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When negotiation does not have to be a struggle

The growth mindset allows for a positive ZOPA

When we talk about negotiation, what picture comes to mind? Normally it's two people haggling to put forward their position, and each trying to pull the other to meet their needs. This is positional negotiation, and the most common form. In fact, the History Channel has glorified this in their hit series Pawn Stars. It is almost always that one person wins over the other; that one person (the buyer) gets the item at a really low price, and the other (the seller) capitulates. It is a matter of who wants what more! But negotiation does not have to be this tug-of-war struggle and this may well not be the growth-minded leader's concept of negotiation.

Negotiation is the process where two parties, starting at different positions, work towards a beneficial outcome. This outcome DOES NOT have to be an agreement, and either can walk away at any time. Is this beneficial? Of course! It all depends on what your BATNA is! Okay! I am getting a little ahead of myself right now. Without getting too technical, in this article, we will talk about the Zone of Possible Agreement (ZOPA), the Best Alternative to a Negotiated Agreement (BATNA) and how the growth mindset aids in obtaining a beneficial outcome.

Zone of Possible Agreement (ZOPA)

If a seller has a minimum price of $100, and a buyer has a maximum purchase price of $120, then we have a positive ZOPA, which is between $100 to $120. It is positive because we know that there is a real chance that both parties will be able to meet their beneficial outcome without having to concede anything.

Conversely, if the seller's minimum price is $120 and the buyer's maximum purchase price is $100, we have a negative ZOPA, because there is no price at which both can be satisfied. If none of the parties is willing to come off on their respective maximum/minimum point, the outcome of the negotiation will be negative, and none of them will have moved any closer to the outcome they had originally intended - but that is not so bad! After all, if the seller cannot make a loss - and any price below $120 will be a loss - then not selling it is a better outcome than doing so at a loss.

Now whether a party concedes or not depends on his BATNA.

Best Alternative To a Negotiated Agreement (BATNA)

This is just about the most important concept in negotiation. Your BATNA simply is what you will fall back on if you didn't reach agreement. For example, you are keen to purchase a particular house in Bukit Timah. You will not offer any dollar more than $5M. But the owner is not budging on $5.8M, so there is a negative ZOPA here. Someone needs to concede something in order for the property to change hands. But should you? Well, you would probably concede if you had no other alternative. That would make yours an "all-or-nothing negotiation". NEVER go into such a negotiation! You will probably concede more than you care to.

However, if you managed to secure an in-principle agreement to purchase a similar-sized property at Thomson Road for $5.1M, then, that will be your BATNA to the negotiation for the Bukit Timah property. Obviously the Bukit Timah property has higher intrinsic value compared to the one at Thomson Road due to its location. So, if you priced that intrinsic value at, say $0.45M, then your absolute highest price you can accept for the Bukit Timah property is $5.55M. And let's just say in your negotiations, the seller cannot accept anything lower than $5.65M, then you have to walk away from that negotiation, right into your BATNA!

Is this a beneficial outcome? Of course it is! The benefit is that you don't pay more than you can afford, or are willing, to.

The growth mindset on negotiation

The growth mindset is one which seeks win-win. It will see what works and tries to work out ways to make it happen. After all, there are many ways to get to agreement other than price concession. For example, there can be payment options, non-price value (maybe the seller will throw in the Bentley in the garage!), or absorbing certain items (like footing the $300,000 whitewash bill!) There can be many ways to enlarge the pie and the growth mindset person allows the other party to experiment with non-price value addition to the negotiated price. Taken together, the total value of the sale can be even more than the BATNA, leading to a successful transaction.

Ultimately, adopting the growth mindset in negotiation allows the other party to reach a positive ZOPA without having to concede on price. This locks in a per-square-foot (PSF) price that will help in all future property transactions in the area. Now wouldn't that also help you? The growth mindset negotiator can certainly see that!


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