We’ve been assisting buyers and sellers with negotiating a lot of contracts lately. One of the things we’ve noticed is that people tend to gravitate towards “The Middle.” What that means is, the middle between the buyer’s starting point and the seller’s listing price.
For example, if a house is priced at $350,000 and the buyer starts at $320,000, you’re probably going to end up right around $335,000.
The problem with The Middle is that it is arbitrary based on the buyer’s decision on where to start negotiations. Depending on the starting point, The Middle may not even be in the seller’s range of acceptable end points.
Clients often ask us “Do you think the buyer/seller will get to $X?” X being The Middle, of course. Unfortunately we have no crystal ball into this. We can pull data to support positions, but it doesn’t always necessarily help the situation. The other side has to be accepting of hearing about the data and that isn’t always the case.
While working towards The Middle is a common strategy, it doesn’t always work. If a house is priced properly, it will usually sell anywhere from 0% to 5% off the listing price. Understand how long the house has been on the market, what other comparable inventory exists and how well the house shows. Both sides should keep that in mind when they start their negotiations.
A lot of interesting work has been done studying negotation patterns and psychology. Many books like “getting past no” are interesting. I think “splitting the difference” is extremely appealing to people’s sense of fairness. Hence, I think it is a pattern that people start their offer with that in mind as you have noted. In some types of litigation, for instance, its more accepted to start much farther apart – and expectations have developed to some degree around those norms which then become self-perpetuating. So if you ask 2M to start – you’re sort of telling the other side you’ll take 500k. I’ve read some interesting research work on how people will definitely buy things they don’t really want if they think its a “bargain” – and that can play into real estate to some degree — as one can tell from the write ups at times: “this won’t last” “great bargain” “best price in the complex” “you won’t see this again” etc.
In business, I think the best negotiators keep an emotional distance and have flexible and practical approaches. I suspect its that’s harder in real estate where people seem to become emotionally involved or more easily offended and prickly. Its helped me to try to really decide what I was trying to get done and why – and then not sweat the small stuff or get caught up in other peoples or their realtors little melodramas (unless you feel like it for fun). I actually thought it was interesting to see one large house in the West End that actually was right up front in their ad with what range of offers they would entertain. That was refreshing – whether it will work out – don’t know.
Most often with real estate I find that people get emotionally involved in the negotiation. It’s my job to try and calm that to some extent.
There is one company that offers the “range pricing” methodology. I’ve found that if you actually watch where the properties close that are utilizing it, it’s often below what they state is the bottom of their range.