Strike Price vs. Goal Price: How to NOT Leave Money on the Table When Negotiating

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There is no question that having a strike price is an invaluable tool not only when it comes to real estate investing, but with any sort of large purchase. After all, there’s a reason auctioneers talk so fast. As Slate pointed out, the speed is “intended to give the buyers a sense of urgency: bid now or lose out.” But as any decent real estate investor knows, not buying a deal does not mean you “lose out.”

Having a strike price (a price that’s the highest you’re willing to pay) ahead of time is what prevents us from getting carried away in the competition of an auction or negotiation. It prevents us from confusing buying a property with winning. Oftentimes, buying a property means you lose. So never go into a real estate negotiation without a strike price.

But that being said, there is a downside to the strike price. It can subconsciously become the goal to aim for that could prevent you from doing even better.

Related: The Top 5 Ways to Negotiate Major Discounts On Your Next Property

Aiming for the Strike Price

Not too long ago, I was trying to negotiate the purchase of an apartment complex and had done pretty well up front. I had met the seller at the property and asked all the questions I needed to know in order to make an educated decision. I had spent two hours there, just talking with the seller and building rapport. I had also collected all the necessary documents, such as the profit and loss statement and rent roll.

I then went back and crunched the numbers. I came up with an offer price and a strike price. It looked like this:

  • List Price: $795,000
  • Offer Price: $690,000
  • Strike Price: $725,000

I still had a few questions to answer, and I figured the best way to do this would be to go over the deal face-to-face (especially since there was no agent involved). Face-to-face negotiations are usually the best, as they allow you to tailor your approach to the individual seller instead of just being another justification-lacking offer, bound to get lost in the netherworld of someone’s email inbox.

So I invited the seller to our office, and we again talked for about an hour before negotiating anything (he’s a bit of a talker if you haven’t figured that out yet). I then went over my questions to make sure my assumptions still held. Then I made my case: I explained that I took his numbers from 2014, then plugged in a few more (such as a management fee) and also increased a few things (such as utilities because the property would operate at a higher occupancy and some of the utilities are paid for by the owner). I then said we needed to hit a certain cap rate, and that would put us at $690,000.

He responded by saying that was way too low. I didn’t flinch. Instead, I leaned forward and asked, “So at what price would you be willing to sign a contract today?”

Then I paused.

So far I had done pretty well. You can argue that I should have asked for a reduction before making my offer, but I think it’s often better to justify your price first. It’s a process called “framing,” which I will write an article on in the future. But it works similarly to anchoring, or setting the ballpark of the negotiation, which I discuss in more detail here and here.

Either way, I then made a mistake. He came back at $740,000. That’s a substantial drop. But instead of thinking “What’s the best deal I can get?” I had the strike price stuck in mind. I came up all the way to $715,000, thinking (or maybe not thinking) we could meet in the middle at $725,000. In my defense, I knew as soon as the words left my mouth that I had come up too much. But the reason I came up so much wasn’t temporary insanity or bad negotiating skills (well, that’s debatable, I guess), but simply that I had that strike price stuck in my mind as the goal.

What I should have done is pause again. Go back to my analysis and explain why it would be tough to go over $700,000. Maybe he would come down a little more before I even countered. If not, I could come back at “an even $700,000” or something like that. Maybe I could get him down to $715,000 or $710,000. Instead, I left money on the table of the sacred strike price.

Aiming for the Goal Price

Now, that’s not to say this negotiation was a disaster. We went under contract at the price I wanted to get the property for: $725,000. However, upon reflection, I knew that I had not only done something wrong, but was also going about things wrong in a structural way. I was putting way too much emphasis on the strike price.

Remember what a strike price is; it’s the highest price you’re willing to pay for a property. What it is not is the price you want to pay for the property.

Related: Negotiating 101: You CAN Negotiate Anything!

So I’ve added a number. I still have an offer price and a strike price, but I also have a goal price. The goal price is the price I really want to get the property for. In other words, the goal price is what you’re aiming for and the strike price is what you will settle for. Looking at it this way can even make you reconsider your offer price. “Am I leaving too much on the table?” After all, had I offered $675,000, the seller probably would have still come back at $740,000, maybe even a little less since I anchored the price lower. You want to find the lowest offer price that isn’t so low as to offend the seller. I doubt an extra $15,000 would have done that.

