SPECIALS
Negotiate Your Way to Greater Wealth

By David Kuo (TMFDragon)
September 19, 2001

Carburton Street, London -- One of the best ways of saving money is to pay less for what you are planning to buy in the first place. It's too late once you have signed on the dotted line, committing yourself to purchasing that three-piece suite, or brand new car or even that house that you've fallen in love with. But to make those savings you need to prepare yourself well in advance.

Just imagine if you could trim just £3,000 from the asking price for that semi-detached house that you set your heart on. That would add up to nearly £10,000 over the lifetime of a twenty-year mortgage at 6%. By saving this money, you're taking charge of your own finances and in turn increasing your wealth. What you then do with that money afterwards is within your own control and it needn't be spent on a bottle of plonk but could be put towards investments that will grow over time.

But many of us are embarrassed to negotiate even though we know in our hearts that we are paying over the odds for our purchases. Negotiating is not a skill that we are taught at school and for years we have been conditioned into believing that the ticket price on display is the price that we must pay. But times are a-changing.

We must rid ourselves of the fallacy that negotiating is inappropriate and make sure that we get what we want at a price that is acceptable to us. The strategy for negotiating our way to wealth is quite straightforward and it is somewhat remarkable that many of us are unaware of just how simple it can be. In some cultures, particular in the East, no one in their right minds would ever pay the asking price for anything. Haggling is part and parcel of daily life and everything is open to negotiation.

So here is the Foolish checklist for improving your negotiating strategy:

Specify what it is that you want. Decide well in advance why you want to buy something. It is surprisingly easy to be wooly about making purchases, so it is always prudent to write down hard factual reasons for making that purchase. List all the requirements and divide the list into the "must haves" and the "nice to haves". The "must haves" form the core reason for your purchase while the nice to haves will form the basis of your negotiating armory when you need to trade off the price for something that is not entirely necessary.

Market Research

Market research is all about knowing what is on offer. You will get a better feel for prices when you are familiar with what is currently available on the market. This is where the Internet comes into its own. When buying a house, don't just visit the web sites of the estate agents but take a trip over to the site for HM Land Registry that will provide details of average house prices in your particular area sorted by post code and house type. When buying a car, get hold of trade magazines and compare prices but return to your original checklist to make sure that it conforms to your specifications of "must haves."

Appreciate what is on offer but don't be bedazzled. Don't start heaping praise onto the product but remember that your role as a buyer is to find fault in the product and reasons why the price is too high. Remember that no car boot is ever spacious enough and no car seat will be comfortable enough for your requirements! Vendors will be doing their part in convincing you that their product is cheap at twice the price. Learn to be critical because it is all too easy to start praising the vendor's product. These are "buy signals" that the seller will be looking out for. The more "buy signals" you emit, the more difficult it will be to get the price down later on.

Ready to Negotiate

Once you have done your homework, and not before, you are ready to take on the seller on your terms. Pitch your asking price some way below your ultimate settlement price. So if you are hoping only to spend £90,000 on a house that is on the market for £95,000, then try pitching your initial offer at £85,000. This is known as the "splitting the difference" technique, but if you're not worried about losing the house to another buyer, then you could try starting even lower. The same would apply to making an offer for a car. Set your initial offer some way below the windscreen price pointing out all those defects that you should have at the ready. How far below the price you pitch it will depend on how much you're prepared to pay and how little you care if you don't get to make the purchase.

Trade Don't Pay

 Resist the temptation to move beyond your intended settlement price and make trade-offs for the included extras if they are not on your list of "must haves". If the price includes alloy wheels and the latest in the range of in-car sound systems, re-make your offer asking for bog-standard wheels and an ordinary stereo-radio but don't budge from your intended maximum settlement price.

Finally, be prepared to walk away if the deal on offer is not satisfactory. Remember that there is no such thing as a house that you must have or a car that you must own, but paying over the top can be a costly mistake.

Be a SMART negotiator, remembering to be Specific about your requirements and research the Market carefully Appreciating what is on offer and only start negotiations when you are Ready and always try to Trade, rather than concede, on price.