02 Jan Coffee with Robbie #3 – What I learned from Negotiation Genius
Welcome to my third episode of “coffee with Robbie”. Today, we are going to be talking about “NEGOTIATION GENIUS” by Harvard professors Deepak Malhotra and Max Bazerman.
This book has changed my behavior quite a bit. It has changed how I do any negotiations. For anything, whether it is fruits or compensations. Whatever it is. It has changed how I do my negotiations. What I want to do is to share a few tactics from the book.
They are many tactics in the book. I want to talk about a few of them that have changed how I think.
1. UNDERSTAND YOUR “ZOPA”
“ZOPA” means “zone of possible agreements”. It means that anytime you are going into a negotiation for anything. Whether you are buying property or you are negotiating a salary. You need to create your “zone of possible agreement”.
One of the examples that was used in the book was about real estate property that is going for sale. For example, I am the buyer and I want to buy the property. There is the buyer’s reservation value and there is the seller’s reservation value. The buyer’s reservation value is the maximum amount I am going to pay for this property. I am m not sharing that with anyone.
However, in this example. I am not going to spend more than $48million because I do not have that money. My reservation value is $48 million. I am not going to spends more than $48 million. I know this is the maximum want to pay. Would I want to pay less than $48 million? Of course, but, that is my maximum value. My goal with this negotiation is “how do I get amount for this?” If I can pay $45 million. I will pay $45 million. That I great. I just do not want to pay more than $48 million.
The other value is the seller reservation value, which is $42.65 million in this example. That is the value as a buyer that I think is the minimum amount the seller will sell this property. I think.
Based on the research that I have done, that the lowest they will sell it for is $42.65 million. I think the maximum I will pay is $48 million. I think the minimum they will sell it for is $4.65 million. In between these values is the “ZOPA”. I think that if I ca negotiate to $43 million, then that is a deal for me. “How do I get the best deal, when I am doing this?”
a) Get as much information as possible, that is how you come up with your seller reservation value, which I think is the minimum the property would be sold for. Through diligence and research of the lowest value, the property can be sold for. Ask questions: ask what the lowest amount is. They would never tell you plainly. You have to take a guess of what the number is
b) UNDERSTAND THE VALUE OF WHAT YOU ARE SELLING. This is from the seller’s perspective.
Many people make mistakes during salary negotiation. For example, the seey business analyst $50,000 a year. They assume that, that is what they would be paid $50,000 a year. That is where many people go wrong. It is about the value of what you are selling. The value or your services. Not just the amount.
In this case, from the perspective of the seller. Let us assume, they come up with the same “ZOPA” or they came up with the same information. Let us say, the agreement was that they would use the property for residential purposes. Then the maximum, the person will pay for it is $48 million.
The key here is get information.
Also understand the value of what they are selling it for and the value of why the want to buy it. If it was to be used for commercial purposes. The $48 million is low. Because, they would make a lot more money using that real estate land. That can change everything. It is key to ask what the property will be used for. Is it residential or is it commercial. Then you a=have the opportunity to go higher.
Always ask, “Why, do you want to buy this?” It is about the value of the services you provide. The value of the land and not just the cost. Many people look at this as one dimensional. Especially, during salary negotiation. It is about the value of what you are providing and you need to understand what the value is.
2. THE FIRST OFFER
Let us say, as a buyer. I am going to make my first offer. I know my reservation value is $42.6 million. I know my “ZOPA”. I have to ask, “What should be my first offer?” “Should I say $45 million or go much lower to $32 million?”
Here is something unbelievable that I learnt in this book.
Always anchor low or high. In this example, if I said $32 million. The seller would say, “I thought you were going to buy it for $48 million? My information must be wrong” They offer me something in the “ZOPA AREA” if I bid at $45 million. They will offer something higher. Like $50 million. I would have lost value based on my first offer. The key to anchoring is always anchor low or high.
It has been proven by research, to affect the counter offer significantly.
3. CONTINGENCY CONTRACT
Let us say, you made a deal of $46 million. That is within your “ZOPA”. The seller thinks he got a great deal. “My ZOPA was $42.6 million”. The problem is the buyer is a liar.
I told them it was going to be used for residential purposes when it is to be used for commercial. The value for me is much higher at $60 million. The question is “what can you do, to protect yourself in that kind of negotiation as the seller?” you did not get a good deal; you could have sold it for a higher amount.
There is something called a “contingency contract” what you can do is say “great, I will sell it to you for $46 million dollars, however, there is a clause. If you use it for commercial property in the next 7 years, then you owe me $7million”. That is in the contract. It can change everything. It can change the buyer’s negotiation, because he knows he is going to use it for commercial purposes.
The easiest way to do that is to implement a “contingency contract”. This is one or two tactics of about 100 different tactics that were used in this book. It has a lot of great advice that you can us to maximize a small subset before you go into detail.
There is a lot to learn from this book “NEGOTIATION GENIUS” by Deepak Malhotra and Max Bazerman. I am not getting anything from this, there is no commission.
It is a book I recommend to everyone.
PS: Read the only resignation letter template you’ll ever need.