Most negotiations include a conversation about fairness at some point. People like to be treated fairly and people like to be seen as being fair. It’s human nature.
Let’s take the Ultimatum game. Two people are walking down the street and they find a $10 bill. They decide that they are going to split it. The person who picked up the $10 bill is told to make an offer to the other person. They can only make one offer. There is no back and forth. The other person can only accept or reject the offer. They can’t counter the offer. If they accept, they get the amount offered and if they reject, they get nothing.
I’m sure you are all familiar with this game. Since fairness says that the $10 should be split 50/50, people find it nearly impossible to accept any offer that is below $5. If they are offered $3, they are so offended by the lack of fairness that they are unwilling to accept the offer. They end up with zero. They would rather get 0 than $3 because fairness is more important to them.
Does this happen in real estate transactions? You bet it does. I’ve heard of many cases where a buyer or seller walked away from a perfectly reasonable transaction because they felt that they weren’t treated fairly.
Their perception of fairness really matters. If your client is firmly anchored in the idea of splitting the difference between an asking price and an offering price, and both the market value and the buyer’s maximum is below that, you’ll need to alter their perception of fair. There are several ways to approach this and which one might work will depend on the unique situation you are in – but here are some ideas worth trying:
- You could call market value, fair market value in a new CMA you prepare for the offer conversation.
- You could discuss fairness with your seller and point out that the buyer is also looking for a fair outcome. It can help to point out that while they immediately assumed that the midpoint was fair, the buyer is looking more at the value compared to other properties.
- You could acknowledge that they are analyzing the situation based on midpoints and that not all negotiators work from that frame of reference.
- If you are the buyer’s agent, you could say that your client was originally going to offer less so that the mid-point would be the price they were willing to pay but you convinced them to go in higher so as to seem more reasonable.
- You could just have a conversation about fairness and how the world really isn’t fair. Give an example of someone you know who is significantly disadvantaged in some way. Then redirect them to consider the offer based on market value and their need to sell the property and move on.
We don’t want them to make a bad decision based on their feeling around fairness, but we also don’t want our clients to be treated unfairly, so analyze the situation carefully and then help your client make the best decision for them.