So if I had another chance at the above situation, I would have probably come up with the following:

  • List Price: $795,000
  • Offer Price: $675,000
  • Goal Price: $700,000
  • Strike Price: $725,000

Would it have worked out better? There’s no way to know. But what I can say with a lot of confidence is that the strike price should not be something to aim for; it should be something to settle for. You should always try to do better. Our subconscious minds will aim for the price you set ahead of time. So why not set a lower price to aim for and if you can’t get there, then settle for the strike price? That way, you won’t let your subconscious mind leave money on the table.

How do you set price points when negotiating real estate deals? What has worked for you to get the best possible price?

Leave your comments and tips below!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

13 Comments

  1. Jesse T.

    Without knowing the details, I think 690K was a great opening offer. It was asking for a significant discount without falling into the category of low-ball offer.

    When the seller came down to 740K, they basically met you in the middle. I think 720K or maybe 715K may have been attainable. Probably the best response to his counter would have been 700K – it is a nice round number and probably is the very bottom of where the seller would consider selling it. The seller could well have responded at 720K or at 730/725 and you can inch up to 710 and ultimately end up at 720 or 715.

    You may have been better off with a deal at 725K even if the seller would have sold for 720K. There is more than just price involved in a deal. If the seller is happy, they are more likely to make the deal easy for the buyer. Definitely whatever money “left on the table” was more than made up for by not having to pay representation.

    The 675K initial offer stands the chance of being flat-out rejected. Or keeping them anchored on the asking price.

    • Andrew Syrios

      It’s possible that $675,000 would have been too low to even get the ball rolling, but given how the conversation went, I don’t think it was. And while he did meet me in the middle, I think I caved too much after that. Whereas if I had the goal price in mind, I would have slow played it a little more. But you’re right, it certainly isn’t an exact science.

  2. Andrew McDavid

    Great article. We are submitting an offer to a seller on Monday. She’s at 175k. We were going to offer 160k with a strike price of 165k. But after reading this article, I obviously need to get more ambitious with offer. Maybe I’ll set the goal price at 150k and an offer price of 140k With the strike being 160k. Thanks for sharing! Good stuff here.

  3. Bill Syrios

    Excellent article. In negotiating we can too easily fall into the “fairness trap.” So meeting in the middle seems reasonable and fair. But negotiation and compromise are two different things. Your suggestion to add a “goal price” helps to remind us, in the heat of negotiating, the price we really want to buy (or sell) the property for. Maybe you can describe this ultimately as compromise but it’s not meeting in the middle… it’s meeting on your side of the middle. That’s your goal: buying the property for your goal price, your side of the middle.

  4. Phillip Syrios

    I was sitting in on that negotiation and feel this is a great representation of the thought process and how things went. I feel you did a great job in getting a very attractive property under contract but love even more that you are not settling with the fact we were able to negotiate a great price on an attractive property, but looking for ways to improve the next time an opportunity is found.

  5. Shaun Reilly

    Great article and one of the basic tenants of negotiation is to understand is to have your goal and your bottom line, as well as your stretch goal where you will start the negotiations.
    It amazes me how often I will read threads here on BP and see people talking about going to their MAO (Since most of the talks are about 1-4 units) like it was a race!
    Getting a deal at your MAO/Strike price should be satisfying, not exciting.

    In your case I think you are probably right that the $675K would probably not have been so off putting to get a flat rejection, but who knows.
    I don’t think that the $690K was to high to start, especially if you had a good analysis to justify the price. Where I fully agree with you is that you should have come up to something more like $700K (With some hemming and hawing and shuffling around your notes a lot and saying it very exasperatedly) and I’d be surprised if you had not been able to get it for less and I’d bet probably for $710-715K.

    You basically offered to split the difference. They always say you don’t want to offer to do that since now you said you will pay that new price and the other side can say why don’t we split the difference of the new difference. That looks like pretty much what ended up happening to you here.

    All that being said you got it for a price you new you were willing to pay going in so sounds like you still got a good deal for you.

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