Log In Sign Up
Bundling vs. Piecemeal: Which Negotiating Strategy Works Best?

Bundling vs. Piecemeal: Which Negotiating Strategy Works Best?

5 min read
J Scott

J Scott (he goes by “J”) is an entrepreneur, investor, speaker, author, and the co-host of the BiggerPock...

As a Guest you have free article(s) left

Join BiggerPockets (for free!) and get access to real estate investing tips, market updates, and exclusive email content.

Sign in Already a member?

In this blog post, I’m going to use an example of shopping for a car to demonstrate an important negotiating strategy. But that was just the first example that came to mind. This strategy can be used—either for or against you—across many types of negotiations, especially in complex negotiations like we see in the real estate world.

With that said, let’s jump into our example…

How to Negotiate the Best Car Price (or Any Other Price!)

When was the last time you went shopping for a new or used car? You walked onto the lot, found a car you liked, pointed out the car you were trading in, and the negotiations started.

You probably said something like, “What’s the best price you can give me for this car if I trade that one in?”

And the salesperson likely came back with something along the lines of, “What type of monthly payment are you looking to spend?”

The salesperson had no interest in discussing the price of the car—because all he cared about was YOU and making sure that the car fit YOUR budget. Right?

Related: 10 Tips for Negotiating Like a Pro

As many of us realize, that’s not at all what he cared about. He simply wanted to put off having to ever discuss the price of the car for HIS benefit. You see, by asking you how much you want to spend on a monthly payment, the salesperson was creating a situation where he could bundle together the price and terms to give you what you (think you) wanted, while at the same time getting the dealership the highest price possible for the car.

Let’s look at how this bundling of terms works and specifically how it can work against you as a buyer.

real_estate_negotiations

A Typical Negotiation Scenario

Let’s say you told the salesperson that you were looking to spend $500 per month to buy that particular car. Magically, the salesperson comes back to you—after consulting his manager, of course—and says, “Today is your lucky day. I didn’t think I’d be able to do it but my manager has agreed to sell you this car with a monthly payment of $500.”

You sign the paperwork, happy that you’re now rolling off the lot in your desired car for exactly the monthly payment you were willing to spend!

Then you get home, and you decide to look at that paperwork in a little more detail. You remember that you had to put $3,000 down—but this is standard right? The list price of the car was $38,000, so that’s less than 10% down. What a deal!

And according to the paperwork, you got a great interest rate of 4% on the car loan, with just 72 monthly payment. In six years, for just $3,000 down and $500/month, that new car is all yours!

Related: The No. 1 Most Important Factor to Win Any Negotiation

How much did you pay for that car?

Well, if you plug the numbers into a loan calculator, you’ll find that you paid right about $35,000 for that car. Not bad, huh? Especially given the $38,000 list price.

A Better Negotiation Scenario

Now, as soon as you leave, I drive onto the same lot, and find the exact same car you just bought. I express interest, and the salesperson comes back with the same question, “What type of monthly payment are you looking to spend?”

My response is likely going to be, “Well, before I can even think about buying something new, I need to know how much you can give me for my trade-in. I just need to ensure that I can get a really good trade-in value before I decide on whether I can afford something new. Can you tell me how much you’ll give me on a trade?”

The salesperson takes my trade-in back to the shop, they’ll look it over for a half hour, then come back and say something like, “We can give you $2,000 for that trade-in if you buy this other car today.”

“Hmm,” I say. “My wife says that if I can’t get at least $7,000 for the trade-in, we should just drive it until it dies…”

Related: BiggerPockets Podcast 260: The Ultimate Guide to Negotiating (for the Negotiation-Averse) With Former FBI Hostage Negotiator Chris Voss

The salesperson—knowing that he’ll likely be able to make up the difference elsewhere—gives in a bit, and we eventually agree to $5,000 for the trade-in. (How much did you end up getting for your trade-in, by the way?)

In front of the salesperson, I write down on my notepad, “$5,000 TRADE-IN VALUE.” (Trust me, that number will be misremembered by the sales guy if I don’t write it down!)

The salesperson asks again, “So, now that we agreed on the trade-in value, how much are you looking to spend per month on awesome new car?”

I respond: “You know, I haven’t really thought about a monthly number. My wife just said to keep the price of the car as low as possible. The bottom line on the car is literally the only thing she cares about. That guy that you just sold the same car to a couple minutes ago—how much did he pay?”

selfiecar

The salesperson says: “He paid $35,000—I’ll even show you the paperwork. He negotiated us down pretty hard and got a great price. I can talk to my boss and see if we can get you the same price, if you want.”

I come back with, “I’m going to feel like I got ripped off if I pay the same as some other random guy… And I see here on the internet that I can buy that same car down the street for a couple thousand less. Can you do $33,000?”

The salesperson spends 15 minutes with his manager and comes back with the good news, “We’re probably going to lose money on this sale, but my manager is feeling super generous today, I guess. So, we can do $33,000. Let’s go get the financing handled and sign the paperwork!”

Again, I write down on my notepad, “$33,000 PURCHASE PRICE.”

Related: New Edition: The BiggerPockets Book on Negotiating Real Estate

The salesperson takes me back to the financing department, and the paperwork is already practically complete. The finance manager tells me, “You made this easy for us. We just sold the same car to another guy who got a great price also, so I can basically use the same paperwork. Just sign here.”

I look down at the paperwork—$3,000 down, 4% financing for 72 months. Luckily, I did my research, and I say, “I already talked to my bank and they can do $0 down, 2.75% financing for 60 months. Can you beat that?”

The finance manager starts tapping on his computer, and comes back with, “Well, we can’t beat that, but we can match it… And we’ll throw in a new set of floormats if you use us instead of your bank.”

He revises the paperwork—$0 down, 2.75% financing for 60 months on a $33,000 purchase and $5,000 trade-in—for a total monthly payment of $500.

You and I just walked off the lot with the same car, the same trade-in, and the same monthly payment. But, you’re going to pay $500 x 72 months, plus $3,000 down. Total of $39,000 for your car. I’m going to pay $500 x 60 months, with no down payment. Total of $30,000.

How to Negotiate Anything for the Best Possible Outcome

So, what’s the lesson here?

When SELLING a product or service, there is a benefit to bundling the price and terms together to obfuscate the true price of the individual components.

When BUYING a product or service, there is a benefit to piece-meal the negotiation of the components, negotiate each individually and then negotiate the terms separately, as well.

For example, if you’re a real estate investor negotiating with a contractor, negotiate line-items individually, as opposed to a full scope-of-work. Negotiate labor separately from materials. And then negotiate favorable payment terms after the prices are locked in.

If you’re a business owner buying inventory, negotiate materials separately, break out shipping costs, and then negotiate the terms afterward.

If you’re on the other side (the contractor or the materials vendor), offer favorable terms in order to obfuscate the cost of the underlying pricing. Or, if you’re making money on the financing, use bundling to obfuscate the financing terms.

ad-bookstore

What other tactics have worked well for you when negotiating?

Share below in the comment section.