A friend of mine once bought a house for roughly half of what it was worth. The market was still booming. The seller certainly could have gotten more. Why would anyone make such a terrible deal?
John G. emailed to ask about negotiation tactics, but he inadvertently brought up an extremely important point. He was assuming that the other side wouldn’t accept an offer because it was clearly below market price. This is a common assumption. It stems from two things. First, most buyers are chiefly concerned with price. Because people’s ego interferes with their rationality, this leads them to believe that everyone else is chiefly concerned with price as well. Second, most people avoid confrontation at all costs. Making an offer below market price, or “lowballing” someone, feels confrontational to many people. Thus, people are terrified of making them. They think it’s rude or disrespectful or something.
But they never stop to consider what a lowball offer is. If someone needs to sell immediately, is 50% of market a lowball offer? If someone doesn’t care about money, is 50% of market insulting?
The key to negotiating is finding out what the other person really wants. Almost all of the of the time, he wants as much money as he can get in his situation. Those last three words are key. Everyone’s situation is different. A seller’s situation might be that he wants to help out a couple who’s just starting a family, or to get out of town fast, or just screw over his ex-wife. You’ll never know if you don’t ask, but assuming a seller is only interested in price is foolhardy. Rarely does a person have all of the time in the world to get the best possible price.
Also, if it isn’t immediately obvious, this principle extends well beyond the world of negotiation.