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November 16, 2018

Negotiating Tip 26: Mismatched Concessions

Concessions:  Should they be in percentages or dollars? 

The last three tips focused on how to deal with ridiculous offers.  Let us go one step further and consider some concessions that might be in order in such situations.

Using the example of a real estate negotiation where the buyer and seller are negotiating face to face without agent involvement.  The seller quotes a price of $150,000 which he (and even the buyer) knows is way too high.  The buyer flinches and counters at an equally ridiculous $100,000.

The seller returns the flinch but gets the message.  He counters by coming down to $135,000.  I'll bet you did what everyone else does, including the parties involved.  You quickly computed the dollar amount dropped to be $15,000. 

Believe it or not, there is significant and implied pressure for the buyer to reciprocate and raise his offer by a like amount to $115,000.   The buyer thinks he's matching the concession, but he's not.

Remember this, compare concessions on a percentage basis, not a dollar amount basis.   The seller's concession was $15,000 which was a 10% drop.  ($15,000 divided by $150,000)

If the buyer comes up $15,000 he's giving a 15% concession ($15,000 divided by $100,000).  That's a mismatch that's ill-advised.  To match the 10% concession by the seller, the buyer should come up only $10,000 to $110,000 for his counter.

You've probably anticipated the difficulty with this strategy, haven't you?  You know that the seller will think they're giving up more than the buyer.  In dollars they are.  In percentage, they're equal.

The technique to make this work is all in how the buyer presents his counter.  It should sound something like this."Mr. Seller, I appreciate the fact that you've lowered your price.  I think we're still a good ways apart, but at this point, I'll match your 10% reduction by raising my offer by 10%.  Can we get together at $110,000?"

Good negotiators don't get caught matching concessions in dollar amount when they are buyers but instead focus on the percentage adjustment.  

Good negotiators who are sellers encourage their buyer counterparts to focus on dollar amount concessions and take advantage of the mismatched concessions.

Being able to adjust one's thinking and techniques, depending upon what role we're in, is a hallmark of a good negotiator.  Be ready to adjust your role as you Keep Negotiating.

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