Selling a Maine House
After reading these instructions, you will participate in a negotiation
exercise involving two parties, a seller (you) and a potential buyer (your
bargaining partner sitting next to you). The description of the bargaining setting
and information about your role as seller are outlined below.
In recent months you have thought about and finally decided to sell your
summer house, a rambling isolated “cottage” on a bluff overlooking a river and
gorge in Maine. You live in a Boston suburb, are sixty-five (in good health) and
widowed since your spouse died two years ago. Though you have owned the
house for twenty-four years and vacationed there weekends and for three
weeks each summer, you have not been there for two years. Your three grown
children agree with you that it is time to sell. Though they have some
sentimental attachments, no child wishes to retain the house. At your time of
life, you could also use the sale proceeds for retirement.
The shingled cottage is in the Cape Cod-style but is equal to the size of
two Capes. The first floor has kitchen, bathroom, storage room, small dining
room, and an impressive, 40-foot living/family room with a fine view of the
river below. The second floor has three normal bedrooms and one “dormitory
size” bedroom over the living room, with no bathroom. A good euphemism for
the cottage is “rustic”; the carpentry, appointments, kitchen appliances,
plumbing and electrical systems all date from forty-five years ago. There are
two first floor fireplaces, one on the second floor, but no central heat. The
cottage is located six miles from the nearest (small) town, and the final turnoff
consists of 1.5 miles of unpaved road. There is one, poor quality, year-round
house at the junction of the dirt road and highway. Besides the house, you own
17 acres of surrounding land, wooded except for two acres of lawn around the
house. The lawn and former flower gardens have been untended for two years.
Two weeks ago, you telephoned the Wilsons, a New York couple, who
are interested in buying the house. Three years ago, the couple visited the
cottage as a guest of your son (who went to college with them). At the time, the
wife had seemed very taken with the cottage and had taken a full tour of it and
the grounds. In passing, she asked that you let them know if you ever
decided to sell the house because they would be interested in buying. From
your recent conversation, they still seem to be seriously interested. Tomorrow
(Memorial Day weekend), you and they are meeting at the house to explore the
terms of a possible sale. As yet neither side has even mentioned a price; both
sides prefer to discuss and negotiate in person. You are aware that the husband
has had extensive negotiating experience in his former job as an industrial
purchaser. You pride yourself on being an experienced “Yankee Trader” and are
comfortable negotiating.
Over the phone, you and the Wilsons agreed to be prepared to discuss
two sale options: (1) sale of the house and all 17 acres, or (2) sale of the house
and 14 acres allowing you to retain 3 acres (separated by a small knoll from the
house). Psychologically, the second option is appealing. You wouldn’t sever all
immediate connection with your beloved vacation spot, and the land might be
passed on to a child or grandchild after your death.
Prior to the negotiations, you have done two important bits of
homework. First, you have explored with the local real estate agent (an old
Maine friend) the prospects of selling the house locally. Though he predicts a
good year for sales in this part of Maine, his expert opinion is that the cottage,
because of its condition and isolation, will be difficult to sell. If he were to list
it, he thinks that the house and surrounding land intact could be sold (sometime
during the upcoming season, possibly late) for a price in the $105,000 to
$135,000 range. Excluding the neighboring three-acre section from the sale, he
says, would reduce the attractiveness of the house, resulting in a significantly
lower price. Based on this conversation, you have decided to adopt $73,000 as
your walk-away (or minimally acceptable) price for a complete land and house
sale. (This figure accounts for the deduction of a 6% broker’s fee.) That is, you
will never sell the house and all 17 acres for a price below $120,000. Of
course, you hope to get as high a price as possible – one in excess of this
amount. You figure that retaining the 3 acres has a value of $13,000 to you.
That is, you would be willing to sell the house and 14 acres (retaining 3
acres) for as little as $107,000.
