The third and final step in our three part series on negotiating the purchase of a used car is to propose. After you have done your preparation by determining the “standard” price for the car you want to purchase, and after you have asked the questions listed in our previous post on probing, it is now time to enter the proposal phase.

You should point out to the dealer the areas where the car or the dealership is lacking and ask what price reduction the dealer is willing to provide. For instance, if the vehicle history report demonstrates frequent repairs, then what discount from the offered price (or the Kelly Blue Book price) is the dealer willing to give you? Likewise, if the dealer is not willing to provide you with information of services, how much of a reduction in price are they willing to offer? For instance, if the vehicle is not certified, or if the dealer does not provide services like Free Oil or Free Towing like other dealers, how much of a discount are they willing to offer you? As we teach in all negotiations, remember, let the other side make the first offer, do not accept their first offer too quickly, and when you are making an offer “aim high” (or in this instance, “aim low”).

As with any negotiation, the more alternatives that you have, the more effective you will be in the negotiation. If the used car you are looking to purchase is a one of a kind Jaguar and there are no other dealers that sell this type of vehicle, then you may not be in a good position to negotiate. But if you are looking for a BMW that is less than 5 years old and you are willing to choose from different colors and models, then you will be in a stronger negotiation position. Likewise, if you limit yourself to shopping at one dealer, you alternatives will be limited.

We suggest that you look both at Franchised Dealers who sell new and used cars, as well as Independent Dealers who sell used cars only. You will likely find cheaper prices at the Independent Dealers, but they will not provide you with the same amount of information prior to the sale or the service after the sale that a Franchised Dealership would. One tactic would be to play the Franchised Dealership off of the Independent Dealer, asking the Franchised Dealer to provide all the services at the same price as the Independent Dealer, or asking the Independent Dealer to lower their pricing even lower to make up for the lack of information about the car prior to the sale, or their lack of service after the sale.

Ultimately the decision will come down to whether you want the absolute lowest price with very little service from the Independent Dealer, or if you would be willing to pay a little more from a Franchised Dealer based on the fact that you have more knowledge and after the sale service. Either way, you can use the Three Ps and the tips in this article to negotiate your most effective deal when purchasing a used car

Trust but verify, it sounds good in theory, but how can it really be implemented? At SNI, we typically advise our clients not to make adjustments to their prices when a potential buyer claims that one of their competitors is cheaper until they see hard evidence.

I asked my colleague, Jeff Cochran, for his thoughts, and with a chuckle he said he could tell me a story about how he recently implemented it.

I had a project; I needed to get my driveway paved. Being a negotiator, I knew that I needed to do good preparation. The first step in preparing was to collect estimates so that I would have alternatives. Therefore, I contacted three contractors, provided them with the details of the project, and collected estimates. Of course, all three estimates were different. The most and least expensive estimates were significantly different. The first contractor I called was an acquaintance. He gave me an estimate of $8,500 to do the job. The second estimate came from a contractor who I found from an ad in my local paper. His estimate for the project was $7,500. Lastly, there was a sign on the driveway up the road. When I called the number on the sign to inquire about the cost of my project, I got an estimate of only $6,000. 

Naturally, I was inclined to choose the least expensive contractor. However, his offer seemed too good to be true. I did some research, and sure enough, I found out that cheaper offers like the one I received for $6,000 raise a major concern that the contractor would skimp on materials. Not using the correct amount of asphalt on the driveway could lead to major problems.

I went back to all three contractors and asked for the specifications on the work they would be doing. All three indicated that they would use four and a half inches of blacktop. Since the first contractor at $8,500 was an acquaintance, I went to him to give him right of last refusal. I informed him that one of his competitors was willing to do the job for $6,000, $2,500 least than his estimate.  I was very surprised with his response because he told me that there was no way for him to drop his price without losing money on the job. In turn, I asked him how come his competitor could do the job for $6,000? His response was that the competitor would most likely skimp on materials and do a bad job.

