Getting our target price
Avoid round numbers in our final offer
I picked my mum and dad up from Bath station and was looking forward to introducing them to the house my wife and I had recently purchased. On seeing it, my mum’s reaction was priceless. You’ve made it, she said, and gave me a big hug. Our dream house had a sizeable garden with a stream, purchased at our target price. We used price negotiation tactics based on those described below.
Ackerman price negotiation model
There seems to be an unwritten rule that price negotiations follow a predictable offer/counter-offer dance that ends up settling on a middle figure.
The Ackerman purchase negotiation model is also based on an offer/counter-offer interplay, but the associated psychological structure and tactics can be highly effective. The Ackerman process is based on up to 4 incremental offers:
Set our target price, i.e. the amount we are happy to pay.
Our opening offer (Offer 1) is 65% of our target price.
If our offer is not accepted then three successive raises are applied: 85% (Offer 2), 95% (Offer 3) and 100% (Offer 4) of our target price. We move to the next offer only if our current offer is not accepted.
We use lots of tactical empathy (listening, understanding and engaging) and different ways to say no to get the other side to counter our offer before we increase ours. Get Better Than Yes Using These 5 Negotiation Tactics details techniques, including mirroring (e.g. repeat last few words) and labelling (e.g. Saying, It seems like blah).
When calculating our final offer, use precise, non-rounded numbers, e.g. £17,753 rather than £18,000. This gives our number credibility. With the final offer, we throw in non-monetary items (that our counter part probably doesn’t want) to show we’re at our limit.
House purchase example
We find a house we wish to purchase which is on sale for £570k. Taking into account our financial position and local property market research, we set our target price at £500k. The following negotiation steps play out:
We make an opening offer of £325k, (65% of £500k).
Our opening offer is quickly rejected. We ask questions and find that the house has been on the market for 3 months and is being sold as part of probate.
A day later, we increase our offer to £425k (85% of £500k). We emphasise that we are cash buyers and can move quickly.
After discussions between the siblings, our offer is rejected. We directly speak with the seller and understand that the proceeds will be split between them and three other siblings.
A day later, we increase our offer to £475k (95% of £500k). We ask for some furniture items to be included.
Our offer is rejected, but discussions with the main seller suggest we are close. We indicate that we need to double check our maximum borrowing capability.
After another day, we make our final offer of £496,565. We offer to clear accumulated rubbish from the house and complete the sale within 3 weeks.
Our offer and terms are accepted. 3 weeks later we move in.
Adjusting for different negotiator types
Treat others as you would wish to be treated yourself does not work when it comes to negotiations. For best results, we should adjust our negotiation approach, depending on the negotiation type of our counter part. There are three broad types:
Analysts are realistic, prepared and often quite clinical. For best results use data to explain our reasons and comparisons to disagree.
Accommodators are friendly and relationship focused. For best results use what and how calibrated questions relating to deal implementation, e.g. shall I draw up the contract terms by Friday?
Assertives are direct, emotional and can be seen as aggressive. For best results use mirroring, labelling, calibrated questions and summaries.
Never Split the Difference book by Chris Voss and Tahl Raz.
3 Influencing Tactics for App Designers post by Phil Martin
Better Decisions in 6 Steps post by Phil Martin
Next time you plan a sizeable purchase, try the 4 step Ackerman price negotiation model. I look forward to the house warming invite or a spin in your new car.