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In my humble opinion a first offer naturally should be made be made by the party initiating the deal as he makes the first step towards negotiations. This however is dependent on what system of negotiation you embark on. A collaborative approach will require all cards to be put on the table and this will involve value creation and the interests of both parties taken into consideration. Therefore irrespective of who makes the first offer, stress is eliminated as all things are summed up together.
To me this is a trivial result that practitioners have been long aware of. You have a potential advantage if you anchor high but of of course there is a risk of being too high and kick yourself out of the game.
Also in highly competitive situations anchoring high is a bad idea because you will be pushed to your bottom limit anyways so you better start low in order not to lose credibility in the negotiation process.
So: whether or not it is smart to anchor high depends on the context. I see the first offer as a boundary, not so much as an anchor. It sets the stage and the action happens with the counter.
If the numbers are backed by rational data or history of other situations, it should be better received by the opposing party. Very much depends on the item being negotiated and the culture! For example in gem dealing in Mozambique, the seller is expected to make the demand initially and this will be about double the expected price. In other cultures, for example in British property and business negotiation, a fair end point offer is respected as the initial play and not deviated from much.
In this forum the responses are very interesting. I believe the type of negotiations will greatly vary the approach. In salary negotiations, from the employers, side negotiations must be a positive interaction for both parties because the end result will be a lasting relationship. Because of this, it is my practice to make the best offer I can and not vary much. Great variation could lead your new employee to think they left room on the table no matter how high you go. On the other hand it may lead them to think you tried to low ball them which is not good for a relationship.
Another reason for not making the first offer, even if you know the market price, is to test the seriousness of the other side, particularly if it is new a business deal. In this case, prepare in advance. Find out about quality standards, delivery terms, size of order, payment conditions and other relevant information.
This will enable you to present a credible offer or counter-offer. Yes , if you can justify the level of your offer. At this early phase of the discussions, any objections to your high offer should be dealt with through questions, not by making concessions. Your best approach to objections is to find out which part of your proposal is acceptable and which elements are considered objectionable.
Only by acquiring this additional knowledge will you be in a position to justify your initial offer or eventually make a counterproposal. Proposals and counter-offers should be handled step by step, using the technique of repeated questioning see box. This allows you to gather and exchange information without making early concessions.
Equally important, the technique allows discussions to continue, despite rejection of a high initial offer. Starting high is common in markets where business executives rate their superior negotiating skills by how many concessions they obtain. For example, a high initial offer is expected in many countries in Latin America and the Middle East. In highly competitive markets, frequently found in south-east Asia, North America and western Europe, opening offers are slightly above the bottom line.
In most of Asia, Africa and European economies in transition, a moderate to high offer is taken for granted. A moderate opening offer is an acceptable strategy to initiate discussions in most foreign markets. The main mistake to avoid is to present an offer considered so high by the other side that it results in a deadlock. Another common pitfall is to start with a high offer and not be prepared to justify it.
To overcome lack of justification or preparation, negotiators wrongly begin immediately to make concessions, without asking for reciprocity. Yes , in special situations. Skilled negotiators may make a low initial offer, near the bottom line - not so much to get the business, but to be invited to the negotiations. In some industries and markets, your product is sold at a going price and at predetermined conditions, leaving you with little choice in setting your opening offer.
When facing strong competition, your offer should be more or less in line with theirs. An advantage of having an opening offer close to the competition's is that it allows you to remain in contention for the business. To increase your chances of having your offer retained, your proposal must address the specific needs of the other side and demonstrate how your offer can best meet their requirements to their full satisfaction.
While doing this, it is important not to criticize your competitors openly. When they hope to enter into new markets or to get a foot in the door with a new customer, business executives often open with a proposal that is close to, or at times below, their bottom line.
In such cases, it is vital to explain that the offer is valid for a limited time only. For example, an exporter may be faced with extra production capacity during the last quarter of the year. In this situation, the exporter could propose a limited business deal at a one-time price preferential, in order to utilize the extra capacity and thus recover the fixed and part of the variable costs.
At times, you may wish to make a low offer in order to secure business with well-known global enterprises. This strategy is common among small and medium-sized firms seeking business deals with world-class companies.
Advantages of being associated with large international firms often override the need for immediate profits. This business strategy places the negotiator in a weak position from the beginning, however, and often results in unprofitable agreements.
To avoid being caught in this situation, shift the discussions away from the initial offer to the needs of the other side. Your main concern at this stage is to take charge of the discussions through questions, in order to make sure you have a clear understanding of the real needs of the other side. Once you know exactly what the other party's requirements are, you can propose additional features such as better quality, faster delivery, individual versus bulk packaging, short and flexible production runs and other intangibles in order to improve your margins.
By managing successfully this type of low-offer strategy, you could obtain a profitable agreement despite having started near your bottom line. Remember, professional buyers are known to seek the highest-quality products or services from the most reputable firms at the lowest possible price. In the end, these same buyers often end up paying a premium to avoid the risk of getting inconsistent quality or receiving late deliveries.
There are times when entrepreneurs from small or mid-sized firms propose very low offers in the hope of receiving large orders at higher prices in the future.
Too often, promises for future business opportunities remain just that - promises. Put all the numbers on the table. Determine the amount you are pre-approved for and then use a mortgage payment calculator to figure out what your monthly payment would be. Be sure to also account for private mortgage insurance PMI if it applies, in addition to any other expenses.
See how it all adds up and determine a reasonable budget that fits the lifestyle you want to have while living in that house. Now that you understand the market, the motivation behind buying and selling, the home condition, and your budget, you are ready to learn how much to offer on a house based on different scenarios.
If any one of those three key factors is in play, you can feel comfortable making an offer lower than the listing price. Your realtor can help you determine if your offer is reasonable. This home should be move-in ready and have very little to repair other than adding your personal touches. An offer at a listing price could eliminate your options to negotiate if it is at the top end of your budget.
Your real estate agent can help you determine if this home is worth coming in strong or if negotiating would be better for you. It makes sense to offer more than the list price if you absolutely love the house and want it, no matter what.
Additionally, your lender may require an appraisal contingency to make sure the house appraises for the value of your offer. Pay close attention to the inventory of homes on the market and your maximum offer. When you understand your market and have taken the time to learn as much as you can about both the home and seller, you can dial in the right offer to make on a house, and protect yourself from the risk of overpaying.
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