What is a BATNA?

A few weeks back, I promised to provide an entry on how to get a head start in Negotiation 101, specifically by discussing the business/negotiation concept known as "BATNA". It's likely that only a small number of Realtors are familiar with this concept and apply it in their business dealings and negotiations on behalf of their buyers. I make an effort to explain this concept to first-time home buyers, in particular, because they often have a strong desire to close a deal, which places them at a disadvantage in negotiations compared to luxury clients, investor clients, or those purchasing a second home.

BATNA stands for "Best Alternative To A Negotiated Agreement." If you face an opponent who has a BATNA while you do not, you are likely to fare poorly in the negotiation. In simpler terms, having a BATNA means not becoming too attached to one outcome too quickly. It involves approaching the home-buying process objectively by having alternative options that can be realistically and objectively pursued instead of your preferred result.

In a seller's market, admittedly, this is more challenging. Inventory is limited, prices are high, and there are multiple offer situations. In such cases, I advise my clients to avoid properties with multiple offers as much as possible. Even listing agents often struggle with multiple offers. Attempting to purchase in a multi-offer scenario as the buyer is, in my opinion, highly likely to fail.

How can you increase your chances of securing a good, affordable first-time home? If possible, identify realistic backup properties that you would be satisfied with as alternatives, and be prepared to consider these options if necessary.

If this isn't feasible, do you have other alternatives? Can you wait and save for a larger down payment? Can you hold off until interest rates decrease? Can you wait for a raise at work that elevates you to a different property class? Can your Realtor explore off-market properties with a high likelihood of having willing sellers? What are all your non-purchase-related alternatives? A Realtor might not want to hear this, but as the buyer, these alternatives also need to be considered.

Jonathan Huges and Danny Ertel, writing for the Harvard Business Review, state that the minimum requirements for a successful negotiation are:

1.    What business outcomes do we seek through this negotiation?

2.    Who cares about those outcomes?

3.    Who can do something to bring about those outcomes?

4.    How can we engage directly or indirectly with parties that share some of our interest in achieving those outcomes?

What are your best outcomes? What business partners on both sides of the transaction have a vested interest in the outcome? What can you do to maximize those outcomes? How can you engage with such vendors and partners to maximize your outcomes? These are important questions to think through as you write your first offer!