Role Play Salt Harbour

The issue: There were two parties negotiating about a piece of land in the picturesque sea side village of Salt Harbor. Party one is Brims, a coffee shop chain who wants to open a store in Salt Harbor and party two is Easterly. I was representing Easterly, a successful bed-and-breakfast inn located just next to the piece of land in question. If there were something built on it, this would block the view for our guests and in consequence the inn would significantly lose value. The other option to negotiation is going to court. However, according to our lawyers our chances to win the case and to stop the building of a house is only a bit higher than 50% and moreover legal costs would at least be $25.000.

Info known to me:

• Brims paid $100.000 for the piece of land in question.
• After my estimations, Brims could get a comparable site in the village of Salt Harbor for $200.000
• The value of the inn diminishes by $350.000 (plus minus 10%) when something is built on the piece of land in question
• Legal costs would be at least $25.000 with a chance of winning of only about 50%

My facts when entering the negotiation:

• My first offer will be: $100.000 (the price for which they bought the land)
• The very best price I realistically hope for: $150.000-$200.000
• My walk-away price is $350.000 (the possible loss of value of the inn)
• My BATNA: going to court (bad BATNA, since outcome of a lawsuit are very unknown)
• Target: buying the land

Three rounds of negotiation followed at the end of which we agreed on the following deal: £200.000 (plus agreement that Brims would become the coffee supplier of our inn).

1. I made the first offer of $100.000, which  Marina, the other party, denied.
2. We discussed that a more central location in the village would be more beneficial for Brims and that the view is important for my inn. Marina revealed to me that she had to pay more than $100.000 for the piece of land she bought and taken into consideration that paying for the land plus the difference between the two possible pieces of land for her coffee shop would result in an amount of $200.000 approximately, I decided to offer her $200.000.
3. We finally agreed on the $200.000 plus the agreement that Brims would become the coffee supplier of our inn (even if this was not hors-sujet of the instructions of this game).

On round two I have to admit that I too quickly proposed too much. I should have let her make an offer before proposing a new amount, in order to get an idea of her position and her possible range of negotiation. But knowing that my reservation price was $350.000, the $200.000 seemed a very good deal to me and I wanted to close the deal as soon as possible.

The fact that I made the first offer was maybe not very beneficial for me since that way the other party got an idea on my negotiation possibilities immediately, while I didn’t. On the other hand my first offer was much lower of what I was expecting and willing to pay.

Recap: Recapping the negotiation after de deal was closed, I learned that Brims’ reservation price was getting at least $110.000 out of the deal and my walk-away price was paying $350.000 at most. So we hat a large zone of possible agreement (ZOPA). The middle would have been $220.000, we were not far from it. However we had too few discussion and rounds of negotiation in order to find out the other party’s reservation price and to understand where I’m at.

Lessons learnt from this role play

• Being surprised by the amount proposed and to react surprised is not good. You should always remain cold during negotiations. If the amount put forward surprises you it’s probably because your calculations are wrong.
• Ask questions in order to try to find out the reservation price of the other party. 
• The good price is around the middle of the ZOPA
• You represent a company that wants to make profit, so you are not going to sell for less if you can have more.