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How Making Dummy offers Can Hurt Your Chances To Buy Low
Although it is a common saying in negotiation that the first party to name a price loses, you will not always be in a situation where you can avoid making a first offer.
That’s the different between the ideal world and the real one.
When put into such a situation, you might get nervous and make a dummy offer in an effort to throw your opponent off.
Little that you know… that it can sometimes have disastrous results.
In many business dealings, a specific party is wholly expected to name a price in order for negotiations to commence.
How is anyone supposed to negotiate when there are no parameters to work within?
You don’t always lose by making the opening offer as long as you have done your homework and know where your leverage lies.
And sometimes, you can actually get away be refusing to do it even when you are expected to.
This will depend on the level of skills you are at and how savvy you are at presenting yourself.
Just think it over before making your dummy offers.
There are many variances of dummy offers and they can work against you. And there are 2 reasons why they are called dummy offers.
Firstly, what you are proposing is not genuinely what you expect to close at and both parties know that the offer is not realistic when the true value of the deal is put into perspective.
Secondly, these offers are made by those dumb enough to unknowingly insult their opponents this way. I know because I have done them early in my career and I do realize now that it was dumb.
One of the most common dummy offers is the “informal offer”. And this is usually a mistake made predominantly by buyers who are caught off guard.
If we take real estate for example, buyers often say off hand what they would pay for a house or mention how much they value it.
To a seller versed in negotiating arts, this is like gold. Because the buyer have just mentioned his base price.
But to the buyer, it is just an informal thought. Little did he know that he has already revealed his soft underbelly. Putting him in an inferior position.
While the buyer felt he was merely showing just enough interest so that the seller would know that he is genuinely interested, it is really not the case.
An inexperienced buyer might think that sellers expect him to further depress his price. But to an experienced negotiator, this is the bottom limit that the buyer is willing to pay.
From this point on, the only direction where the price is going it up.
And as we all know, the person who has the strongest conviction always turn out tops in any deal. It’s like a law of interaction.
So if you are in a buying situation, watch your mouth as we often let words come out of them without thinking.
Don’t even think that you are doing a seller a favor by presenting yourself as a real buyer this way.
That is the wrong mindset when approaching a deal.
You surely don’t want to be the comic relieve a seller laughs over after you leave the scene.
Even if there was no mention of price by the seller in the first meeting, you can be sure that what you say can be referred to in future meetings.
And for some reason, no honorable man will want to be seen as someone who back out of what he says. Saying this, it’s not impossible that an honorable business person backs out of a deal after thinking it through in more detail.
So the prerogative is to avoid this problem in the first place.
Another common offer made by negotiating dummies is the uncalculated “range offer”.
The range offer can be a very good tactic to use.
But if you don’t think about your numbers beforehand, you could unknowingly set your upper limit as the maximum you would pay. You should set the lower limit as the maximum you would pay instead.
For example, let’s say you are going to buy a widget. And the maximum you would pay is $5,000. Then you tell the seller that you value it at between $5,000 to $7,500.
You should communicate that you value it at between $2,500 to $5,000. This means that you have set the parameter of negotiation fully within your price. Any movement from $5,000 will be like an extra gain to you.
An inexperienced negotiator might think that he have revealed his price as $5,000 and would be willing to pay more if more free gifts and gimmicks are added to the deal.
But to a seller, this is not what he heard.
By giving a range with an upper limit of $7,500, the seller will go all out to get as close to $7,500 as possible without adding anything extra. These are very common occurrences in in used car dealings.
Astute buyers and sellers know when not to make an opening offer.
Because at the early stage of negotiations while both parties are starting feel out each other’s positions, revealing this information is like giving the other party an Ace within their cards.
And surely you don’t want to be perceived as someone who is not worth his words when dealing in business.
The lesson here is not to make dummy offers unless you have spent some time beforehand contemplating the numbers and details involved.
This makes your dummy part of a strategy as a whole instead of a spanner you have thrown into the works… which can either work for you or against you.