Low Start Strategy to Help You Win in Negotiation
Purchasers approaching property “for sale” usually do not know how to start the negotiation. They are often told by selling agent not to present unrealistic price. Usually, the property will be sold at price little bit lower than the asking price. There are some exceptions if the asking price is quite low, or there is a purchaser willing to pay for a premium.
The question for the majority of purchasers is how much the “little bit” is. No one knows; not even the selling agent. This is because the majority of vendors do not have an exact “reserve price”. They just have a concept on how much they expect the property would fetch. This “concept” is a range. The low end of this range is not far away from “unacceptable” and the high end is “realistic” highest possible price in current market. The key point here is the “concept” does change from time to time following the development of the sale process. On other hand, the purchasers also have such “concept” but oppositely. As a purchaser, your enemy in negotiation is not the vendor, not the agent, but your own “concept”.
To illustrate this, let us look at the scenario of an auction. Prior to the auction, a reserve price was set up. Vendors could lower the reserve price, but they could not lift it once auction commenced. Many purchasers also have such preset price limit. When bidding is over the limit, these purchasers simply stop going further. Others do not have a certain price limit, but a range. These bidders are more flexible. Some of them will continue to bid until they think the price is really too high. You may note these flexible bidders sometime exceed their original range because of the atmosphere or other reasons. In a successful auction, certainly the vendor and agent are winners. Let us classify bidders into two kinds: limit bidders and range bidders.
In lieu of achieving higher price, auctioneer always wishes the biding start with higher level. You may find the biding starting point is irrelevant to the limit bidders, but it may push the range bidders to bid further. This indeed is the real purpose of the auction. In other words, the auction is designed and targeted to the range bidders. If all bidders were limit bidders, this would not be an auction, but a tender process.
Let us come back to the sale process. When selling agent says “your price is too low and it is just a waste of time”, he/she indeed assumes you are the ranger bidder. High start means possible high selling price, or possible a deal. So, the first strategy you need to apply is not to be the ranger bidder. Preset price limit? Sounds unrealistic; but at least you could assume the high end of your range is fixed.
The second strategy is to start to offer low price. If your limit is lower than vendor’s range, there is anyway no way to a deal. However, if your limit is in the vendor’s range, it will help you to approach the low end of vendor’s range.
More importantly, low start strategy is likely to have more chance to a deal than high start, if limit is assumed the same. This is simply because the vendor sees that the counter-price is increased rapidly.
The only problem with this strategy is the selling agents are reluctant to present this kind of offer. They tend to assume the difference between everyone’s first offer and the final offer are certain, if you start high, your last offer will be high. And they assume you do not have price limit. Indeed, they do not realize if you have price limit, higher offer means less room to move and therefore less chance to a deal.
By law, the agent would have to present your offer to the vendor, whatever the price is. However, in reality they do not. If you are unable to convince the agent to simply give vendor a call, show him/her this article.
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