Walk Away a Winner: Always Give Yourself an Alternative
This rule is all about leverage in negotiation. If you follow it, you’ll have leverage. If you don’t, you will not get the deal you want because you won’t have the leverage necessary to get it.
The classic example here is of a young couple who go out to buy their first home. They are shown dozens of properties, until one day they run across one that’s simply perfect. It’s got location: close to shopping, safe neighborhood, and near schools. The house has the right number of bedrooms and bathrooms. The design of the kitchen is perfect, the arrangement of the rooms delightful. In short, it’s the one house of their dreams. And therein lies the rub.
Our couple has found the right house, the perfect house, the one and only house, and they have no alternative. Thus, when the seller asks $25,000 more than its market value, what are they to do?
Yes, they can bluff and offer less. But even this option is limited because they are so worried that someone will come in with a higher offer and snatch it out from under them. Thus, when the seller rejects a first lower offer, in order not to lose this perfect property, they give the seller exactly what he wants—not only in price, but in terms as well.
In short, the buyers have no leverage with which to negotiate. They must have the house. Consequently, they have to pay the price.
On the other hand, consider a more mature couple. They have bought and sold a number of homes. They are now looking for their next home, and in the process, they identify three homes within a given neighborhood that are all suitable. They pick the best of the lot and make an offer, perhaps $25,000 less than the asking price.
When the seller counters with only a thousand dollars less than he’s asking, the couple doesn’t at all feel they have to take it or lose out on the one and only property of their dreams. They know there are two other perfectly good houses waiting for their offer. So they tell the seller that either he can take their original offer or they’ll look elsewhere. Further, they only give him 24 hours to decide.
Suddenly the seller realizes that if he’s going to sell to this couple, he’ll have to lower his sights. If the market’s toughened, if there haven’t been any other buyers (in other words, the seller doesn’t have any alternatives), if he needs to get out, he may indeed take the buyers’ lowball offer. At the very least, he’s likely to make a more realistic counter.
Houses are like love. Either you believe there is one and only one perfect mate for you in the whole world, or you come to realize that you can be perfectly happy with hundreds, perhaps thousands, of different people who are all “just right,” if you can find them. Similarly, you can believe there is only one perfect house in the world for you. Or you can be more pragmatic and realize that there are dozens, even hundreds, of homes in which you could be perfectly happy. The pragmatic person can negotiate. The perfectionist has to pay the price that’s asked.
The need for alternatives applies not only to the purchase of a home, but also to all aspects of real estate, whether it’s finding suit able financing, negotiating a lease, or simply paying a deposit. If you give yourself options, you will be in a position to negotiate. If you leave yourself no alternatives, you are more likely to have to accept whatever the other party offers.