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A little OT but for anyone with experience - is the negotiation depicted realistic / typical? The final selling price is over twice the buyer's initial offer an

A little OT but for anyone with experience - is the negotiation depicted realistic / typical? The final selling price is over twice the buyer's initial offer and almost 150% of what they said at one point is their max. I know it's a textbook negotiation but (obviously not having too much experience negotiating) I never thought that's really how they work in real life.

qixxiq 5y ago
Yes. The buyer would might have been willing to pay $15,000+, but wanted to anchor (and start low) so went $4,500. The real max was introduced when the seller gave the $15,000 number... buyers never want to or will reveal their number (i.e. the $7500 was a lie.)
- andersource 5y ago
  Thanks! So basically (typically, of course depending on circumstances) any number explicitly stated by the buyer is less than the true maximum and you can expect to converge on a higher price?
  - borepop 5y ago
    Normally, yes, and as was mentioned higher in the thread this initial figure is referred to as an "anchor," meaning that it has the psychological effect of implying that anything higher than that number is somehow a real concession on the buyer's part, when the reality is that the opening number could have just been higher. It's rather like when a store says "this is normally $500 but now it's on sale for only $250" instead of just pricing something at $250 in the first place. Getting to Yes, also mentioned above, is a useful book on negotiation.
clairity 5y ago
think of negotiations as a price discovery mechanism (auctions as another example) with severe information asymmetries. the point of the process is to learn what each side values and what exactly is on offer (and can be potentially offered) and how much value each side places on those things. price is used as the primary signal of value, and you learn about value as prices and information is exchanged in an iterated fashion.
- andersource 5y ago
  Thanks! Yeah that's my idea, I guess what surprised me is the ranges involved. In the few times I had to negotiate (always as a "seller" as in salary negotiation), I would state around 110% of my minimum, and I was really prepared to walk away if the offer was below that. That worked but I guess it conditioned me to treat buyers' offers as 90% of their maximum while in reality it doesn't make sense for them to start there...
  - SamBam 5y ago
    I'm no expert, but salary negotiations may be different. If the rough range you're expecting is $100k, and you start the negotiations at $200k, they might actually take it as "this person has completely unrealistic opinions of themselves" and/or "this person is going to walk out on us the moment they get a better offer, so there's no point hiring them."
  - clairity 5y ago
    yes, i should have mentioned trust earlier, as that’s even more important than information in negotiations. two parties who don’t know each other will start with relatively low trust, so highly divergent bids are a signal of that. as information is shared, and assuming trust signals trend positive, the bids converge. also, you want to know early if the other party is a sucker or unreasonable, and to weed out lemons. all that’s a direct consequence of our intuitive sense of fairness and value. salary negotiations are a little fraught because they’re low trust and information-asymmetrical to start but because jobs are a longer term relationship, you don’t want to trigger distrust. one of the reasons employers like to keep salaries/comp private is that it gives them an significant information advantage in negotiations. they know every comp package they’re paying and that they’ve offered, as well as comp packages at various other companies and industry average info that they subscribe to. it’s often prohibitively expensive for each worker to gather similar data, which creates a real disadvantage. in light of that, i’d suggest starting at 110% of what you’d consider a reasonable maximum, not minimum, and have 3 justifications ready (based on value you’ve generated for other companies, your overall experience level, specific skills/relationships/resources you bring to bear, public salary/comp information, etc.) to counter the obvious first objections (usually on experience or comparative comp data). anchoring high, but not unreasonably so, and then negotiating with justification should get you a higher comp package while not triggering distrust. you’ll also learn some important bits about the company which may give you reason to forego the offer (happened to me a couple times actually).

qixxiq 5y ago

Yes. The buyer would might have been willing to pay $15,000+, but wanted to anchor (and start low) so went $4,500. The real max was introduced when the seller gave the $15,000 number... buyers never want to or will reveal their number (i.e. the $7500 was a lie.)

andersource 5y ago
Thanks! So basically (typically, of course depending on circumstances) any number explicitly stated by the buyer is less than the true maximum and you can expect to converge on a higher price?
- borepop 5y ago
  Normally, yes, and as was mentioned higher in the thread this initial figure is referred to as an "anchor," meaning that it has the psychological effect of implying that anything higher than that number is somehow a real concession on the buyer's part, when the reality is that the opening number could have just been higher. It's rather like when a store says "this is normally $500 but now it's on sale for only $250" instead of just pricing something at $250 in the first place. Getting to Yes, also mentioned above, is a useful book on negotiation.

clairity 5y ago

think of negotiations as a price discovery mechanism (auctions as another example) with severe information asymmetries. the point of the process is to learn what each side values and what exactly is on offer (and can be potentially offered) and how much value each side places on those things. price is used as the primary signal of value, and you learn about value as prices and information is exchanged in an iterated fashion.

andersource 5y ago
Thanks! Yeah that's my idea, I guess what surprised me is the ranges involved. In the few times I had to negotiate (always as a "seller" as in salary negotiation), I would state around 110% of my minimum, and I was really prepared to walk away if the offer was below that. That worked but I guess it conditioned me to treat buyers' offers as 90% of their maximum while in reality it doesn't make sense for them to start there...
- SamBam 5y ago
  I'm no expert, but salary negotiations may be different. If the rough range you're expecting is $100k, and you start the negotiations at $200k, they might actually take it as "this person has completely unrealistic opinions of themselves" and/or "this person is going to walk out on us the moment they get a better offer, so there's no point hiring them."
- clairity 5y ago
  yes, i should have mentioned trust earlier, as that’s even more important than information in negotiations. two parties who don’t know each other will start with relatively low trust, so highly divergent bids are a signal of that. as information is shared, and assuming trust signals trend positive, the bids converge. also, you want to know early if the other party is a sucker or unreasonable, and to weed out lemons. all that’s a direct consequence of our intuitive sense of fairness and value. salary negotiations are a little fraught because they’re low trust and information-asymmetrical to start but because jobs are a longer term relationship, you don’t want to trigger distrust. one of the reasons employers like to keep salaries/comp private is that it gives them an significant information advantage in negotiations. they know every comp package they’re paying and that they’ve offered, as well as comp packages at various other companies and industry average info that they subscribe to. it’s often prohibitively expensive for each worker to gather similar data, which creates a real disadvantage. in light of that, i’d suggest starting at 110% of what you’d consider a reasonable maximum, not minimum, and have 3 justifications ready (based on value you’ve generated for other companies, your overall experience level, specific skills/relationships/resources you bring to bear, public salary/comp information, etc.) to counter the obvious first objections (usually on experience or comparative comp data). anchoring high, but not unreasonably so, and then negotiating with justification should get you a higher comp package while not triggering distrust. you’ll also learn some important bits about the company which may give you reason to forego the offer (happened to me a couple times actually).