Second, you have tried to imagine how much the Wilsons might be
willing to pay for the house and land. You realize that this may depend as much
on the Wilsons themselves as on the quality of the house. You know very little
and would like to know much more about the couple. On a note pad,
you have listed the following, possibly pertinent facts: (1) They have three
children and rented a cottage on a nearby lake for the past five summers. (2)
The couple appears to be wealthy; he has a good job, she works part-time. New
Yorkers earn a great deal. But do they also spend a great deal? (3) Question:
What makes the house attractive to the couple: the fireplaces? The view?
Winter skiing nearby? Your best guess concerning the Wilsons’ monetary value
(the most they are willing to pay) for the house and 17 acres is that it ranges
between $100,000 and $160,000, with all values in between equally likely.
You will have 15 minutes to negotiate possible sale terms with your
bargaining partner representing the Wilsons. Negotiations are conducted by
offers and counteroffers. You may accept the other side’s offer at any time and
this ends the negotiations. Either side can make the first price offer. The main
bargaining ground rules are:
1) You may not show this information sheet (particularly, your
walk-away price) to your partner. However, you and your partner are free to
discuss and argue about agreement terms. You may make broad statements
such as, “I can’t go any lower” or “I can’t afford to accept that price.”
2) Offers must alternate between the players. At his turn, a bargainer’s
offer cannot get any worse (buyer offers cannot fall nor seller demands rise
over time). However, the bargainer is free to repeat his or her previous offer
(i.e. make no concession).
Your profit from any agreement is the difference between the price you
receive and your walk-away price. Example: if you sell the house and 14 acres
for $119,000, your profit is 119,000 – 107,000 = $12,000. (Remember, you
can’t settle for less than your walk-away price!) If you fail to reach an
agreement, your profit is zero.
Selling a Maine House
After reading these instructions, you will participate in a negotiation
exercise involving two parties, a seller (you) and a potential buyer (your
bargaining partner sitting next to you). The description of the bargaining setting
and information about your role as seller are outlined below.
In recent months you have thought about and finally decided to sell your
summer house, a rambling isolated “cottage” on a bluff overlooking a river and
gorge in Maine. You live in a Boston suburb, are sixty-five (in good health) and
widowed since your spouse died two years ago. Though you have owned the
house for twenty-four years and vacationed there weekends and for three
weeks each summer, you have not been there for two years. Your three grown
children agree with you that it is time to sell. Though they have some
sentimental attachments, no child wishes to retain the house. At your time of
life, you could also use the sale proceeds for retirement.
The shingled cottage is in the Cape Cod-style but is equal to the size of
two Capes. The first floor has kitchen, bathroom, storage room, small dining
room, and an impressive, 40-foot living/family room with a fine view of the
river below. The second floor has three normal bedrooms and one “dormitory
size” bedroom over the living room, with no bathroom. A good euphemism for
the cottage is “rustic”; the carpentry, appointments, kitchen appliances,
plumbing and electrical systems all date from forty-five years ago. There are
two first floor fireplaces, one on the second floor, but no central heat. The
cottage is located six miles from the nearest (small) town, and the final turnoff
consists of 1.5 miles of unpaved road. There is one, poor quality, year-round
house at the junction of the dirt road and highway. Besides the house, you own
17 acres of surrounding land, wooded except for two acres of lawn around the
house. The lawn and former flower gardens have been untended for two years.
Two weeks ago, you telephoned the Wilsons, a New York couple, who
are interested in buying the house. Three years ago, the couple visited the
cottage as a guest of your son (who went to college with them). At the time, the
wife had seemed very taken with the cottage and had taken a full tour of it and
the grounds. In passing, she asked that you let them know if you ever
decided to sell the house because they would be interested in buying. From
your recent conversation, they still seem to be seriously interested. Tomorrow
(Memorial Day weekend), you and they are meeting at the house to explore the
terms of a possible sale. As yet neither side has even mentioned a price; both
sides prefer to discuss and negotiate in person. You are aware that the husband
has had extensive negotiating experience in his former job as an industrial
purchaser. You pride yourself on being an experienced “Yankee Trader” and are
comfortable negotiating.
