington
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Dr. Jonathan Booth
2013 Summer School 5
Selling a house: Prioritize interests
Priority - Interest
3 - Profit
4 - Minimize stress in closing
deal
1 - Avoid double mortgage
2 - Put down offer on house in
Islington
Dr. Jonathan Booth
2013 Summer School 6
BATNA
Best Alternative to a Negotiated Agreement Course of action youll take if walk away and all its associated
risk
NOT a safety net it SHOULD provide you leverage i.e., you dont have to take the low ball offer there are other
options/alternatives out there!
Develop alternatives so you know at what point to stopnegotiating
Gives you the POWER to walk away If we cannot receive an offer of X-amount for the house, then
what will you do?
Can you live without an agreement? Whats at stake?
Always try to increase your BATNA
Your BATNA could change over course of negotiation
How different from Reservation Point? Least favourable agreement youre willing to accept
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Dr. Jonathan Booth
2013 Summer School 7
How interests become positions
Interest Target Point
Profit 20% over purchase price
Minimize stress in closing
deal
No additional repairs or
improvements
Avoid double mortgage Sell house for move in next
monthPut down offer on house
in Islington
Deal signed next week so you
can move forward with offer
Dr. Jonathan Booth
2013 Summer School 8
...and what issues are on the table?
Interest Target Point
Profit 20% over purchase price
Minimize stress in closingdeal
No additional repairs orimprovements
Avoid double mortgage Sell house formove in next
month
Put down offer on house
in Islington
Deal signed next week so you
can move forward with offer
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Dr. Jonathan Booth
2013 Summer School 9
Issues
What are the different issues you can talk about?
Brainstorm various options for meeting each of your
issues and their issues
Be creative and think about whats noton the table that
could help the other person and help yourself
What issues can you bring in to expand the pie?
If you dont ask, you dont get. Nothing is out of bounds
for the brainstorming stage.
Dr. Jonathan Booth
2013 Summer School 10
Standards
These are criteria you can leverage to
provide a more neutral zone for discussing
proposals (i.e., bundles of issues)
Published benchmarks Historical figures and precedents
Industry averages
Accepted practices
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Dr. Jonathan Booth
2013 Summer School 11
Research the criteria in advance
Fair standards
Should be
Legitimate and practical
Independent of each sides will
Could be based on:
Market value
Precedent
Scientific judgment
Professional standards
Tradition
Reciprocity (each side offers
something), etc.
Fair procedures
One person cuts, the other one
chooses
Each side gets equal
opportunity
Other options:
Taking turns
Drawing lots/flipping a coin
Letting someone else decide
-expert, mediator
(Fisher & Ury, 1991)
Dr. Jonathan Booth
2013 Summer School 12
Proposals: Create packages &
Bundle issues
Packages that combine multiple issues
This is not a menu. Dont allow cherry-picking!
Knowing how much you value each issue allows you
to bargain by making trade-offs between equivalent
packages
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Dr. Jonathan Booth
2013 Summer School 13
Equivalent Packages?
300,000 Offer
Pool furniture and equipment remain
Entertainment system designed for home
remain
=
290,500
Buyer pays sellers commission to agent
Pays off-street parking until end of lease
Dr. Jonathan Booth
2013 Summer School 14
Package proposals
Think of trade-offs before negotiation by striking
positions on each issue at three levels:
Live with -------- Content with -------- Aspire to
RP TPSellers bargaining range
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Dr. Jonathan Booth
2013 Summer School 15
Live with: RP
You must figure out your BATNA to know your
Reservation Point BATNA is course of action youll go if do not reach
agreement
BATNA closely linked to RP b/c RP is lowest youll go
before walk away
You should not make a deal worse than your BATNA
Least favourable agreement youre willing to
accept You likely will have several RPs in a multi-issue negotiation
Think broadly, then quantify each aspect & its
probability
Dr. Jonathan Booth
2013 Summer School 16
Developing a Reservation Point
Value of each of these risky alternatives =
value x probability:
Value of reducing price to 265,000 = 265,000 x 0.6 =
159,000
Value of reducing price to 250,000 = 265,000 x 0.35 =87,500
Value of renting the house = 100,000 x 0.05 =
+ 5,000
-----------------------------------------------------------------
251,500 = OVERALL VALUE = RP
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Dr. Jonathan Booth
2013 Summer School 17
Aspire to: Target Point
This is an aspiration aim high!
