How to Take Control of Everyday Negotiations With One Simple Technique

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So, I’m in the market to sell my current car and buy a nice used car. The whole “Dave Ramsey” thing, y’know?

This got me thinking about a negotiation course I took a few years ago. Somehow I was able to find my notes from it, and the phrase below caught my eye because I had underlined it about a dozen times.

Never show up to a car dealership in a taxi. 

Although it’s admittedly a bit tongue-in-cheek, the lesson to be learned is quite universal. Don’t put all of the power in the hands of the person you’re negotiating against. This concept goes by a more formal name called BATNA.

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BATNA

BATNA stands for “Best Alternative to a Negotiated Agreement,” and was invented by Roger Fisher and William Ury in their book Getting to Yes: Negotiation Agreement Without Giving In.

The concept is rather simple. Always have an acceptable alternative in the event that the negotiation falls through. If you don’t, you’re more likely to give in and accept a poor deal.

How to Determine Your BATNA

  1. Brainstorm a list of available alternatives to consider if the negotiation does not work.
  2. Determine a course of action to attain these alternatives.
  3. Identify the best of these alternatives and keep them as a “fall back” throughout the course of the negotiations.

Related: 6 Key Steps For Fearlessly Negotiating Great Real Estate Deals

Everyday Negotiations

Negotiations come is all different shapes, sizes, and scopes. From peace talks at Camp David to buying a donut, they’re all negotiations in one form or another.

Every day we take part in dozens of negotiations without even realizing it:

  • Deliberating over television time for the kids
  • Defining business deadlines
  • Asking for a raise
  • Debating where to eat dinner

For those of us actively investing in real estate, the list grows much longer:

  • Paying for contract services
  • Purchasing a house
  • Selling a house
  • Deciding rent price and terms

These lists could go on for ever, but I think you get the point. Now let’s dive in a little further with a few examples of how BATNA can be used to your advantage in a real estate setting.

project-management

#1: Buying a House

Let’s say you’re a buy & hold investor and find a motivated seller after having sent out a round of yellow letters. They call you up and offer you their house for $100k. Unfortunately, you’ve run the numbers and found that you can only accept this property for $90k in order to cash flow.

  • BATNA 1: Use your $90k to buy a different property.
  • BATNA 2: Ask if they can use their insurance to pay for a new roof, therefore saving you the $10k difference.
  • BATNA 3: Turn the property into a duplex, therefore increasing your cash flow.

#2: Selling a House

In this instance, let’s say that you’re a house flipper and are looking to sell the property you just completed a rehab on. In order to make a sufficient return on your investment, you have the house on the market for $149,900, and within a few days, you get an offer for $140k. This is less than what you were hoping for, but it’s the first offer.

  • BATNA 1: Leave the house on the market longer.
  • BATNA 2: Invest the money to stage the property and have an open house in order to get more offers.
  • BATNA 3: Rent out the property until the comps in your area support your $149,900 valuation.

real-estate-offer

Related: 4 Priceless Contract Negotiation Tips to Keep You in Control of the Deal

#3: Agreeing on Contractor Quotes

Ah, working with contractors. Everyone’s favorite part about investing in real estate. Let’s say you just bought a buy and hold property and want to do a remodel of the kitchen and bathroom in order to get a better tenant. You get a quote from a contractor that is $20k. This number seems pretty steep, and after you run the math, you find that it’ll take years before you’ll break even.

  • BATNA 1: Find at least three more contractors to provide quotes for the same work. Choose one with a more reasonable estimate.
  • BATNA 2: Buy books and watch YouTube videos in order to learn how to do the work yourself.
  • BATNA 3: Find some cost saving substitutions for the remodel (i.e. laminate instead of granite, black or white appliances instead of stainless steel, etc.).

To Say or Not to Say?

The final play that you have in this negotiation is the decision on whether or not to tell the other person what your BATNAs are. Unfortunately, there is no one right answer to this question. Each negotiation is different, and you’ll have to make that decision on your own.

A good rule of thumb is this: If your BATNA is better than their BATNA, bring it up. If your BATNA is worse than their BATNA, keep it to yourself.

Any good examples of using BATNA in a normal everyday setting? How about in real estate negotiations?

Leave your comments below!

About Author

Tyler Flagg

Tyler is a pilot by day and aspiring entrepreneur by night. He started investing in April of 2014 and acquired three properties in the first 8 months. His goal is to become financially independent through real estate in order to free up time for travel and starting businesses.

12 Comments

  1. Jason Bennett

    Tyler, Thanks for the reminder that all things in investing require multiple exits to ensure success.
    In negotiation it is important for an investor to remember that they are the prize. With that in mind, come to the negotiation with multiple solutions to the other parties needs.

    Buying a House: You’re the expert.
    Find the mutually acceptable financing option. Based on your prior research, come prepared with multiple terms. Seller financing may work at 100K, where bank financing will not.

    Brandon has produced great content on structuring such terms in Podcast 92 and his book on the subject.
    https://www.biggerpockets.com/renewsblog/2014/10/16/no-money-down-brandon-turner/
    http://get.biggerpockets.com/nomoneydown/

    Selling a House: You’re the expert.
    Offer a mutually acceptable financing option. Know what you need out of the property and when. Can you seller finance and maintain your momentum?

    Contractor quotes: You’re the prize.
    Beyond getting multiple itemized quotes, use your volume of property and/or network to leverage a discount.

  2. Kevin Izquierdo

    Great Article. I already knew about having an alternative to negotiations, but having a name to it always solidifies the knowledge. now i can refer to it at the BATNA instead of going through the whole explanation process in my head. the acronym is like a nice folder that keeps everything organized in my head. and i love the quote, never show up to a car dealership in a taxi and giving the other person all the power. I love it!

  3. Michael Volek

    I really enjoyed reading your blog. I’ve never heard of BATNA before, but it sounds like a very useful tool in negotiations. I like the idea of having their insurance pay for the roof to cover the difference, and just like you need exit strategies for properties, you also need BATNAs for negotiations. Very nice work.

    MV

  4. I like the idea of BANTA and I think it could work in many negotiations other than just real estate. Although, real estate is the industry where negotiations are used the most. I will have to try this technique more often!

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