Over the phone, you and the Wilsons agreed to be prepared to discuss
two sale options: (1) sale of the house and all 17 acres, or (2) sale of the house
and 14 acres allowing you to retain 3 acres (separated by a small knoll from the
house). Psychologically, the second option is appealing. You wouldn’t sever all
immediate connection with your beloved vacation spot, and the land might be
passed on to a child or grandchild after your death.
Prior to the negotiations, you have done two important bits of
homework. First, you have explored with the local real estate agent (an old
Maine friend) the prospects of selling the house locally. Though he predicts a
good year for sales in this part of Maine, his expert opinion is that the cottage,
because of its condition and isolation, will be difficult to sell. If he were to list
it, he thinks that the house and surrounding land intact could be sold (sometime
during the upcoming season, possibly late) for a price in the $105,000 to
$135,000 range. Excluding the neighboring three-acre section from the sale, he
says, would reduce the attractiveness of the house, resulting in a significantly
lower price. Based on this conversation, you have decided to adopt $73,000 as
your walk-away (or minimally acceptable) price for a complete land and house
sale. (This figure accounts for the deduction of a 6% broker’s fee.) That is, you
will never sell the house and all 17 acres for a price below $120,000. Of
course, you hope to get as high a price as possible – one in excess of this
amount. You figure that retaining the 3 acres has a value of $35,000 to you.
That is, you would be willing to sell the house and 14 acres (retaining 3
acres) for as little as $85,000.
Second, you have tried to imagine how much the Wilsons might be
willing to pay for the house and land. You realize that this may depend as much
on the Wilsons themselves as on the quality of the house. You know very little
and would like to know much more about the couple. On a note pad,
you have listed the following, possibly pertinent facts: (1) They have three
children and rented a cottage on a nearby lake for the past five summers. (2)
The couple appears to be wealthy; he has a good job, she works part-time. New
Yorkers earn a great deal. But do they also spend a great deal? (3) Question:
What makes the house attractive to the couple: the fireplaces? The view?
Winter skiing nearby? Your best guess concerning the Wilsons’ monetary value
(the most they are willing to pay) for the house and 17 acres is that it ranges
between $100,000 and $160,000, with all values in between equally likely.
You will have 15 minutes to negotiate possible sale terms with your
bargaining partner representing the Wilsons. Negotiations are conducted by
offers and counteroffers. You may accept the other side’s offer at any time and
this ends the negotiations. Either side can make the first price offer. The main
bargaining ground rules are:
1) You may not show this information sheet (particularly, your
walk-away price) to your partner. However, you and your partner are free to
discuss and argue about agreement terms. You may make broad statements
such as, “I can’t go any lower” or “I can’t afford to accept that price.”
2) Offers must alternate between the players. At his turn, a bargainer’s
offer cannot get any worse (buyer offers cannot fall nor seller demands rise
over time). However, the bargainer is free to repeat his or her previous offer
(i.e. make no concession).
Your profit from any agreement is the difference between the price you
receive and your walk-away price. Example: if you sell the house and 14 acres
for $97,000, your profit is 97,000 – 85,000 = $12,000. (Remember, you can’t
settle for less than your walk-away price!) If you fail to reach an agreement,
your profit is zero.
A Maine House
Data Form
On the data form, please record the sequence of offers as they are made.
Upon completing negotiations fill in the sale terms (how much land was sold
and at what price). If there is no agreement, record a “D” for disagreement.
Also compute your final profit.
Name: ______________________ Role: ________ #: ___
Partner’s Name: _____________________
Fill in the appropriate blank:
Disagreement: ____
OR
Agreement to sell House & 17 acres at a price of ______ thousand dollars.
OR
Agreement to sell House & 14 acres at a price of ______ thousand dollars.
My Profit: _____
Record of Offers: House & 17 acres (Please circle the first offer made.)
Seller ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
Buyer ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
Record of Offers: House & 14 acres (Please circle the first offer made.)
Seller ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
Buyer ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
(You should fill out both records assuming offers for both 17 acres and 14 acres
are made.)
B.