A Lose Lose Deal May Be Fairer Than a Win Win Deal.

    We have all read countless articles extolling the virtues of the win win deal, the win win win deal or the win for everyone. (It is often referred to as a win win for everyone but that is not grammatically correct.) The argument is that a deal where both sides feel they won is much preferable to a deal where one side feels they won and the other feels they lost.

     In the win lose deal one party walks away happy with the result where the other might feel they were taken advantage of. One party did not give up much if anything to make the deal work. One party did not compromise much if at all. Both parties generally know which was the winner and which was the loser.

     In the win win deal both people walk away happy that they got the best deal they could have but is that really true? If both parties think they won doesn’t that mean they also think the other lost? Can both be correct? An outside observer might say that one party really got the better part of the deal—that they really won. It may be necessary for time to elapse before the true winner is revealed.

     Let’s apply this to the sale of a house. The seller lists the house at $200K hoping they could get at least $175K. The buyer likes the house. It has all the features they are looking for and is in the neighborhood where they wish to live. The comps show that the house is worth at least $190K but the buyer would like to get if for less. A deal is struck at $180K. This looks like a classic win win. The seller receives $5K more than they were willing to accept and the buyer spent $10K less than they thought they would have to.

     Who had the superior knowledge of the sale? Generally, that would be the seller as they certainly know how the home has been maintained and is more likely to have followed the events affecting the neighborhood though that is not always true. The seller may have known about a maintenance issue that might be expected to surface soon but had not yet. They may be hiding an issue that has already emerged. (Seller disclosure statements are supposed to protect the buyer from this type of deal but don’t always.) What if the seller knows about an issue that has affected neighboring properties but has not yet affected his own? For instance, assume the property has a septic field. The field is functioning properly and there has never been an issue. The seller goes so far as to have the field inspected prior to the sale to prove to the buyer that it is fine. There is nothing to disclose. Suppose the seller knows that several surrounding septic fields have failed in the last few years and it cost $20K to remediate those issues? Does he have to disclose this? Avoiding the prospect of incurring this expense may be one of the main reasons the house is being sold now. If the septic field fails in 18 months would you still think this was a win win deal?

     It may not be an actual defect in the home that one party has superior knowledge of. Perhaps the seller knows a road has been proposed that will cut through the backyard or approval has been granted for a land fill facility a mile away. This is public knowledge but the buyer may miss it. What if the buyer knows that their cousin owns the vacant parcel 5 miles away and is planning on building an entertainment complex there, a facility that will increase property values? When the unknown information comes to light do you think both parties still think they won?

     Let’s look at this same situation as a lose lose deal. This time the seller is under time pressure. They must move for a new job and are running out of time. The buyer thinks the house is alright but it doesn’t have the features they really want, is not in the neighborhood they want, and needs too much updating but they can’t find the property they are looking for. The comps show the property is worth the same $190K but the buyer expects to spend $60K to make it more acceptable for them. Perhaps, they too are under time pressure. Maybe they have to move into town to accept a new job. After an involved negotiation of offer and counter offer a deal is struck for $160K. The seller thinks he lost, was taken advantage of because the buyer learned of his situation. Likewise, the buyer thinks the same thing. No matter what happens in the future both parties will still think the other won. Both gave up more than they wished to make the deal. Of course, real estate deals are voluntary so even though neither is very happy with this type of deal both parties felt it was better to make the deal than to walk away.

     Do you see how the lose-lose deal may actually be the fairest?