because now the range of margins will be much wider.
FOCUS: Negonomics in pricing
Do the prices we mention give away what we are really thinking?
ELABORATE: Everything we say and do reveals what’s on our mind. This is certainly information we don’t want to share, least of all with the other party. Regardless of our position we want them to think that we are strong when we are weak. And if we don’t think carefully about it, our numbers really make our position transparent.
First we must separate two objectives, because there is a huge difference between making an opening bid and a firm offer.
Opening bid: the amount must be well considered, because otherwise it might give the wrong message. A “wrong” number can give the impression that you are not really interested or, maybe worse, that you are willing to pay more than is your intention.
Firm offer: This must be carefully chosen or the answer you get will be “no” instead of something setting the wheels in motion for any step-by-step haggling if that was what you had in mind. This does not mean that firm offers are really final. They may or may not be...
Again the way you read the meaning of numbers must depend on the market situation and what is customary in the industry. It speaks for itself that when buying in a low market, you may deduct more than in a hot seller’s market and in some lines of business margins are larger than others.
SOLUTION: The following examples are just indications.
Price 109,500
Price 219,500
Price 529,500
The 9,500-29,500 figure seems added to the price as a negotiation buffer, and can be discarded by you before the negotiation even starts. That is how you deal with obvious buffers; just ignore them in your mind.
Only the remaining amount will be considered. It does not mean that you have to pay it. You will come up with your own valuation anyway, but it is helpful to consider their train of thoughts so you can relate your arguments accordingly.
Price 49,950
Price 79,995
Price 99,975
This is a whole different ball game because there is nothing visibly added. The nines indicate that the seller feels the rounded number may scare you off and initially you should read weakness in such cases. The fact remains that they are really asking for 50,000, 80,000 and 100,000. These prices may be dealt with as random numbers, without any good calculation to back them up, unless proven otherwise. Of course, it is possible that they compared and calculated and came up with this round figure, but it is just not very likely.
Example
The situation: There is a weak market for real estate. I am buying. An asking price of 340,000 suggests to me that the sellers were hoping for 300,000. That means that the 40,000 can be discarded and only afterwards do you start taking the real money off. Any number put on the price as a buffer should have no real bearing on the negotiation. They will try to use it as a real number. Just ignore it with a smile.
Another situation: There is a strong market for real estate. I am selling. According to the real estate broker, the house I have to sell is worth just over the 500,000 mark. My asking price becomes 528,000 and I am happy with anything over 500,000 but there are no takers, not even any bids. After a few months I have a meeting with the broker, who is really down. He does not understand what went wrong, because the market was steaming hot. Only my property did not sell.
Seeing his desperation, I take the house off the market. Five months later it is my turn to decide the manner of selling; the broker just follows my lead. I put the house on the market again as if it had never been on offer before. Using the power of introduction (visibility, excitement, and sentiment all rolled into one) the price is now set at 499,995. I am hoping to attract several buyers bidding up against each other.
Selling ice cream to Eskimos
The broker bows to my wishes, but has very little faith left. It is now the worst period to sell property, a few weeks before Christmas. Everyone knows that! As a result, nobody is foolish enough to introduce new property at that time so mine receives all the attention.
The first viewer makes an offer, the second one is informed of this, and immediately wants to pay the asking price, as does number three. The next week I sell for the highest bid, which is 526,000. More than I could have hoped for.
Auction mind set again
Auctioneers know very well that starting lower, especially under the first number, often reaches a higher price in the end. Is it not amazing that in an affair of cold cash, like buying a house which often needs financing, particular numbers speak so loudly? How is it possible that starting with a 4 instead of a 5 creates such a dramatic effect?
Adding the emotion of excitement to the sale (so many people wanting the same unique item) gives buyers that extra push to go beyond what they would have paid otherwise. They were forced to reconsider and the Story2Tell could not have been any better because now they own a house worth fighting for.
Negonomics, the message
Example
The situation: A good sellers’ market and I’m selling.
My asking price was 4.7 million but this was not an easy property to sell, not suitable for everyone.
I received a written offer:
I needed time out to think. The question was not whether to accept or decline but rather could I work out what the message was behind this bid. What was their weird offer telling me?
1 The number 3,995,000 is not a successful buyer’s bid, but a seller’s starting price. Adding the last 5,000 would have raised their chances tremendously. Why did they offer below the four million mark? It made no sense at all.
2 They had not got the financing in place before making their offer. One can only demand such a deduction if the offer is otherwise firm with no ifs or buts that are outside the seller’s control.
3 There is no excuse for an escape clause like the one they had added. It seemed to protect them in case I accepted and they wanted to back out.
So what was the explanation for their bid?
They had no real intention of buying but they had invested so much time, mine and theirs, as well as expenses, that they needed to go through the motions of “trying”. Then they could say afterwards they had been close to buying. In fact,
