Savvy Negotiations for Your Future
Childhood means never having to haggle. From diapers to college tuition, the purchases of a kid's life come with nonnegotiable price tags. When young adults reach financial independence, however, they're faced with a host of intimidating new transactions—ones they probably weren't prepared for in school.
Whether they are buying a house, renting an apartment, or securing a starting salary, young people find themselves suddenly needing to negotiate. For each of these important financial milestones, knowing how to make a deal can help you end up with the right price.
There's no single perfect negotiating style, corporate dealmakers say. Both confrontational and mild-mannered approaches have risks, but either can be effective, notes investment banker Jeff Williams at Jeff Williams & Co. "The style you work with should be one you're comfortable with," Williams says.
Still, following a few tips can help first-time negotiators avoid getting swindled. This Five for the Money looks at ways to navigate your watershed financial moments successfully, including some advice from the professionals.
1. Do your homework.
The most important part of any negotiation should take place well in advance. After all, it's hard to know whether you're getting a fair deal unless you already know what's fair. "Someone who has the best understanding of all the facts is best-equipped to come out with what they're looking for," says Jill Greenthal, a senior managing director in the investment banking business at the Blackstone Group.
As in college, research can start on the Web, but stick to credible sources. Sites like ConsumerReports.org offer cost and reliability data on cars, for example, but you'll need to pay for a subscription. Whatever purchase you're considering, crunch your own numbers first to be sure you can afford it. "Don't rely on the car company or a bank to decide this for you," says Elaine Scoggins, president of Tampa (Fla.) financial-planning firm Scoggins Financial. (She and other financial planners quoted here are members of the National Assn of Personal Financial Advisors.)
Also, determine how important a certain item is to you. A unique house or apartment might be worth paying more than market value. If you need a place with special features, such as a separate entrance for a live-in mother-in-law, then you might want to plan against haggling over an extra 10%.
2. Be willing to walk away.
It's all too easy to get caught up in the moment and make a poor negotiating decision. John O'Neill, leader of Ernst & Young's private equity practice, has a name for this phenomenon: deal heat. "You get so enamored with the transaction that you're gong to do it no matter whether it's the right deal or not," he says. Letting yourself fall in love with that ideal home or hot new car can cloud your judgment.
Instead of melting under "deal heat," remember that the power is in your hands. "Don't be afraid to say no," says Columbia (S.C.) financial advisor Charles Flowers. No matter how much time you've spent with a real estate agent or a car dealer, you can always walk away.
Sending a message to the seller that you could just as easily buy from someone else can be a powerful bargaining tool. "You can't negotiate if the other side perceives that you're not willing to walk away from the table," explains Ken Marlin, managing partner at Marlin & Associates, a boutique investment bank focusing on technology and media. From time to time, this strategy might require actually walking the walk.
3. Don't be shy.
Everyone has a different perception of what represents a reasonable value. Don't be afraid to ask for something the other person might consider overly aggressive, because you just might get it. "I'm constantly amazed," Blackstone's Greenthal says. "You never know what somebody will give you."
Still, it's important to stay realistic. Keep a range in mind rather than getting bogged down by a single "magic number," says McLean (Va.) financial advisor Glen Buco. "The essence of negotiation is learning to compromise," Buco explains.
In hiring situations, avoid giving out salary information until you've received an offer, financial planners say. To get a higher starting salary, politely ask for more until someone tells you no, says Dalibor Nenadov, a Franklin (Mich.) financial advisor. "Ask, 'Is this the best you can do?'" Nenadov suggests.
4. If you must bring friends, keep them quiet.
Unlike corporate dealmakers, young people frequently bring a best friend or a significant other along with them when they're making a big purchase. This poses a potential problem: One person's unrestrained enthusiasm could offset the other's savvy negotiating.
Agreeing on a designated negotiator can avoid arguments later. "You really should decide who's going to negotiate, and the other person should shut up," Marlin says. "Even better than shutting up, they should go away. You can't have two people negotiate."
At the same time, make sure you're actually negotiating with the right person, advises Ross Emmerman, a partner at Chicago law firm Neal, Gerber & Eisenberg who focuses on complex business transactions. The first salesperson you meet at a used-car dealership may not be the one with the authority to make a deal, so you could wind up wasting your verbal firepower before the real negotiating begins. "It's never inappropriate to ask, 'Are you the person who's in a position to make decisions?'" Emmerman says.
5. Never burn a bridge.
There are two kinds of negotiating situations, notes Ned Hooper, vice-president of corporate business development at Cisco Systems (CSCO). Some are one-time transactions, but most negotiations result in a relationship that's going to have to last. In other words, don't behave in any way during the negotiation that might come back to haunt you.
"If you do anything that could be perceived negatively, then you jeopardize your ability to gain value out of that relationship over time," Hooper says. "In my business, we're negotiating to buy companies. Once that transaction is complete, the people who we're negotiating with come to Cisco."Be wary, too, of over-negotiating. Novice negotiators try to keep haggling even after they've gotten a fair deal, possibly because they haven't prepared enough to know what's fair, the pros observe. Says Marlin: "When you get to a fair deal, take it."