And, the fascinating aspect in the real estate negotiation is, that no two properties are identical, and that no two parties are in the same situation, which is why there is BATNA and ZOPA, and why a negotiation is due to happen before settlement. So it is still arbitrary, given some prices out there, and coherent, that future deals depend on it. With readily available online information or paid services of market analytics companies, nowadays market participants already have vast information to frame future behaviors. My interpretation is that, in marketplace negotiation, the conversation has already been strongly anchored by the pricing of comparables. Now one might assert that, such anchoring is not longer arbitrary, because the arbitrary coherence discussed above, as in the example of social security number subconsciously influencing bidding prices, exerts its magic by being total random, not carefully chosen.
$550k could make it, if the floor is lower, the room sits on the side without much sun exposure, the seller really is looking for someone to take over asap, or another building just erected in the next block and will add hundreds of units to the market immediately etc. Or simply put, you just need to know a little more about everything than your counterpart, so you can hit their zone but not their spot. Then one might ask, how about $550? Or $580? Will such offer be taken seriously? Here it calls for due diligence on the deal you are trying to make, and knowledge to assess relative leverage/negotiating power of the other party. Say the market rate for a home of comparable size, layout, and location ranges from $600k - $700k, a potential buyer submitting $400k will be absolutely dismissed. The first step requires comprehensive market knowledge, that the offer should not be out of the range. Then, submit the anchor offer to your benefits and negotiate around.
#ARBITRARY COHERENCE EXAMPLES HOW TO#
Within ZOPA, how to establish an anchor slightly to your benefits on the spectrum? First, assess the ZOPA by knowing your BATNA and guessing that of the other party. In behavior economics, “arbitrary coherence” is when an arbitrary, randomly chosen number, influences the amount purchasers are willing to pay for a product ( Mattei & Hellebusch, 2020). The basic idea is that our behaviors and decision makings are (most often unconsciously) influenced by arbitrary things that we encounter in life. I got to know the term by Dan Ariely’s book Predictably Irrational. What if, a totally random number can also unconsciously anchor your perceptions of something that is totally unrelated? This is where “arbitrary coherence” comes in. Buyers rely on this information to judge if the offer is fair or attractive enough. In these cases, finding comparable product is a good starting point to anchor my marketplace posting. Chances are that I bought couch two years ago in IKEA, neither product pages are to be recovered in the fast-paced consumerism world, nor the original receipt to be kept. Whenever I tried to sell furniture on Facebook Marketplace, I found it super helpful to include a picture showcasing the original price, or an invoice that you paid for, if available. I have been moving around quite a few times.
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