Consider the whole universe of outcomes
Think about all of your interests
Be feasible, but beware: Many of us tend
to aim low
Think champagne popping! If overshoot, you appear unreasonable
Do not anchor your TP to your RP!
Dr. Jonathan Booth
2013 Summer School 18
Make Sure Were Clear on
Vocabulary!
Issues: What you negotiate over during the discussion(e.g. price)
Position: Where you are on that issue (e.g. what price)
Interests: Underlying needs, concerns, desires, fearsyou truly wish to satisfy with the deal, often lead you to
take a certain position
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Dr. Jonathan Booth
2013 Summer School 19
Focus on interests, not positions
Your position is something youve decided on
Your interests are what caused you to decide
your position
For every interest, there are usually many
positions that could satisfy it
Be open to alternatives
What are the obstacles if you focus on your
positions?
(Fisher & Ury, 1991)
Dr. Jonathan Booth
2013 Summer School 20
Focus on interests, not positions
Position: You want 8000 for your car
Interest: You need 4000 to repay a debt to
your sister and 2000 to pay your LSE tuition
If we focus on your interests rather than your position, I
may be able offer you something else that
meets one or more of these
e.g., I have tickets to a concert your sister really
wants to go to, so you may be able pay off some
of your debt without the full 4000
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Dr. Jonathan Booth
2013 Summer School 23
Step 1: Brainstorm Your Alternatives.
Imagine that you want to sell your house.
Your target point275,000.
What will you do in the event that you do not get
an offer of 275,000? Consider as many
alternatives as possible.
2-23
Developing a Reservation Point
Dr. Jonathan Booth
2013 Summer School 24
Developing a Reservation Point
Step 2: Evaluate Each Alternative.Can you do without an agreement and what are the costs? Can you make the
product yourself? Can you find a substitute? Can you dispose of excess?
Order the various alternatives by their relative attractiveness, or value.
If an alternative has an uncertain outcome, such as reducing the list
price, you should determine the probability that a buyer will makean offer at that price.
Suppose that you reduce the list price to 265,000. Based on research,
you assess the probability of an offer to be 60%. The best
alternative should be selected to represent your BATNA.
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Dr. Jonathan Booth
2013 Summer School 25
Developing a Reservation Point
Step 3: Attempt to Improve Your BATNA.
In this case, you might contact a rental company and
develop your rental options, or you may make some
improvements that have high return on investment (e.g.,
new paint).
Of course, whats most attractive to you is to have an offer
in hand on your house.
Dr. Jonathan Booth
2013 Summer School 26
Developing a Reservation Point
Step 4: Determine Your Reservation Price.
The least amount of money you would accept for your
home at the present time.
You assess the probability of an offer of 250,000 or higher
to be 95%.You think there is a 5% chance that you will not get such
offer and will rent it.
The probabilities always sum to exactly 100%. We have
considered all possible events occurring. No alternative
is left to chance.
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Dr. Jonathan Booth
2013 Summer School 27
Developing a Reservation Point
Assess the expected probabilities of selling:
Reduce the price of your home to 265,000
Psale = 60%
Reduce the price of your home to 250,000
Psale = 35%
Rent the house
Prent = 5%
Dr. Jonathan Booth
2013 Summer School 28
Developing a Reservation Point
Value of each of these risky alternatives =
value x probability:
Value of reducing price to 265,000 = 265,000 x 0.6 =
159,000
Value of reducing price to 250,000 = 265,000 x 0.35 =
87,500
Value of renting the house = 100,000 x 0.05 =
+ 5,000
-----------------------------------------------------------------
251,500 = OVERALL VALUE = RP
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