It was the end of the summer and I wanted to get this project done while the weather was still nice. How could I choose the least expensive contractor but know for certain that he was going to do quality work? I had him put in writing a detailed description of the work he was going to be doing and the specs that needed to be met. I then confirmed with him that what he had written is what he planned to deliver. Still, I remained a bit skeptical. Just his word alone didn’t seem like enough. Thinking back on my negotiations skills, I thought trust but verify. I went back to the contractor who would have cost me $8,500 and asked him if for $200 he could have one of his guys supervise the work of the least expensive contractor, guaranteeing that he delivered what he said he was going to deliver.

It was a good thing I did! In the end, the contractor I opted to go with for $6,000 did not have enough asphalt to finish the job, so he suggested that he use three and a half inches of asphalt instead of the correct amount, four and a half inches, to save time and money. It was one of the hottest days of the summer. He told the inspector that he knew that they were both exhausted from a long day’s work and ready to go home. He even added that I probably would never notice the difference of an inch. He was right. How would I have ever found out until I started seeing cracks and needed to dish out an additional $2,000-3,000, if not more, to pay to repair his shortcomings?

Luckily, the inspector who I hired insisted that he do the job correctly, go back to the asphalt plant, and get another load. The $200 I paid for the inspector to be present was well worth it and it potentially saved me thousands. When I first thought about it, I wondered why he cared enough to prolong the project and make the least expensive contractor use the correct amount of asphalt. In the final analysis, it made perfect sense why the inspector would be adamant that the job gets done correctly. He was not going to let a competitor steal potential business by offering to do the “same job” for cheaper when in reality he was shorting clients.

One thing we have learned over the years in negotiating deals is that the way you get to the agreement is as important as the outcome of the agreement. Many deals are struck where one (or sometimes both!) sides walk away feeling like they “lost.” It is better to adhere to some fundamental rules for proposals that will help you avoid striking deals that leave you or the person with whom you are negotiating feeling like you “left money on the table.”

1. Try Not to Make the First Offer

Let’s imagine you are negotiating to purchase a used boat. Walking around the marina one day you see a boater cleaning his 24′ sailboat, and you notice a “For Sale” sign on the deck. You alook the boat over and privately decide that it meets your needs. The seller asks you a seemingly inocuous question – “How much were you looking to spend?” Your response here is critical.

You know from research (because you prepared, of course) that this particular model is going for $12,000 on the used market locally. You know you have $12,000 saved for this purchase…so you respond “$10,500″. Not a bad offer, right? You are aiming lower than your budget, and according to your research you are $1,500 below “market value.”

To your dismay, the seller leaps over to the dock, grabs your hand, shakes it vigorously and says “You just bought yourself a boat!” You immediately try to backpedal…because the seller’s quick response is leading you to believe that you have left money on the table.

The problem here is that you failed to consider the value of the boat from the seller’s perspective.

Maybe he needs $8000 today to pay for a new home heating system. Or maybe he just bought the boat from a relative for $5000 and was really hoping to make $1000 profit. Or perhaps his wife just told him to get rid of the boat even if he had to pay someone to take it!

So your “well-conceived” $10500 offer was really not very well thought out after all. Now you have established an “anchor” (ironically enough) for the negotiation. It will be VERY difficult to move that number too far south from the original $10500, as now the seller knows your budget. This is the reason big ticket salespeople (cars, home remodeling, realtors) always ask “What’s your budget?” right away. It helps them to know your budget so they can anchor your offer.

2. Do Not Accept FIrst Offers TOO Quickly

Now let’s change the perspective and imagine that you are the seller. Instead of leaping across to the dock and “closing” so fast, you took a different, more thoughtful approach. First, you paused. Then you said something like “I’ll have to consider that.” And then you pointed out some of the finer features of your boat. And then you closed with “You drive a pretty hard bargain. I was thinking more along the lines of $11,500.”

Now the buyer has a counter-offer that is still $500 below their budget (unknown to you) and you have asked for an additonal $1000. If the buyer accepts (or even uses the old “split the difference” gambit) – they are happy because they have bought a boat $500 less than their budget, and they go home believving that they “drove a hard bargain.” You are happy because you unloaded your boat for more than you had hoped.

This is the classic WIN-win outcome where one side exceeds their expectations and the other side is reasonably satisfied.

In the next entry, I will cover more proposing techniques that will help you achieve WIN-win outcomes. In the meantime, please check out http://www.shapironegotiations.com for more information on successful negotiating!