In Part 1 and Part 2 of this series, we looked at who we negotiate with in real estate and the types of negotiating personalities we might come across, respectively. We recognize that every interaction in our day-to-day lives that involves two or more parties is a form of negotiation. A child’s cry can be considered one of the earliest forms of negotiation we do, as it serves as our means of expressing needs or discomfort and aims at getting something to happen.
Beyond their role in the negotiation and their negotiating personality, intuiting what makes people “tick” in a negotiation calls for understanding fundamental negotiation psychological principles and biases.
Negotiation Principles and the Power of Persuasion
Persuasion is a powerful tool to influence the other party towards an agreement that aligns with your interests. Several fundamental persuasion principles come into play during the negotiation process, each with its unique manifestation and resulting influence. Let’s explore these principles and understand how they can be leveraged to your advantage.
- Uniqueness. The uniqueness principle highlights what sets your proposition apart from others. In real estate, this could mean emphasizing the unique features of a property, a one-of-a-kind investment opportunity, or the exclusive benefits of working with you as a realtor. By highlighting what makes your proposition unlike any other, you create a compelling case for the other party to choose your offer.
- Contrast. Contrast is a powerful tool to highlight the differences between your proposition and another. You make your offer more noticeable and appealing by contrasting it with alternatives or competitors. For instance, when presenting a property, you can compare its features, price, or location to other available listings. This contrast can help potential buyers see the added value in your offering.
- Simplicity. The principle of simplicity is all about making your proposition easy to understand and act upon. Complex terms or overwhelming details can lead to confusion and hesitancy in negotiations. Instead, focus on simplifying your message, terms, and actions. Make it clear and straightforward for the other party to make decisions, whether accepting an offer or finalizing a contract.
- Self-Interest. Recognize that self-interest is a significant driver in human decision-making. People almost always act in their best interest, so understanding what motivates them is crucial. In real estate, this means aligning your proposition with the interests and goals of your customers and understanding the interests and goals of the other party. Demonstrating how your offer serves their self-interest increases the likelihood of the parties coming to a meeting of mind.
- Exchange. The exchange principle is at the heart of many successful negotiations. It’s the idea that both parties should receive something of value. In real estate, this involves compromises, such as price adjustments, including additional benefits, or accommodating specific requests. By offering value in exchange for what you seek, you create a win-win situation, making it more likely for the other party to agree.
- Sameness. People tend to feel more comfortable with those who share similarities or commonalities. The sameness principle suggests finding shared interests, experiences, or perspectives can create rapport and trust. This might involve highlighting shared goals, experiences, or values with all the parties.
- Legitimacy. As the name suggests, the legitimacy principle is about establishing credibility and trust. It’s a reminder that the written word always holds more legitimacy than the spoken one. Whether you’re presenting an offer, a contract, or any critical information, documented details provide a sense of reliability that can sway negotiations in your favor.
- Time Invested. The time invested principle states that the more time someone invests in an endeavor -including a negotiation- the more they feel bound to see it through to its successful outcome. In real estate, it simply means that your customer, having found a property and invested quite a bit of time in preparing and negotiating an offer, may become more flexible so as not to start from scratch all over again.
Emotions and Decision-Making
Emotions can significantly impact negotiation decisions. In real estate, customers often have strong emotional attachments to properties, clouding their judgment. For instance, a customer may be emotionally attached to a house for sentimental reasons, making them less likely to negotiate or compromise on its price.
On the other hand, you may also experience emotions, such as eagerness to close a deal or frustration when facing a demanding customer. Rational decision-making involves making choices based on logical reasoning and objective analysis of available information. In contrast, emotional decision-making is driven by feelings, personal values, and intuitions. Being attuned to the interplay of these two aspects in negotiation is essential.
Common Biases in Negotiation
Understanding common biases is pivotal when striving to establish trust and achieve successful outcomes. These cognitive biases can significantly impact decisions by influencing the perception of value and distorting the entire negotiation process. Allow me to explain what cognitive biases are. Biases are inherent patterns of thinking that can often lead individuals to make decisions that deviate from purely rational and logical judgment. Let’s explore some of these common cognitive biases that frequently come into play during negotiations:
- Confirmation Bias. Confirmation bias is the tendency to search for, interpret, and remember information confirming preconceptions or beliefs. This bias manifests when someone fixates on data that supports their position while dismissing contradictory facts.
- Anchoring Bias. An anchoring bias is at play when individuals rely too heavily on the first information encountered when making decisions. When a seller initially prices their property exceptionally high, buyers may perceive any reasonable price reduction as a substantial concession because their judgment is anchored to the initially inflated figure.
- Confirmation Bias. This bias reflects our tendency to seek information and interpretations that confirm our beliefs while disregarding contradictory evidence. This leads to ignoring red flags, misinterpreting signals, and making decisions based on limited and potentially inaccurate information.
- Sunk Cost Fallacy. This bias is at play when either party clings to a course of action due to past efforts to make the deal, even when it becomes apparent that continuing makes no sense. This can lead to negotiators holding out for unrealistic concessions or rejecting reasonable offers simply because they have already invested time and effort into the negotiation. It is closely related to the Time Invested Principle.
- Overconfidence Bias. Overconfidence causes us to overestimate our knowledge, skills, and abilities. This can lead to unrealistic demands, overlooking potential risks, and inadequate preparation. Its counterpart is an underestimation of the competition or opposing parties.
- Self-Serving Bias. The Self-Serving bias is the human tendency to attribute positive outcomes to our skills and abilities while blaming external factors for adverse outcomes. It leads negotiators to take credit for successful deals and blame the other party for setbacks, hindering the development of trust and collaboration.
- Attribution Bias. This bias describes our tendency to explain the behavior of others based on their personality traits while attributing our behavior to external factors. This can lead to misjudging the other party’s intentions and motives, creating unnecessary tension and hindering communication.
By recognizing when one or more of these biases are in play and learning to counteract them, you can enhance your ability to make rational, well-informed decisions and steer negotiations toward favorable outcomes. These biases are not insurmountable obstacles; they are factors to be mindful of and strategies to employ in real estate dealings.
Navigating Negotiating Strategies
There are many ways to approach any negotiations. As a real estate agent, you must honor your customers’ wishes, within the boundaries of the law, of course, but you must do so in ways that support your brand and personal values.
Principled negotiations are characterized by a commitment to cooperative solutions that benefit all parties involved. Ethics and fairness should serve as the cornerstones, ensuring that each negotiation is characterized by trust, transparency, and a commitment to principled decision-making. Flexibility provides a critical element of principles negotiations, using the concept of quid pro quo and strategically trading concessions to achieve mutually beneficial agreements. This flexibility allows you to adapt to various negotiation styles and respond to customers’ needs and desires.
By embracing these principles and strategies, realtors can not only unlock success in their field but also foster mutually beneficial relationships that stand the test of time.
Happy Negotiating∞