Never Split The Difference

When selling or buying large ticket items (cars, homes, high priced services/goods), there is typically some form of negotiation between the buyer and seller.  Whether terms are more favorable for the buyer or seller rarely matters if you are skilled at proving your point in the value you are bring to the table, as well as current pain either one is currently facing.

A common negotiation tactics is to “meet in the middle” and split the difference between the two parties’ original terms.  This often times leave quite a bit of money on the table for one of the parties and, as economists like to say, a deadweight loss.  Former hostage negotiator Chris Voss, explains that the key point to these negotiations is have a number in mind, and be willing to walk away if you cannot get to that number.

While it may seem counterintuitive, if you can only afford a $500,000 home, why would you go out of your way to pay $50,000 over asking price and outbid other buyers if you are going to regret it later on?  A cool head is needed in these situations, and objectivity versus subjectivity, must win out with your emotions if you want to make favorable progress in the transaction. 

While living in Manhattan, my landlord attempted to raise my rent (for my shoebox apartment) from ~$2000/mo to $2500/mo during lease renewal negotiations.  I pointed out that my history of paying rent on time, and true love for the neighborhood/building made me a great tenant that they should be proud to have in their building.  I countered with a reduction to $1800/mo.  We eventually settled on the same rent as the prior year of $2000/mo.  Just think, if I had thought that $2250/mo was favorable to me, because we were meeting in the middle, I would have ended up paying $3000 more over the course of the year!