“This is a fair and reasonable price,” my real estate agent told the potential buyer’s agent. “Just look at its market value based on the comparable houses sold in this neighborhood.”
One of the most effective moves in many negotiations occurs when parties invoke market value power. Why? Market value is generally understood to reflect an objective value assigned by the laws of economics and supply and demand.
If every other interested person will pay or accept X for an item, X must then by definition be “fair and reasonable.” If you disagree, the rationale continues, you’re rejecting the collective standard and want more than what everyone else will accept. Since most consider this greedy and somehow unfair, you should thus accept market value.
What should you do, then, when your counterparts’ market value analysis leads to a different value than what you want? How can you decrease its legitimacy and power?
1. Challenge their definition of market value. In the America West Airlines flight attendant dispute several years ago, both sides argued that market value supported their position. But each defined market value differently.
America West argued, in effect, that it already paid market value because five applicants applied for every open position – at its current salary and benefits level.
The flight attendants, by contrast, suggested the market value for their services would be more accurately estimated by evaluating the salary and benefits at comparable airlines, which paid more.
This debate revolved around how to define market value. If your counterparts’ definition of the market leads to a value you dispute, challenge the basis for their evaluation.
2. Challenge the validity of the market. The power of market-value depends on the validity of the market on which it is based. If that market is flawed, its validity diminishes.
A market value analysis can be flawed in many ways, including the size of the market and the area on which the market is based.
Let’s say I lived in a small rural town in Georgia and wanted to determine the market value for an executive assistant’s compensation. This isn’t easy. Why? The size of the market is so small.
If there are only five executive assistants in town, my market value analysis could be challenged due to the market’s small size. The market size just may not be statistically significant.
3. Distinguish your item from the market. “I am unique,” said my potential executive assistant. “I bring qualities to this position you cannot find elsewhere.”
She was right. And her uniqueness – which distinguished her from the market value for executive assistants in Phoenix – diminished the power of the market value research on which I based my offer.
Market value represents a general estimate. Therefore, you can almost always distinguish your item from the market. The more distinguishable, the less applicable the market.
4. Circumstances have changed. Let’s say you live in a company town, and the company recently closed its plant and transferred most of its employees out of state, thus prompting a flood of homes for sale.
Comparable homes that sold two months ago – which will make up the seller’s market value analysis – will be largely irrelevant.
Market value rests on circumstances that occurred in the past. Circumstances may have changed. Point these out.
5. Focus on the market of one – leverage. The sale of my house closed last week. Was its market value important? Yes. Was it compelling? No.
Why not? Our last issue involved $1,250 of repairs the buyers wanted me to pay. In effect, they argued that the sale price – the house’s true market value – included a house with these repairs.
I refused to pay the $1,250. More important than any market analysis is your leverage. And my leverage was strong. My best alternative to an agreement with the buyers was accepting a back-up offer for more than our contract price. The buyers caved.
If the market value is unclear, uncertain or represents a value you would like to ignore, focus on leverage. Leverage – the market of one – trumps market value.
If your counterpart invokes the power of the market and you don’t like it, challenge it. You will then help set the market for your next negotiation.
Published August 1, 2003 The Business Journal