Basic Knowledge Negotiations

7/27/2019 Basic Knowledge Negotiations

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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


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


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


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


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


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


...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


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


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


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


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


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


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


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


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


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


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


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


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


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.

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Dr. Jonathan Booth



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



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



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



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



Value of each of these risky alternatives =

value x probability:


159,000


87,500

Value of renting the house = 100,000 x 0.05 =

+ 5,000

-----------------------------------------------------------------

251,500 = OVERALL VALUE = RP

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Basic Knowledge Negotiations