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Use the Anchoring Effect for More Profitable Negotiating | Strategic Pricing Solutions

Consider the last time you bought or sold a home.  The home seller listed an asking price first.  How far below the asking price was the first offer?  In tight markets where not many homes are available, the first offers tend to be very close to the asking price.  In markets with more inventory, first offers tend to be lower.  However, it is pretty rare to see initial offers 20% below the asking price.  Now notwithstanding the anchoring effect, real estate also shows the downside of trying to anchor on a number that is well outside the appropriate range.  A property that is priced too high, does not receive any offers.  When there are plenty of alternatives, potential buyers simply assume the seller is anchored to that high number and they never try to negotiate.

One thing negotiation books and seminars suggest which is consistent with anchoring is to move in small increments.  To take an extreme example, let’s say you are offered 25% less than your stated price for something.  That offer is meant to try to get you to question whether your price is a real reflection of value.  It is meant to get you to anchor on a new lower number.  Your challenge is to reestablish the anchor at or near your initial price.  Even if you question your own value estimate, a substantial downward move by you communicates to your counterparty that you are going to get much closer to their number.  In that case, the anchoring effect will have cost you money.  On the other hand, if you make a very small move, you communicate to the other party that you are confident in your number, and you get them to question their own.

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Use the Anchoring Effect for More Profitable Negotiating.