How to Ruin the Negotiation Right from the Start
In this article we tell the story of a couple, Orly and Guy, who came to us for advice after receiving offers from two banks that were completely identical. They wanted to refinance the mortgage on their apartment in Nahariya following a rise in the property's value.
What's the background?
Guy came to us for advice after getting offers from two banks. He was surprised to find that the offers were almost identical — the same interest rates, the same terms, the same account-opening fee.
When we asked him what he had done, it turned out that Guy had made a classic negotiation mistake.
Guy received a written mortgage offer from one bank and went straight to a second bank. He showed them the offer and asked them to improve the interest rates - before the second bank had even given him its own offer!
Where does the mistake come from?
Every bank has its own pricing. The pricing is influenced by many factors:
- Sales targets: each bank is at a different point relative to its targets
- Funding costs: each bank has a different cost to raise the money it lends
- Operational factors: operating costs, risk level and additional parameters
- Client profile: each bank treats the client profile differently
When Guy showed the second bank the first bank's offer, he effectively handed them their competitor's pricing. Instead of putting forward its best offer, the second bank simply nudged its offer to be just "slightly" better than the first.
The result: Guy received two nearly identical offers, instead of two different offers that would have allowed him to conduct a genuine negotiation between them.
What are the lessons for negotiation?
Don't tell or show a bank what offers you have from other banks until it has given you its own offer.
First of all, let each bank put forward its best offer. Only once you have all the offers on the table can you start negotiating and comparing between them.
How to do it correctly?
- Step one: approach several banks at the same time and request offers
- Step two: receive all the offers in writing, without revealing one to another
- Step three: compare the offers and identify the differences
- Step four: go back to the banks with a request for improvement, now with full market knowledge
In this way you will be able to use the competition between the banks to your advantage, instead of letting them coordinate their offers with each other.
Remember: the bank is a business that wants to make a profit. Every piece of information you reveal to it can be used to offer you less than it could have offered.