Greedy or Stupid?
A few years ago a friend of mine found himself with an interesting negotiating conundrum. What would you have done?
He spent some of his spare time as the volunteer manager of a charity which raised money for the local hospital. The charity owned a large and dilapidated office block in the wrong part of town. They decided to sell the building for redevelopment, and with the proceeds move to smaller premises and use the balance to further the charity’s aims, in particular to fund the purchase of an expensive piece of medical equipment for the hospital.
Surveyors valued the building at about £1 million. So it was almost miraculous that a few days later a local property developer made an offer to buy the building for £1.9m. No strings attached.
My friend called a meeting of the trustees and committee. They were overwhelmed and delighted with the offer. But some of the committee felt there was an opportunity for some negotiating game playing. They thought that the offer should be rejected on the basis that it was too low. After all, they said, £1.9m was his opening offer – he will be expecting us to haggle the price up a bit.
But on the other hand, why was his opening offer so much higher than the market valuation? Was this secret support of the charity? Did he have a sick relative who would benefit from the new equipment? Or was he simply ignorant of local property values – a very unlikely option?
In the end, the trustees accepted the £1.9m offer, and the deal was completed.
Two years later my friend met the property developer at a drinks party. He had to ask the question which had been bugging him – why did you offer so much?
I had an innovative idea for the office block, said the property developer. At a purchase price of £1m, the return would have been spectacular. Even at £1.9m the return was above average. So I really wanted to buy. But I knew that