Negotiating is a game.
The game goes like this: The strength of your negotiating position is equal to the strength of your alternative. To strengthen your position, strengthen your alternative. After negotiating hundreds of deals as a real estate agent, I’ve learned this is the only way. I think of this as the central negotiating principle, and it is the only principle you need to negotiate better in business and life.
Here’s how it works and how to use it.
How It Works
Even though we often don’t realize it, a great deal of our social interactions involve negotiations.
But for some reason, people are hesitant to develop the skill. As if it’ll turn them into a used car salesman or something. That idea could not be further from reality. The truth is that getting better at negotiating not only makes you a better business person and professional, but it also makes you a better spouse, parent, and friend.
And all you have to do to become a great negotiator is fully comprehend this principal and allow it to guide your negotiations.
The principle works because both parties entering into negotiations want to take some benefit away from the interaction.
If that weren’t the case, why would people negotiate in the first place? You negotiate your compensation with your employer unless you’re an entrepreneur. Entrepreneurs negotiate their compensation with their customers. You and your employer benefit from your employment just like business owners and their customers benefit when customer problems are solved. You negotiate responsibilities in your household with your spouse because both of you (hopefully) live a better life as a result of the partnership.
Social life at-large is one big network of negotiations, and the only way to improve your position is to strengthen your alternative choice.
How to Use It
Since I have many years of experience as a top producing real estate agent, let’s look at a real estate example.
Imagine you are selling your house. You take all the right marketing steps: hired the right agent, got great photos taken, etc., and you end up getting multiple offers to purchase your home in the first weekend. Congratulations!
How strong is your negotiating position?
Now you are selling the same house again. But you don’t take all the right steps. You go up for sale and sit on the market for a few months with no offers. Then one day someone writes you an offer for 10% below your asking price. How strong is your negotiating position here? And how strong is it compared to the first example? This illustrates the power of the central negotiating principle.
As far as I can tell, there are only two ways to strengthen your alternative choice.
The first is to change your perception of your alternative.
You have your heart set on selling your house because you want a walk-in closet in your bathroom. But then you learn your house is worth 10% less than you thought. You can either sell and take a big hit or you can change your perception of your alternative.
Maybe the closet you have isn’t so bad?
The second option is to improve your alternative.
Is it possible to renovate your current house to expand your closet to what you want? Or can you renovate other elements of your current house to drastically increase the value that buyers are willing to pay for it? Or is it possible to rent your current home rather than sell?
The two ways of using the Central Negotiating Principle are to change your perception of your alternative or improve your alternative.
Parting Words
The central negotiating principle is the best idea I have found to help anyone become a better negotiator.
I hope you feel the same.
Thanks for reading.