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The art of negotiation: How to nail your opening offer

A person passes a pen to another to sign a contract
Going in hard on your first offer may actually backfire, new research has shown (Source: Getty)

In a negotiation, whether it be for a property, a second hard car or something on Gumtree, new research has shown that going in hard to drive a bargain could backfire.

Being able to negotiate effectively could mean the difference between ending up in your dream home for the right price or feeling disappointed or ripped off.

Behavioural economist Professor Lionel Page from the University of Technology Sydney (UTS) said using an opening offer to show “toughness” is not necessarily the way to go.

“This experiment allowed us to study whether and how the level of the opening offer influences the beliefs of buyers and sellers, their actions and the final bargaining outcome,” Page said.

The researchers conducted the experiment using a bargaining game where players exchanged offers for a split of $10. The aim was to mimic the start of a typical negotiation process.

So, each player would have to suggest how the $10 should be split, for example player one gets $4 while player two gets $6.

The researchers found that the success or failure of a negotiation depended not only on the final offer on the table but also on the emerging dynamics of the bargaining process.

Page said the offers made throughout the negotiation were setting the tone for the intentions of those taking part.

Their offers were either seen as being kind and compromising, or on the other side, unkind and uncompromising.

“The perception of these intentions can, in turn, influence the final outcome. Low offers are perceived as disrespectful, so players react negatively and can be spiteful in their counter-offers,” he said.

“In a substantial number of cases, the responder chose a ‘punishing’ counter-offer that was lower than what he believed was the buyer’s minimum acceptable amount.”

The study found it is not the best strategy to always be as tough as possible in a negotiation.

Previously there have been two conflicting views on first offers in negotiations, said Professor Page.

One view is that a low opening offer works as an “anchor” that moves the final offer in the direction of the first offer.

The second is that a more reasonable initial offer achieves a better outcome because it doesn’t sour the atmosphere and endanger the agreement.

“We found that there is a small window where an offer is lower than an equal split, but not so low that it triggers negative emotions. It was viewed as ‘fair game’ to start the negotiation at this point,” he said.

So, next time you’re in the bargaining seat remember that to strike a good bargain your opening offer needs to be not too hard, or you risk a spiteful counter-offer, but not too soft either, or you might be taken for a ride.

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