Anchoring your price in negotiations
The concept of anchoring is well known in negotiation. Anchoring is the tendency of human beings to focus on the first piece of information (e.g. price) offered in a negotiation. The conversation then gravitates around that offer.
I recently helped a friend (Jo) prepare for a significant personal negotiation over a very small plot of land adjacent to her property. The other party had approached her to sell the land, as they believed it would add significant value to her property. Jo was interested as it could enhance the attractiveness of her property to future buyers, but she had no idea what it was worth. They informed Jo she would need to pay them £80,000.
Jo asked me to advise her on a counter offer and already had a provisional figure in mind around the £60,000 mark. When I challenged her proposed offer, it was clear that Jo's mentality towards this negotiation was focused purely on the other party's offer. Her train of thought was not "what do I think the land is worth to me?" but rather, "how far away from £80,000 do I think I can pull them without appearing too greedy?" This is a great example of the principle of “cognitive bias” in Jo's mind. The tendency to sway towards the other person’s offer.
So, I helped Jo put a plan together that would turn the negotiation on its head with 5 simple actions.
Do your research. Why is the other party so keen to sell and what other options do they have? (It was apparent that Jo was the only potential buyer due to the restricted access to this plot). Information is power, so gather as much of it as you can from local people, the council, land registry etc.
Get an independent valuation from a few trusted agents as to how much value the extra land would add to the property, but remember that this is just opinion and true value is only what someone is willing to pay.
Start at ZERO. Create your own anchor - the other party needs to drag you away from your position rather than the other way round. You may tell them that you're not interested in buying, so this in itself anchors your position. Dismissing their "random" offer immediately puts you in the driving seat.
Show indifference. The balance of power will shift depending on who needs the deal the most. They've approached you remember, so assume that the seller is more keen to sell that you are to buy. Don't show the other party that you agree with their suggestion that it's in your interest to buy.
Make a firm offer and then be quiet. Let them do the chasing and the desperate selling, whilst you remain cool and indifferent.
The approach above naturally assumes of course that Jo doesn't mind the deal not happening. A firm approach like this works if you have a viable alternative but is more risky if you really need the deal to happen.